Guest Commentary: Do Profits Drive the Secondary Market? Guest Commentary: Do Profits Drive the Secondary Market?
Event ticketing can be an emotional subject for many fans who are willing to pay huge premiums to see their favorite sports teams or... Guest Commentary: Do Profits Drive the Secondary Market?

Event ticketing can be an emotional subject for many fans who are willing to pay huge premiums to see their favorite sports teams or music artists. Tremendous growth in the secondary ticket market has occurred in recent years and although many consumers might think it is due to scalpers or unlicensed brokers exploiting advances in technology to extract the highest possible prices for their tickets, this is not true. Much of the growth in the secondary ticket market is driven by promoters of events seeking to segregate their markets and maximize income.

The Good Old Days

Before the advance of technology, event ticketing was simple. Venues and their promoters would print tickets in advance for an event and sell them through official outlets. Mail and telephone orders came along next, but this did not lead to the creation of a secondary ticket market other than a small trade of unwanted tickets and those successfully acquired by the scalpers. The internet changed the ticket industry with real time systems which made it possible to pick seats online, in person, and over the phone. The potential market for an event is now much larger because through online advertising and social media, it is easier for promoters to get their message across to the public. In the old days, tickets were sold and the initial stock dwindled as the sales mounted. Pre-printing in advance for an event increased the risk of fraud but thanks to advances in technology tickets now feature sequential numbering and security strips which mitigate any risk of fraud. Customers can now print their own event tickets in a similar way to airline or rail tickets, and this method’s use of bar coding technology provides additional security benefits.

The Drive For Change

Many promoters realized that their margins had become so narrow that innovation was required in the ticket industry to increase profitability. Advances in technology meant that it was possible to create a segregated market that enabled some seats or event spaces to be sold for premium prices, such as tickets that offer a greater fan experience like front row seats or post event meet and greets with the artist. Further market segregation is possible through the secondary market which charges a price based on the ticket’s market value to buyers who were unsuccessful in securing a ticket in the first round of sales. While this market may have existed previously through a disparate group of scalpers boosted by individuals who were unable to attend an event, it is now driven by the promoters themselves who actually hold back tickets which will enter into the secondary market.

Ticket Brokers

Unthinkable a few years ago, each state now has licensed ticket brokers who are authorized to resell tickets. A small group of brokers formed the National Association of Ticket Brokers (NATB) in 1994, and the group now has over two hundred companies across America listed as members. The group encourages members to adopt best practice when reselling tickets and provides consumers with confidence that any tickets purchased through a member company will be genuine and that the vendor is a reputable source. Ticket brokers are successful because there are enough people willing to pay a premium for a specific event ticket. If brokers sell more than one third of their ticket allocation at treble the face value then they will make a profit. Ticket brokers offer a valuable service because they enable fans to attend events that they might find difficult to access and offer promoters a means of increasing revenue by creating a new market segment. As it is a relatively new concept, it is hard for some ticket buyers to accept. In the motor industry, it was initially hard to convince motorists of the merits of gap insurance because it was a new product and not all car buyers understood the concept of guaranteed asset protection. The secondary ticket market has exploded in recent years and tickets sold in this market account for approximately one fifth of all gross ticket revenues.

Future Trends

It is hard to see a change in the direction of the ticket industry in the near future. Primary markets continue to be dominated by major companies, such as Ticketmaster, that have been able to create their own niche by linking with venues and forcing all ticket sales to be conducted by just one company. The secondary market will continue to grow as more people realize that it is not dominated by fraudulent companies and the existence of a body promoting ethics and good governance ensures that consumer confidence is a priority. The secondary market is likely to thrive in the coming years and promoters will continue with their attempts to boost primary sales but they have a strong partner in the NATB members that are looking for tickets to sell to a wider audience.