Sunday, November 12, 2006

Ticket Touts as a positive influence on society

I asked for arguments against ticket touting on this post and received some good responses - including arguments I hadn't heard before.

Firstly, let's dismiss one absurd argument:

The argument that motivated me to talk about this topic was a truly malign comment I heard on XFM last week. The DJ was referring to the fact that tickets for their "Winter Wonderland" event had sold out and were available on eBay at "inflated" prices. Because some of the ticket price goes to charity, the DJ claimed that these touts were "stealing" money from the charity.

That statement, clearly, is a vicious lie: it matters not one jot who buys the ticket; the donation is paid from the initial ticket price and would be made whether the purchaser was a "tout" or a "fan" (whatever those terms mean).

However, there are some better arguments.

Jon writes:

"if touts didn't bulk-buy tickets in the first place, they wouldn't sell out so quickly in the first place and normal human beings could buy tickets for reasonable prices instead. I.E., the market for touts is created by the touts."

This is really an argument that we shouldn't allocate on price but should allocate based on people's willingness to queue in line for a ticket.  In cases where more people want tickets than there are tickets available, it's the same as saying that those who can't get in the queue at the right time or jump through some other hoop will have to do without.

In other words, it's an argument that says that they way you demonstrate your desire for a ticket is by being willing to give up lots of time or incur inconvenience rather than by the more usual method of paying more for it. I'm not sure the lesson of history is that scarcity, queues and rationing is a desirable goal.

trp (Is that you, Tim?) makes several arguments.

His first is that touts don't pay tax or otherwise act as good businessmen. I think that argument can be dismissed out of hand as irrelevant. If somebody fails to pay tax or breaks the law, they're being naughty regardless of the line of business they're in.  If, on the other hand, they are forced to run their businesses because of the questionable legitimacy of their enterprises then we're getting into a dangerously circular argument.

trp's next good point is one about consumer protection: you pay market price to a tout but any rights you have (e.g. to a refund if the concert is cancelled) are restricted to face value.

It's a good point but I think there are two good counter-arguments

Firstly, this is an argument for promoters to start pricing more realistically (i.e. by underpricing and hence incenting the activities of touts, they are exposing their ultimate customers to uncertainty and risk)

Secondly, as a purchaser, you know this is the case when you purchase the ticket and so should take it into account when considering how much to pay. (i.e. the small but non-zero risk of losing the difference between market- and face- value should influence how much you're willing to spend)

trp then goes on to make another good point.

To understand it, you must first endure one of my pro-touts arguments.  My claim is that touts provide a valuable service to promoters by buying tickets early and in bulk. The latter service lowers transaction costs and the former lowers the risk for promoters (the risk of selling huge swathes of tickets has been transferred from the promoter to the touts).

trp's point is that this transfer of risk results in the problem that information is lost: the promoter doesn't know how many tickets have been sold to people genuinely intending to come (and hence intending to spend money on drinks and merchandise).

I think this problem is easy to dismiss: the market price for tickets could very easily be used to infer how many tickets have ultimately been sold.

Finally, trp closes the loop and raises the "problem" of social engineering. Often, promoters want to exercise control over who attends their event: perhaps they only want "home" supporters in one stand and "away" supporters in another. Alternatively, perhaps the BBC wants to ensure only "poor" people attend a screening of a new show.

In the first case, I agree that public safety may be a valid reason in some cases for restricting the secondary market. However, I think the problems are overplayed and are actually a smokescreen for those who want to benefit from preventing tickets selling for their true value.

The second case has no merit whatsoever (in my very humble opinion). Polly has the best rebuttal to it.

She says:

"Sometimes a benevolent impressario, such as the BBC, puts on a show with a limited audience and it hopes to give the most deserving in society the opportunity to benefit. It feels resentful when the most deserving in society decide that they prefer money to the well-intentioned show, and sell the tickets to those who are less deserving, but value the show more. In a sense the impressario feels that it still owns the tickets, though they have been given away freely."

In other words, if you claim to know better than somebody else what is good for them then you deserve what you get. Paternalism is a nasty little habit and I resent any attempt to tell "the poor" or any other group of society what they can or cannot do with their life or their assets.

 

At its heart, the overall "touting" issue is this: promoters often deliberately underprice tickets for their events.

Their reasons are multiple:

  • They may not know the demand in advance and don't want unsold tickets on their hands
  • They may want to sell the tickets at a price the "fans" can afford
  • They may want to attract certain kinds of attendees (e.g. students) to create the right atmostphere
  • They may want to subsidise the ticket price to leave attendees with enough cash to spend on other items inside the vanue

The first is a good reason for touts (they allow the true value to be discovered at minimal risk to the promoter)

The second is an unrealistic intention: if somebody is selling something for less than it is truly worth, there is an irresistable pressure for somebody to step in and capture the difference between the true- and face- value for themselves.

The third point (desire to attract "students" or whatever) is also a good one... some bands would be aghast if their audience turned out to be hundreds of middle-aged couples rather than skinny indie kids with bad hair. However, there are other ways to ensure a majority of attendees are of a certain type: ensure facilities or other ancillary aspects of the experience are relatively less attractive to those you don't want to come

Finally, the fourth point could be resolved by including "drinks vouchers" or something of that sort with a more-expensively priced ticket.

 

So, there we have it. trp has given me pause for thought and it took me longer than I expected to rebut Jon's point (not sure I've done it justice yet) but I still think I'm on the right side of the argument :-p

9 comments:

Anonymous said...

Hi Richard,

First of all, yes, trp is me :) - there seem to be so many other Tim's around and about, I thought it easier to hide behind my initials (although feel free to call me whatever you want).

Hopefully what follows makes sense - apologies for another long post.

First, may I point out that you have subtley changed the question. Your earlier post was asking,

"Why do we regard ticket 'touts' as evil?"

This has now become,

"Are ticket touts a positive influence on society?"

You say,

"His [i.e. my] first is that touts don't pay tax or otherwise act as good businessmen.

I think that argument can be dismissed out of hand as irrelevant. If somebody fails to pay tax or breaks the law, they're being naughty regardless of the line of business they're in."


Seems relevant to your original question - people do regard touts as bad (I think evil might be a little bit over the top) because as a profession, they currently seem not as accountable as other professions. If they ran their business in a different way, I would suggest that this would be less of the case.

I think I may agree with you that this reasoning is not relevant to the second question as to whether ticket touts are a positive influence on society, although admittedly, I couldn't quite understand what you mean by,

"If, on the other hand, they are
forced to run their businesses because of the questionable legitimacy of their enterprises then we're getting into a dangerously circular argument."


I accept your second point about consumer protection (I shall return to the issue of 'underpricing' later): a consumer buying from a tout should take into account the risk that they might lose the difference between market price and face value. I shall now pose two further hypothetical questions:

Is it a good thing that society allows this risk to exist?

What protection is there in place to the consumer that he isn't sold a fake ticket?

An answer to the second question could be, perhaps, "The consumer bears the risk" (but then, won't this just encourage forgers?), or even, "the profession should be regulated (by the FSA!?)".

It seems to me that at the moment legislation is moving towards a more consumer protection orientated society. Would this therefore go counter to current policy? [as a related aside, I would be interested to read your opinions on the role of the banks and current Government investigation into the Farepak collapse].

You also claim,

"touts provide a valuable service to promoters by buying tickets early and in bulk.

The latter service lowers transaction costs..."


well, not from a consumer's point of view. There are now two transactions involved and so, overall, transaction costs are higher in purchasing the ticket.

"... and the former lowers the risk for promoters"

Agreed - it just moves the risk elsewhere. Aren't, though, we effectively creating a layer of 'middle-management'.

".. the problem that information is lost: the promoter doesn't know how many tickets have been sold to people genuinely intending to come (and hence intending to spend money on drinks and merchandise). I think this problem is easy to dismiss: the market price for tickets could very easily be used to infer how many tickets have ultimately been sold"

Agreed. There may be a loss of personal information (i.e. split of attendees by age et cetera) which may influence at-venue spending patterns.

"Finally, trp closes the loop and raises the 'problem' of social engineering." ... "[this argument] has no merit whatsoever (in my very humble opinion)."

But is it not the case that there are commercial reasons for offering heavily discounted tickets (irrespective of subsidies) - let's say I make an item that is addictive; surely I would be willing to practically give it away to a new customer if I knew it would gain me future custom. Wasn't (from the theatres' points of view) the whole point of the 'cheap' tickets for ballet/opera to increase the number of attendees in the future? Allowing touts to buy these up and sell them on at market value surely would deprive the theatres of a legitimate marketing tool.

"At its heart, the overall 'touting' issue is this: promoters often deliberately underprice tickets for their events.

Their reasons are multiple:

1. They may not know the demand in advance and don't want unsold tickets on their hands

2. They may want to sell the tickets at a price the "fans" can afford

3. They may want to attract certain kinds of attendees (e.g. students) to create the right atmostphere

4. They may want to subsidise the ticket price to leave attendees with enough cash to spend on other items inside the venue."


OK, let's tackle each of these in turn (I've added numbers for convenience).

1. Agreed. We could, however, go down the road of 'reactionary pricing' (to coin a phrase), the promoter increases/decreases price dependent on demand - yes, it increases the risk, but aren't most promoters nowadays independent from the venue anyway.

2. You are possibly forgetting one thing here. It may be in the best interests of the promoter to sell at a lower price to a "fan" - consider the following:

A young fan of a particular football club / band cannot afford to go to see the band. They therefore do two things:

(a) Go somewhere else. In the future, they are older and richer and so the first club / band have lost out over the long term; and

(b) They speak to all their friends in the playground and spread the word that this club / band are a waste of time.

In short, negative goodwill has arisen.

3. Valid point, although there may be practical problems. Back to sporting clubs. It could be argued that it is in their own interest to sell as many tickets to their own fans as possible (on the basis that when a club's fans get behind their team, they are likely to perform better and hence produce better results, earning the club more money). How do prevent touts from selling to the 'wrong' side?

4. The problem is that not everyone would have the same additional requirements. If you go to any event, I am sure that some people will always buy a programme and so they wouldn't object to the price of a programme being included in the ticket price - Others would never. You lose flexibility.

Finally, as to whether touts create their own market. I would ask,

"Is there the danger of an oligopoly of touts arising, and, if so, are there sufficient safeguards for the consumer?"

I do not dispute that you could ask the same question about promoters in general, although, it could be argued that you might get a different answer.

I rest the case for the defence, m'lud.

trp

Richard Brown said...

Thanks Tim.... will try to do your response justice some time tomorrow!

Mark said...

The only reason touts exist is that promoters are too dumb to work out how to extract maximum revenue from an event. I have a very naive view of the whole touting phenomenon - is to be deplored simply and for no other reason than that it makes the whole process of getting tickets to an event into a pain in the butt.

More times than I care to remember I've known well in advance about an event I wanted to go to, I've known when and where tickets would go on sale, and I've been poised and ready to buy, only to be unable to complete the transaction because the phone lines were swamped, or the server was not responding or similar. Then 30 minutes later when the gig is sold out, the tickets show up on eBay at some absurd multiple of the face value.

From the promoter's perspective it must be annoying (to say the least) to realize that one could have charged more, perhaps much more, for the tickets than one did, and that others are growing rich off one's efforts and risk at relatively much less effort and risk to themselves. Some events are just obviously going to be over-subscribed at almost any price, whereas there will be others that are much more iffy and setting a price will be a tricky balancing act.

If I was a promoter, I'd want to commission a ticketing system that would allow me to reap the maximum revenue from ticket sales, and to exclude touts, while permitting me at my discretion to use bona-fide registered third-party resellers such as TicketMaster. I would want my tickets to be individualised and non-transferrable, and I would offer a money-back guarantee in the event that a ticket-holder no longer wanted to use his tickets. I imagine I would also want to be able to limit the number of tickets any individual could purchase.

I'd probably want some kind of pre-registration system on which I would publish a likely price range for upcoming event tickets. Potential customers could then indicate an interest in these events, and state an upper price theshold - e.g. I offer to buy up to 2 tickets for this event at a maximum of £50 each, or 4 tickets at £35 etc. Initially this would be an indication of interest only and the published guide price would reflect the level of interest being expressed in the event.

Then at some suitable time I would release time-limited offers to those who had registered - e.g. you Mr E, can buy up to 6 tickets for £40 each, if you complete the transaction by this deadline. At this point the customer would have to provide their payment and nominate a means of identification which would be verified at the venue. Something like a passport or driving license number, or maybe the credit card with which the tickets are purchased. (Yeah, I know that's going to be a hassle on the door, but I think I can cope with it.)

My system would be transparent, fair, stress-free, and most important it would net me an optimum income. What's not to like about it?

Andrew Ferrier said...

In case you hadn't heard, this week's Econtalk touches on a few of these touting topics in the Q&A at the end:

http://www.econtalk.org/archives/2006/11/peltzman_on_reg.html

Richard Brown said...

Hi Tim,

Thanks for the detailed response. Comments (to selected points!) in line. I’ve edited your points for brevity (and maybe to subtly change your points if it suits me :-p )

Your comments in bold, anything you've quoted in bold italic and my answers in plain text.


people do regard touts as bad because as a profession, they currently seem not as accountable as other professions. If they ran their business in a different way, I would suggest that this would be less of the case.

I’m not sure it’s possible to separate how touts currently run their businesses from the environment in which they find themselves. It’s like saying we shouldn’t legalise drugs because drug dealers are such nasty people.



Is it a good thing that society allows this risk [the risk that refunds may not be fully available] to exist?
To my mind, yes. If I voluntarily enter into a trade with somebody, it is no business of the state (or anybody else) that I may be incurring some risk to myself.

What protection is there in place to the consumer that he isn't sold a fake ticket?
This is an argument for legitimising touting and making it more mainstream. Is the possibility of fakes not analogous to the possibility of “bad” drugs?

An answer to the second question could be, perhaps, "The consumer bears the risk" (but then, won't this just encourage forgers?), or even, "the profession should be regulated (by the FSA!?)".
A third, and I would argue correct, answer is that if touting was encouraged (or at least openly tolerated), we would see the same effect as in all other industries: anonymous sole traders would be displaced by more efficient companies and these companies would 1) seek to ensure a quality product for the sake of their own brand and 2) could easily be sued. No need for regulation.

It seems to me that at the moment legislation is moving towards a more consumer protection orientated society. Agreed. And it sucks!

[as a related aside, I would be interested to read your opinions on the role of the banks and current Government investigation into the Farepak collapse].
The Farepak collapse is truly sad. Those who saved with them were doing everything “right” and they didn’t deserve this treatment. However, who is to blame and what is to be done? The difficulty I have here is that it really does seem that those who lost out were under a terrible misapprehension: they (implicitly) believed that their “savings” were as safe as they would have been were they in a bank. Now that it is known to everybody that this is not the case, we have two options: do nothing (people now know the risks) or “fix” the problem (regulate them). Regulation is almost always a bad thing – it causes more problems than it solves. So my preference would be for the users of such services to take note of the risk of these schemes and demand compensating value from the providers (e.g. by choosing providers that include an insurance policy, perhaps? Providers that hold monies in escrow?) i.e. there are lots of options other than regulation




But is it not the case that there are commercial reasons for offering heavily discounted tickets (irrespective of subsidies) - let's say I make an item that is addictive; surely I would be willing to practically give it away to a new customer if I knew it would gain me future custom. Wasn't (from the theatres' points of view) the whole point of the 'cheap' tickets for ballet/opera to increase the number of attendees in the future? Allowing touts to buy these up and sell them on at market value surely would deprive the theatres of a legitimate marketing tool.

Ahhh….. now we’re getting somewhere. This, I guess, is a manifestation of price-discrimination (I think). As supermarkets have discovered, it is difficult to target discounts at some customers without attracting other customers (who you would rather paid far more).
The solution they came up with wasn’t to appeal to (questionable) morals, attempt to change the law and act in a generally disreputable way. Instead, they got creative, innovative and created some value.
There is no reason why promoters can’t do the same. i.e. by differentiating the product.

[on reasons for touting:]
2. They may want to sell the tickets at a price the "fans" can afford
2. You are possibly forgetting one thing here. It may be in the best interests of the promoter to sell at a lower price to a "fan" - consider the following:

A young fan of a particular football club / band cannot afford to go to see the band. They therefore do two things:

(a) Go somewhere else. In the future, they are older and richer and so the first club / band have lost out over the long term; and

(b) They speak to all their friends in the playground and spread the word that this club / band are a waste of time.

In short, negative goodwill has arisen.

True – but the supermarkets’ answer also applies here: differentiation of the product (e.g. seats suitable only for kids….. tickets with pictures of teddies on them….  )




"Is there the danger of an oligopoly of touts arising, and, if so, are there sufficient safeguards for the consumer?"


Not sure.. possibly…. But is it relevant to the debate in hand?

Tim – many thanks for your reasoned argument.

Richard Brown said...

Mark writes:

More times than I care to remember I've known well in advance about an event I wanted to go to, I've known when and where tickets would go on sale, and I've been poised and ready to buy, only to be unable to complete the transaction because the phone lines were swamped, or the server was not responding or similar. Then 30 minutes later when the gig is sold out, the tickets show up on eBay at some absurd multiple of the face value.

Indeed – as you suggest, the promoter has underpriced their ticket.

You then go on to describe a system that gives a lot more control to the promoter (i.e. the “producer”).


My system would be transparent, fair, stress-free, and most important it would net me an optimum income. What's not to like about it?


The part I don’t like is that you have given power to the producer and taken it away from the consumer. I’m struggling to think of any examples of when that’s ever something to be in favour of!

Richard Brown said...

Andrew - thanks for the link. Yes - I heard that PodCast; every interesting. The thought experiment is one I've heard before (on the previous touting podcast I think) and it's fab

trp said...

Thanks Richard. I think that we might have to disagree on this! - although I know I'm right, and you know you're right ;) Maybe talk about this over a pint at some point - I'm down your way for a few days most months for a while.

trp

Richard Brown said...

Tim, when are you next in London? Would be great to catch up.