Problems in event ticketing according to HelloSugoi
And it’s not like this is an unknown problem. In fact, it’s a problem that’s received a lot of publicity over the years. There have been numerous articles, podcasts, and white papers written on the subject.
This article is no exception, but rather an explanation that relates to the solution we’re currently developing (to be outlined in subsequent articles).
The HelloSugoi problem thesis:
Events are expensive operations. As a result, event organizers establish costly subsidies and artificial deals to maximize revenue and minimize risk, ultimately hurting the entire event financing process
So, what do event organizers do?
- Under-price tickets in the primary market. Lack of transparent price discovery data makes it difficult for event organizers to accurately price tickets. Additionally, artists often under-price tickets in an attempt to avoid appearing greedy by their fans.
- Restrict ticket allocations in the primary market. As much as 90% of a venue’s inventory is withheld from the primary market sale. Much of it is “pre-reserved” for VIPs, friends and family, corporate sponsors, or sold to brokers, promoters, and artists. This drives up the price in the secondary market, where event organizers sell the remainder of their ticket inventory.
- Bots further restrict ticket allocations in the primary market. Unauthorized scalpers program bots to buy large a number of tickets during the primary market sale, preventing purchases by consumers. As expected, limiting supply in the primary market inflates prices in the secondary market. Despite attempts to criminalize the use of bots (e.g, BOTS Act of 2016), legislation is unlikely to solve this problem given the ease with which programmers can circumvent technical roadblocks.
- Negotiate sideline deals with resellers. A percentage of withheld tickets are often sold directly to authorized resellers (brokers and scalpers) in sideline deals. Through these deals, brokers and scalpers extract rent for mitigating financial risk. Sideline deals enable event organizers to collect additional revenue, but at the expense of consumers.
In summary, these processes result in a “Vicious Cycle.” Event organizers allocate a limited number of tickets in the primary market at artificially low prices. Brokers and scalpers receive sideline allocations and extract arbitrage for mitigating the financial risk associated with financing events.
These actions result in a give rise to sizable secondary market (estimated at $10 billion USD), where:
- Scalpers perpetrate fraud. Up to 20% of tickets listed on secondary market platforms are fraudulent. Fraudulent resellers buy tickets in the primary market, and then list them for sale on multiple secondary market platforms, like StubHub, Craigslist, and Facebook simultaneously. When a ticket is sold on one secondary market platform, the reseller fails to remove that same ticket from the other platforms. Whether intentional or not, the same ticket ends up being sold to multiple parties.
- Ticket prices become unaffordable for price-sensitive consumers. Not only are consumers charged between 25% to 50% on top of face value in the primary market, the average markup on tickets offered for sale on the secondary market is 49% above face value, though the margins sometimes exceeded 1,000%.
BUT, while the secondary market has many challenges, opponents mistakenly conclude that these issues are the fault of brokers and scalpers.
Wait, what?! Hold on a minute. Are you saying that the secondary market is… good?! No. What we’re saying is:
The secondary market isn’t “bad,” it’s inefficient.
As discussed, secondary market challenges arise from a number of factors: inefficiencies between supply and demand, lack of critical visibility into true ticket pricing, and market frictions that make it difficult for event organizers to manage the entire event life-cycle holistically.
And while the dynamics of the secondary market typically lead to consumers paying higher prices, these prices often reflect the realities of supply and demand in an inefficient market. A portion of consumers are willing to pay higher prices to obtain the tickets they want, when they want them, without waiting in line or competing to be among the first to buy in the primary market. Although demand from this subset of consumers is met under the current market structure, the imbalance between the primary and secondary market ticket allocations results in substantial revenue remaining uncollected for event organizers. The existing secondary market structure allows event organizers to mitigate an amount of risk, but only through a limited and often painful process.
The “Vicious Cycle” within event ticketing forces event organizers to establish costly subsidies and sideline deals to recoup revenue. Misaligned incentives between parties are created, often leading to lost revenue, failed or unprofitable events, and/or consumers facing prohibitively high ticket prices.