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Wednesday, August 27, 2008
Two (Resold) Tickets to Paradise

As a NY Jets fan, the start of a new NFL season brings new hope. Hope that this might be the first time that the Jets make it to a Super Bowl in my lifetime, and hope that someone I know (let’s call him, “Fabe Geldman”) does not buy counterfeit tickets outside the stadium. I'll save the Super Bowl discussion and my pain in seeing Chad Pennington in a Dolphins uniform for another time and focus on the ticket issue here.

As first announced back in December 2007, the NFL launched its secondary ticket partnership with Ticketmaster in time for the upcoming NFL season. Through this ticket exchange, fans will be able to buy and sell tickets to all games for the 2008 season. According to an article in USA Today, the NFL and its teams will not limit how much fans can resell their tickets for over the face value of the ticket, and fans will be permitted to resell their tickets through other sites such as StubHub. This continues the evolution of the secondary ticket market in pro sports and the move away from anti-scalping laws. Rather than fight the secondary ticket brokers, the NFL, like MLB last year, has decided to join them.

Why the shift? Well, the most obvious answer is that the NFL and Ticketmaster want a piece of the secondary ticket market pie. Total revenue from tickets sales for the NFL last year was about $1.8 billion, with an average ticket price of just over $67. According to the NFL, 5-10% of those tickets were resold on the secondary ticket market. The NFL obviously wants a piece of that 5-10%, and is essentially looking to sell the same ticket twice (or more). I haven’t seen the financial terms of the deal, but Ticketmaster is (not surprisingly) charging an “authentication and ticketFast fee” for the purchase of tickets through the ticket exchange.

Another factor (though perhaps not quite as powerful as the leagues’ economic interests) may be the recognition that anti-scalping and anti-reselling laws and policies are not very effective or efficient. Anti-scalping laws were originally enacted to limit the resale of tickets to sporting events on the belief that allowing the reselling of tickets would lead to higher prices and an “unfair” distribution of tickets to the wealthy. In an interesting study done by Craig Depken (“Another Look at anti-scalping laws: Theory and Evidence,” 130 Public Choice 55 (2006)), however, evidence showed that the face value of ticket prices for baseball and football games were actually higher in states with anti-scalping laws. And, the prevailing wisdom seems to be that the growth of an easily accessible and free secondary ticket market leads to a more efficient and fair system for customers on at least three levels.

First, secondary markets such as StubHub and the new Tickemaster ticket exchange provide an easy way for ticket holders to sell unwanted tickets. In many cases, this creates a market for tickets at a price lower than face value (and serves a benefit to the original ticket holder who is able to get some money for the ticket).

Second, it protects against the sale of counterfeit tickets.

Third, it allows for a more efficient allocation of tickets (and a correction of the “mispricing” of the original ticket). If Fan A buys a ticket for $60, and Fan B values that ticket at $150, it is a more efficient result for Fan B to pay $150 to Fan A for the ticket than for Fan A to go to the game and for Fan B to spend his/her money elsewhere. Granted, some may vehemently disagree with this definition of efficiency (and with the notion that the NFL and Ticketmaster should get a share of that money), but I think we can all agree that this result is more efficient than Fan B (aka, Fabe Geldman) buying a counterfeit ticket from “Fan” C.

I am curious to see what impact these organized and league-approved secondary ticket markets have on ticket prices—both in the primary and secondary market. The reselling of tickets—either by scalpers, ticket brokers, or formal ticket exchanges—has always provided an opportunity for consumers to get a good deal on a ticket that is in low demand (or that a seller must quickly sell) or for consumers to pay a premium to get access to tickets that are in great demand. Will these new ticket exchanges lead to more good deals and higher premiums than would exist without the exchanges? And, will this correction of the “mispricing” of the original ticket have any impact on the face value of tickets in the coming years?


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