Today’s post is about the pricing of tickets for concerts, sporting events, and theatrical shows.  Everyone enjoys a good concert, but how did we arrive at a system that is at once so convenient and so expensive?

As recently as the mid-1970s, another different, but equally complex system existed.  Tony Dokoupil writes about it in his book The Last Pirate which tells the life story of his marijuana dealer father.  His father’s cover for his pot distribution business was working as a delivery driver for a concert ticket distributor.  “In a pre-digital world, you needed an advance man, someone to deliver paper tickets to all the places you could buy concert tickets in those days.  That meant record stores, but also restaurants, bars, clothing stores.  He left home each week with a satchel of tickets and returned with a satchel of cash.”

Back then, the streams of tickets and money were paper.  Today, the tickets and the money are largely electronic, but the same cast of characters was involved:  artists, venues, promoters, ticket distributors, brokers (“scalpers”), and buyers.  Because a lot of the deals are struck behind closed doors, it is not so obvious that a negotiation is going on, yet this is definitely a marketplace.  In this post, we wander around this interesting bazaar.

Parties

If you want a picture of all the parties involved in this multiparty negotiation [1], a good place to look is a figure originally generated by the attorney of the band R.E.M. in 1994 [2].  The occasion for generation of this schematic was a Congressional hearing about ticket pricing for concerts, athletic events, and theater shows [3].  DiscussingTerms has updated the figure and modified it to include flows of cash and tickets:

The figure attempts to lay out the complex relationships between the parties involved in a musical concert.  Cash flows are depicted in green (payments) and red (rebates (aka, “kick-backs”)).  Ticket flows are shown in black.  They include:

• Artist:  Artists such as Bruce Springsteen, Bad Bunny, and Beyoncé maintain contracts with their support staff (business manager, agent, personal manager, attorney, and tour manager).  They contract with other teams exclusively for the tour (personnel, production, transportation, and insurance).  And, they have separate revenue generating operations (merchandise and record distribution) that result in non-ticket cash flows to the artist and, in the cased of record distribution and promotion, involve rebates to the record label.
• Venue:  The auditorium, stadium, or other venue (think Red Rocks Amphitheatre) receives revenue from onsite services (parking, food, etc.), contracted fees from promoter, and rebates from the ticket distributor.  The venue frequently signs an exclusive deal with a promoter and/or a ticket distributor.  With these long-term contracts in place, venues generally have little leeway to negotiate contracts to bring in artists on their own.
• Promoter:  The promoter (think Live Nation) provides support services and insurance for the concert.  Historically, the promoter has fronted money for the event and provided publicity (“promotion”) of the event.  On the diagram, the “promotion” bubble is assigned to the ticket distributor because these distributors do a lot of promotion.  Promotion by the ticket distributor is a kind of rebate (or “kick-back”) from the ticket distributor to the promoter—reducing or eliminating one of the promoter’s expenses.
• Ticket Distributor:  The ticket distributor (think Ticketmaster) is at the center of many of the arrows in the figure.  The distributor makes payment to artist for the artist’s share of gate (green arrow), provides and allocation of tickets to the artist for distribution or sale by artist (black arrow), and gives a rebate to the artist from the fee charged by the distributor (red arrow).  The distributor also gives rebates to the promoter and the venue from the fee charged by the distributor (red arrows).  The distributor sells tickets to the ticket buyers (black arrow) and is paid by the buyers (green arrow).
• Secondary Distributors and Brokers:  Secondary distributors (think StubHub) and brokers are responsible for a vast secondary ticket market that includes tickets from:  1) fans who decide not to go to a show after paying for their tickets, 2) bots and other purchasers who never intended to attend the event, 3) the artists themselves and others who have received allocations of tickets as payment in kind from the ticket distributor.
• Ticket Buyers:  Ticket buyers include a range of types:  working class fans who are spending a big chunk of their entertainment budget, executives who are taking clients out to build a relationship for a business deal, straw purchasers who work on the behalf of brokers, and others.

The Negotiation

As noted above, ticket prices are the result of a multiparty negotiation.  Some features of this negotiation are:

• Volume:  Ticket sales is a huge international business.  Ticketmaster sold 115 million tickets in 2019.  Because of the tremendous volume of ticket sales, even small fees generate huge amounts of revenue.
• Rebates:  Rebates by the ticket distributor are a critical part of the negotiation over ticket prices.  For the venue and the promoter, the rebate from the ticket distributor can be the difference between profit and loss.  Budnick and Baron’s book Ticket Masters has an imaginary dialog that makes this clear [3]:

“So with Ticketron you now have a seventy-five cent service charge.”

“That’s true.”

“If you sign with us, it’s going to be a dollar and a half.”

“That’s terrible. Why would I want to do that?”

“Because you’re going to get a half dollar back.”

“Sounds great to me. Where do I sign?

• Competition:  It is an article of faith in America that competition leads to lower prices; however, because of the complex set of relationships in the event industry, competition and low prices may not be so closely coupled with regard to tickets.  Consider the case of two competing ticket distributors.  The first distributor offers rebates of $X to the artist, $Y to the promoter, and $Z to the venue.  The second ticket distributor increases its proposed distribution fee during its negotiation and uses the increase to double its rebates to the artist, promoter, and venue.  In many circumstances, the second ticket distributor will win the negotiation, leading to higher cost for the ticket buyer.
• Artists:  Artists are in an interesting and conflicted position.  For example, listen to an interview with Bruce Springsteen [4]:  “What I do is a very simple thing. I tell my guys, ‘Go out and see what everybody else is doing. Let’s charge a little less.’  That’s generally the directions.”  That sounds pretty good, but then Springsteen says, “This time I told them, ‘Hey, we’re 73 years old. The guys are there. I want to do what everybody else is doing, my peers.’  So that’s what happened.”  That is The Boss admitting that he went for the dollars this time around.  In comparison, what kind of position is a young band on their first major tour in to challenge rebates and ticket pricing?
• Buyers:  Tickets aren’t just about entertainment; they are also about social capital.  In Ticket Masters, a ticket broker recalled a story about football tickets [3], “I’d sell Super Bowl tickets ten months before the game.  Football season hadn’t even started, and we sold them to Merrill Lynch, Coca-Cola, Pepsi-Cola.  We had all the big accounts because they knew we could get the tickets.  So, they might say, ‘Get me 200 tickets between the thirty-yard lines at $4,000 apiece.’”  As seen in this story, a portion of the buyers are driving ticket inflation by demonstrating a willingness to pay more than retail for tickets.  This is one part of the reason that average ticket prices have risen well ahead of the Consumer Price Index (CPI) for decades.
• Front Row:  Not all the tickets are sold to the general public.  Many of the best seats are sold on the secondary market at substantially inflated prices.  These tickets are too good to go out the door at retail price.  Everyone gets a cut of these sales (the artists, brokers, ticket distributor, venue, and promoter) with the eventual buyers footing the bill through inflated price of admission for the event.
• Vertical Integration:  Vertical integration has become a significant part of the concert industry.  Live Nation manages artists (chiefly headliners), owns some venues and contracts long-term with other venues, promotes tours, and distributes tickets through Ticketmaster.  The process of vertical integration creates the conditions for self-dealing, a conflict of interest that can harm the positions of other parties within a negotiation.

Outcome of the Negotiation

Having considered the process of negotiation for ticket prices, let’s think about the outcome of the negotiation.  Currently, the average price of a concert ticket is $87.  As noted above, ticket prices have been rising faster than the CPI for decades.  That is the ticket buyer’s reality, but what about the ticket seller’s reality?

In 2010, Live Nation and Ticketmaster merged.  The two companies had complementary strengths.  Live Nation had depth in relationships with venues (owning or having long-term deals with many amphitheaters and stadiums), as well as having strong operations in promotion and management.  Ticketmaster was of course the heavy weight champion of ticket distribution.  Live Nation made a case for the merger saying that, as a company, it carried a lot of overhead, and it was in difficult financial straits.  This can be seen if we plot the value of Live Nation stock versus the S&P 500 index.  Over the period 2006 to 2010, the S&P 500 lost about 12% due to the Subprime Mortgage Crisis.  Over the same time period, Live Nation stock lost about 60%:

Clearly, that is the kind of adverse performance that drove Live Nation to think, “How can we improve this company as an investment (or we will be bought and broken up or simply go bankrupt)?”  Since the Ticketmaster merger in 2010, Live Nation’s financial performance has improved substantially:

In spite of the Covid-19 crisis, the S&P 500 went up 245%.  Over the same period, Live Nation went up 692%.  The gain in value of Live Nation was almost 3x that of the S&P 500.  So, acquiring Ticketmaster ended up being a pretty good deal for Live Nation’s investors.

Conclusions

Clearly, this is a complex issue.  There have been highly publicized Congressional hearings twice in the recent past (related to the Pearl Jam versus Ticketmaster litigation and to the Live Nation/Ticketmaster merger).  Ticket distributors regularly say that they are paid to play the part of the bad guy, absorbing negative publicity that would otherwise fall on promoters, venues, brokers, and artists.  And, they occasionally seem to relish the role.

Overpriced concert tickets do not generate the kind of social harm caused by other kinds of inflated prices (for example, patients who cannot afford health insurance or students who do not have access to high-quality schools).  After all, no one is forced to buy Bad Bunny concert tickets.  Of course, that is not a strong argument against government action on ticket pricing; however, if Federal regulators do act, they will need to take into account the complicated relationships of the event industry.  As seen in this post, the outcome of federal action may be difficult to predict or even counterintuitive in result.

[1] For a quick reminder of some of the elements of multiparty negotiations, see:  Gallant, S.R.  “Detroit’s Bankruptcy,” DiscussingTerms, December 10 (2022); https://discussingterms.com/2022/12/10/detroits-bankruptcy/

[2] “Pearl Jam’s Antitrust Complaint:  Questions About Concert, Sports, and Theater Ticket Handling Charges and Other Practices,” Hearing Before the Information, Justice, Transportation, and Agriculture Subcommittee, June 30 (1994).

[3] Budnick, D. and Baron J.  Ticket Masters:  The Rise of the Concert Industry and How the Public Got Scalped, ECW Press (2011).

[4] Aniftos, R.  “Bruce Springsteen Opens Up About Ticketmaster’s Dynamic Pricing: ‘Ticket Buying Has Gotten Very Confusing’,” Billboard, November 18 (2022).

Disclaimer:  DiscussingTerms^TM provides commentary on topics related to negotiation.  The content on this website does not constitute strategic, legal, or financial advice.  Consult an appropriately skilled professional, such as a corporate board member, lawyer, or investment counselor, prior to undertaking any action related to the topics discussed on DiscussingTerms.com.

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