The Cost of Fandom

By Chris Le

 

The price of being a dedicated fan is usually understood; you stick with your favorite artist, hobby, team, or band through the good and bad times. What many die-hard fans are less critical towards ticket prices of attendance for that next big event. These days, it has become more and more difficult to find tickets, let alone buy them at a reasonable price without camping overnight in a line somewhere around downtown Manhattan. What causes this spike in price? The major reason is attributed to the ticket market constantly waging an intense war for profit, and investors make use of a tool called arbitrage in an attempt to maximize their profit. Arbitrage is the act of buying an item and selling at a higher price to profit from the difference; the price disparity between primary and secondary sellers creates the opportunity for it. This is possible because the sales of admission tickets are limited from the original organizer of the event. The basic strategy is to buy the tickets in bulk to constrict supply, forcing whoever did not buy tickets in the initial wave of sales to buy above the face value. After the tickets from the organizers are exhausted, the tickets enter into a secondary market where the majority of transactions and arbitrage opportunities lie. From coaches to corporate sponsors, many participants in the NFL have a stake in ticket sales. The buyers and sellers engage in a pricing war over a limited supply of tickets, with the market resale value inevitably rising as the date of an event draws closer. When the arbitrageur sees a sizeable profit from his investment into the ticket, he will cash out. In response to a 2014 lawsuit against the NFL for violation of New Jersey consumer fraud laws, 35% go to the two participating teams, 1.2% to each of the remaining 28 teams for a total of 33.6%, 6.2% for the host teams, and finally 25.2% reserved for corporate sponsors and media partners. All in all, less than a tenth of the tickets available can be bought by fans at face value, through random drawing.

Fans understand this as ticket resale, more commonly known as ticket scalping, which often contributes to higher prices and greater difficulty of… when searching for tickets to an event. Initially, tickets did not exchange hands often. Traditional ticket resale only occurred on a local level where deals were struck in person.  With the advent of ticket sales making their way into the digital realm of distribution through sites such as Ticketmaster and Stubhub, we enter a new playing field, as structured secondary markets supporting ticket resale emerge. The surfacing of the internet as a popular vehicle for

(mass distribution) provides a reason for increased ticket prices and the act of arbitrage. Arbitrage carries risks like all other investments,  where cost is the face value of the ticket and returns will not be gained until the resale of the ticket, if at all. The risk in arbitrage lies in the time period between buying the item at a low price and reselling it at a higher price. Prior to the creation of sites for resellers, the risk in scalping tickets was inefficiently high, because the act of ticket resale was on a strictly short-term basis.  For the holder of the ticket, once the date for an event was reached, the ticket value was reduced to nothing. In a physical market there is a delay between matching buyers and sellers, therefore sellers are able to use the fact that tickets have a time-limited value to negotiate with the seller for a better deal. The appearance of sites such as Stubhub create a system to optimize the matching of buyers and sellers, consequently pumping liquidity into the market to provide a wider pool of willing buyers. Furthermore, the popularity of the sites themselves drastically increase the demand in secondary markets by attracting more potential customers who can not acquire tickets otherwise. With the loss of time constraint as a bargaining tool, this puts an upward pressure on price as sellers dominate the market.

According to the Fan Cost Index, calculated by a weighted average of season ticket prices for general seating, the average price of American football ticket prices from licensed sellers saw an average price increase of 3% annually from the span of 2010 to 2014. Price increases nearly doubled the rate of inflation in the US at an annual rise of 1.7% in the same timeframe.  This relatively steady increase in price is expected and can be used as a baseline to look at other pricings, particularly in the NFL<->. The National Football League regular season games span the course of early September to January, for 256 total games. With the supply of regular season events so high, arbitrage is less profitable. The main issue stems from annual events, both sporting and non-sporting, where the demand for seating or attendance greatly exceeds the fixed amount of seats a particular venue can provide. Relative to the average pricing of general seating during the season, the face value of Super Bowl 49 tickets, averaged nearly 5 times the price of regular season tickets. After scalpers got their hands on these tickets, prices spiked to an astonishing average price of $3715 and high of $10,804 as reported by TiqIQ.com.

With all this considered, what can first party sellers do to combat ticket scalping? Currently the ticket industry has very little regulation, forcing organizers to take matters into their own hand. The main prevention tool is limiting the amount of tickets that may be bought in person. Restricting tickets per person prevents buying tickets in bulk and stifling initial supply from the organizer. Other methods lie in the realm of digital distribution where pre-registration for tickets is becoming more common. Security measures, such as requiring verification for ticket selling, prevent short selling by ticket brokers. Stubhub has often run into issues with shorting tickets, leaving many unassigned seats and ticket orders floating in the market from inability to complete transactions at prices promised. All in all, it is looking as if heavier regulation in the ticket industry is becoming a necessity. For die-hard NFL fans out there, Super Bowl 50 is right around the corner, so get your camping equipment ready.



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Christopher Le is a mathematics and economics double major at Pace University. He is an active member of the Rotary Club of Wall Street and other non-profit organizations. As a young entrepreneur, Chris is always on the lookout for the next business opportunity and is glad to share his experiences with readers. While he is not at work, he volunteers with Habitat for Humanity NYC."

Christopher Le is a mathematics and economics double major at Pace University. He is an active member of the Rotary Club of Wall Street and other non-profit organizations. As a young entrepreneur, Chris is always on the lookout for the next business opportunity and is glad to share his experiences with readers. While he is not at work, he volunteers with Habitat for Humanity NYC."


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