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Alan Cross: How does the secondary market for concert tickets work?

Alan Cross: How does the secondary market for concert tickets work?
From Global News - January 28, 2018

* This is Part 3 of a three-part column.

Theres no such thing as a sold-out show. You can always find tickets if you know where to look, and if youre willing to pay the price.

While the world buys up an estimated US$30 billion in concert tickets annually (we call this the primary market), the secondary market (where tickets purchased at face value can be found at markups many multiples of their original price) is worth at least US$8 billion globally. That means theres a lot of scalping going on, ranging from big companies like StubHub to small-time players shouting Who wants tickets? outside a venue.

Here are five things that help explain whats going on:

READ MORE: Why is it so hard to buy concert tickets? Its complicated

1. Lets start at the very beginning. How are concert tickets priced in the first place?

Finding the right face value for a concert ticket is a tricky thing involving all manner of economic projections and guesswork. It goes something like this.

Ticketmaster (and well use it because the company is the biggest seller of concert tickets in the known universe) signs deals with venues for selling tickets to their shows. This makes it the vendor and the venue the client.

The manager of an artist will then negotiate with a promoter about how much his or her act wants to make for a show. Part of those negotiations include the costs and potential profits associated with each venue on the tour. What is the seat inventory? What kind of demand will there be for that supply? What is the maximum potential box office gross for each date? Thats ultimately the bottom line of this exercise.

The promoter crunches numbers to determine how many tickets need to be sold at what price for the promoter to turn a profit. All manner of data is considered along with a healthy mix of voodoo and guesstimates. Anywhere from 30 to 50 per cent of the price of a ticket goes to covering the costs of the show. (Live Nation is exceedingly good at this, which is why theyre the biggest promotion company in the world.) Of the remainder, around 85 per cent goes to the performer and 15 per cent to the promoter.

READ MORE: Squinting to peek through that opaque box office window

The artist will then get an advance from the promoter to cover startup costs for the tour, which includes everything from designing the stage to hiring roadies to drive the trucks.

Ticketmaster is given information about ticket prices and on-sale dates.When it begins selling tickets, Ticketmaster adds service fees to cover its costs. A venue fee may also be added so that the building where the show is taking place is compensated for its costs, too. These fees vary from city to city, but they can add anywhere from 20 to 100 per cent to the final cost off a ticket.

This leads to an important under-reported function of Ticketmaster. Although ithas nothing to do with setting the price of the concert ticket, it gets the blame for gouging fans. This is actually part of the deal. Ticketmaster acts as a deflector of criticism away from the act. It gets the majority of the blame for all the fees but actually gets a minority percentage of the cash collected. Fans get angry at Ticketmaster and not the act.

2. How do so many tickets end up on the secondary market?

The previous chapter in this series explains how bots work. These software programs are able to buy up vast numbers of tickets within seconds of them going on sale. Bot operators then offload their purchases to ticket brokers both big and small. A story broke last fall about a Quebec man who made millions through a frequent sellers program set up by StubHub.

But its not just big-time operators. The secondary market also serves as an insurance policy for everyday people. These days, tickets for a hot concert may go on sale up to a year in advance. You might buy, say, four tickets for that show. But when the appointed day approaches, you find yourself unable to use one or all of them because life has thrown up a roadblock. Rather than eat the cost of the tickets, why not put them up for sale? Just remember, though, that the professional resellers have way better data than you when it comes to pricing and timing.

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