There are two reasons that people are hesitant to make the initial offer in a negotiation.  First, they may be unsure of the market value of the item they are trying to buy (or sell).  They are worried of significantly under or overstating the item’s value.  The fear is that the negotiator will telegraph to the other party that they are unprepared for the negotiation—and therefore ripe to be taken advantage of.  Second, the negotiator is worried that the other side will talk them down from their offer—that they will be “ground down” during the negotiation process.  The fear is that the other party has the power in the negotiation, and as a result, the other party will eventually get what they want.  Today’s post addresses the process of making an initial offer, discussing these and other fears.

Preparing to Negotiate

Preparing for a negotiation is a five-step process.  The steps include:

• Think about your personal/your organization’s goals—what do you want to achieve in the next few years?  Starting with this step puts the negotiation in perspective.
• Think specifically about your goals for the negotiation:  what is the best possible outcome you reasonably expect (one end of your range) and what you cannot tolerate (the other limit of your range, “your limit”).  This may require some research (i.e., step 3).
• What is the market of the object?  You can use many resources to answer this question:  internet, the other side’s competitors and customers, your friends and work acquaintances, industry pricelists and databases, comparable sales, etc.
• Does the other party see things differently?  Understanding the other side’s motivations is critical to a successful negotiation.  Do they have an emotional connection to the object?  Does this deal mean that they will be leaving or entering a particular area of business—how will that affect them financially and organizationally?  What do you know about what their range might be?
• Talk to your team, a friend, or a spouse about your goals for the negotiation.  Studies show that talking about goals helps humans invest in them emotionally and stick with them during difficulty.  Talking about the negotiation ahead of time will help you stick with your plan during the hard parts of the negotiation.

Making an Offer

The 2018 film Beirut is a movie about hostage negotiation.  In the climactic scene, two characters haggle over a hostage payment.  Skiles makes an offer, aware that the price he earlier negotiated is out the window because he is dealing with a new man he has not spoken with previously.

Skiles:  This is it. All I got.  ($2 million.)  I’m topped out. Deal speaks for itself.

Kidnapper:  You wouldn’t open with your best offer if your life depended on it.

Skiles:  Two point two-five.

Kidnapper:  Five million.

Skiles:  Three.

Kidnapper:  Four and a half is my floor.

Skiles:  Point blank, I have $3.9 million exactly.

Kidnapper:  Going once.

Skiles:  Why should Bashir be the only person to profit?

Kidnapper:  Going twice.

Skiles:  If you take the three-nine right now, I swear I will tell Bashir you settled for three-five.  You can go back to Arafat with your head held high and $400,000 in your pocket.

Kidnapper:  Deal.

What is driving Skiles in this scene?  First, he is spending someone else’s $4 million—he is willing to go up to that level, but he does not have any more money after that.  He has no incentive to spend less (none of the money will end up in his pocket), but he absolutely needs for the negotiation to succeed (he has no backup plan).  Starting at $2M allows him the room to negotiation inside of his range.  As he reaches his limit, he skillfully offers a consideration to the other negotiator which seals the deal.

So, what are the options for making that first offer?  They include:

• Wait for the other side to make an offer.  When you really do not know what the stakes are, there are advantages to waiting.  If you go first, then you could make a foolish offer—significantly far away from what the other side has in mind.  However, by remaining silent, you take a risk.  They could low-ball you, and you would have left a lot of money on the table.  This is called an anchor.  Even if the negotiation continues after the anchor is offered, and the deal improves, the deal can only move so far from the anchor—limiting the value you will receive.
• 60/80/90/Go.  When I was younger and traveling with friends in Central and South America, we would keep our money divided in convenient amounts in different pockets in case we had to do any bargaining—we did not want to pull out a big roll of cash.  For this method to work, you have to have an idea of a reasonable price for you to pay for an item.  First, you offer 60% of your price.  The seller reacts.  If there is no deal, you can come up to 80%.  If you still do not come to a deal, then you can come up to 90% of your reasonable price, but make as if this is really hurting you.  You can start to walk away at this point (either literally or rhetorically).  Sometimes that stratagem triggers a concession.  If not, there is still 100%.
• Focus on something else.  This strategy works best in salary negotiations.  It is common for an HR person in the initial interview of a job candidate to ask about salary requirements.  In spite of the troves of information that is available online, it can be hard to establish a good range when things like hiring bonus, commission, stock options, time off, and benefits start to come into the picture.  As a result, answering HR’s question can be hard.  Instead of naming a range, come back with, “I would like to be hired with a title of….”  Since many companies have salary ranges assigned by position, you have answered their question—at least within their company.
• Start off small.  I frequently negotiate agreements for contract manufacturing of pharmaceuticals.  Particularly, if both parties are new to each other, constructing a large manufacturing deal can be a challenge.  There are so many variables and so much risk—in order to have drug ready for shipping, there must be:  transfer of manufacturing procedure at small scale, transfer of analytical methods, scale up to full scale, the manufacturing run itself, packaging and labeling, and testing of the pharmaceutical.  Often, starting off with the first steps (small scale process and analytical method transfer) allows both parties to feel comfortable with each other before committing to the higher cost of full-scale manufacturing.  However, if you go with this approach, there is a significant risk—to prevent a bad deal down the road, you must have a fallback plan.  For example, in the pharmaceutical manufacturing world, you must have an alternative manufacturer lined up.  This allows you to walk away if the later negotiation with your initial manufacturer goes poorly.

Make Your Offer Look Good

Frequently, there are aspects of a deal that cost you little or nothing but provide reassurance to the other party.  One way of making a successful deal more likely is to play up these aspects of your offer.  You have financing already in place.  Your offer is all cash.  Your side is prepared to sign as soon as certain details are clarified.

This strategy requires empathy on your part.  What is the other side looking for?  How can you make your deal look as much like what they want as possible?

Also, if you are looking at their initial offer, beware of hidden unpleasantries.  As an example, in the pharmaceutical contract manufacturing business, the sponsor needs the raw data from the manufacturer.  Usually, raw data is supplied free or at some nominal charge.  An illustration of a hidden unpleasantry would be significant add-on charges for the raw data to be supplied by the manufacturer.  These kinds of concealed penalties need to be neutralized as they appear in the negotiation.

Conclusions

The negotiation process involves four steps:  1) preparation, 2) initial offer, 3) bargaining, 4) closing.  Ideally, you would perform all four steps with precision and skill, but that is not always how things go.  For example, perhaps you allow the other side to open, and you realize that they have anchored at a value that is very disadvantageous to you.  You can correct this by addressing the issue directly.  You say something like, “Clearly, we are very far apart,” or “This is a premium service.  Our clients pay significantly more than that.”  You have neutralized their anchor, and now it is your turn to place your anchor.

All of this should be done directly, with good humor, and a clear intention to resolve problems in the negotiation.

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.

The post <strong>Negotiation Tip – Making an Offer</strong> appeared first on discussingterms.com.

In today’s post, DiscussingTerms addresses how patent litigation is settled—using the example of biosimilar pharmaceuticals.  Biosimilars are the generic versions of expensive injectable medications like Remicade, Enbrel, and Humira.  Biologics and biosimilars are a rapidly growing segment of pharmaceuticals, so there is a lot at stake financially and medically.  The focus of this post is on how settlements are valued and how a zone of possible agreement between the parties involved in patent litigation can be established.

Background

Here is a quick introduction to biosimilar litigation:

• In 2009, the Biologics Price Competition and Innovation Act (BPCIA) was passed into law to create an approval pathway for generic versions of biological drugs (“biosimilars;” generic versions of medicines like Remicade, Enbrel, and Humira).  The reason that a separate approval process was required is that biological drugs are much more complicated to manufacture than small molecule drugs (like antihypertensives and antibiotics).
• Within the BPCIA are provisions which require the “patent dance”—disclosure of the biosimilar drug manufacturing process by the biosimilar manufacturer to the initial manufacturer (“innovator”).  This allows the innovator to consider whether any patents held by the innovator have been violated by the biosimilar drug manufacturer.  The reason it is called a “dance” is that there are several rounds of communication back and forth (like a dance).  If any areas of dispute cannot be resolved, litigation may follow.

This form of negotiation is a classic adversarial or competitive negotiation.  Demands, threats, and the use of power (through the courts) are expected in this negotiation.  The goal for each side is a “win”—the innovator wants to block the biosimilar from entering the market, and the biosimilar manufacturer wants to launch their drug as soon as possible to take market share from the innovator.

In these negotiations, accommodative behavior may rarely come into play (if by chance the two companies involved have other projects that they are working on together and want to preserve their relationship as a way of maximizing the return from the other activities that involve them); however, the norm in this type of negotiation is competition.

Assessing Risk, Cost, and Profit

Many business processes such as litigation [1] and option pricing [2] involve some degree of risk combined with possible costs or profits.  Such processes can be represented as trees of probability and value.  As an example, consider this tree describing the possible outcomes of BPCIA patent litigation over pegfilgrastim in 2020:

This tree structure considers the possibility that a purely hypothetical pegfilgrastim patent case was brought in 2020.  Though the tree is hypothetical, the values in the tree were estimated using real market and litigation data, as will be seen below.  Consider the following aspects of the tree:

• Structure:  The tree structure assumes that a case is brought by a plaintiff (i.e., innovator pharmaceutical company) against a defendant (i.e., biosimilar pharmaceutical company) for patent infringement in manufacture of pegfilgrastim.  The possible outcomes of this litigation are a verdict for the plaintiff or for the defendant (the two lefthand branches of the tree), and if the verdict is for the plaintiff, a range of possible penalties may apply (the two righthand branches of the tree).
• Probabilities and Penalties for Defendant:  To be as realistic as possible using publicly available data, DiscussingTerms developed a database of US district court BPCIA litigation [3].  In the database, ten cases were pursued all the way to a trial outcome, with seven determinations for the defendant and three for the plaintiff.  Using this data, the chance of a verdict for the plaintiff is 30% (versus 70% for the defendant).  In the case of a verdict for the plaintiff, 3 cases provided example penalties (two cases for patent infringement of Enbrel resulted in 9-year delays to the market when patent protection was upheld, and one case for patent infringement of Epogen resulted in a $70M penalty).  Assessing what the penalties might be imposed is case specific, these values from cases other than pegfilgrastim were used in the tree structure above purely as examples.  Of course, each litigation team would spend time creating a tree specific to their case.

• Rewards for Defendant:  Having considered the possible penalties, what about the rewards?  Pegfilgrastim is a biologic used primarily in supportive care of chemotherapy patients to boost their immune cell level.  Market projections for North America starting in 2020 are shown above [4].  Assuming that early entry into this market would lead to 50% market share and late entry would lead to 10% market share, the revenues for these two scenarios are shown in 4^th and 6^th columns.  The net present value (NPV) in 2020 for an early entry can be calculated at $4.7B (a late entry would yield $931M in value).  In the tree above, a late entry was assumed, so value for a verdict to the defendant is shown in the tree as $931M. (Note: Back in the day, entry date was part of the negotiation between a pharmaceutical innovator and a generic. The FTC now guards against such “pay for delay” agreements. The reason to consider early versus late entry here is that clinical and CMC considerations limit how quickly a biosimilar makes it to the market. It is worth examining whether and how entry date affects this type of negotiation. See the table of expected outcomes below for a comparison.)
• Value to the Defendant:  The value to the defendant is the weighted average of the possible outcomes:  (30% x 67% x $0)+ (30% x 33% x ($931M-$70M))+ (70% x $931M) which equals $737M.  This value exists as a purely theoretical amount—if the litigation is pressed to conclusion, the biosimilar company will receive one specific value ($0, $861M, or $931) depending on the verdict.  The ultimate value hangs in the air like the fate of Schrödinger’s cat.

• Value to the Plaintiff:  The tree looks different to the plaintiff (see 2^nd tree shown just above).  The probabilities of this 2^nd tree remain the same as those in the 1^st tree, but the outcome values differ.  If the defendant prevails, then the plaintiff receives nothing, so that branch is valued at $0.  A verdict for the plaintiff contains a 33% chance of a $70M judgement to the defendant.  A 9-year delay (67% change if there is a verdict for plaintiff) takes the defendant out of the North American market for pegfilgrastim, so the innovator may receive the value that would have been provided to the biosimilar company ($931M) if the innovative product is able to capture those sales.  The weighted average for this tree is:  (30% x 67% x $931M)+ (30% x 33% x ($70M))+ (70% x $0) which equals $194M.

The Negotiation

Litigation under BPCIA is an example of a multiparty negotiation (involving innovator company, biosimilar company, legislature, courts, insurance companies, doctors, and patients).  However, there are three parties with the most immediate sway in this type of negotiation (the two pharmaceutical companies and the courts).  Their positions are as follows:

• Courts:  The courts enforce guardrails on the negotiation.  The BPCIA mandates the patent dance, and both companies are required to negotiate in good faith during this process.  Failure to abide by the patent dance process can lead to penalties.  Also, the courts have found that certain types of settlements are anticompetitive and violate antitrust principles (see:  FTC v. Actavis, Inc., 570 U.S. 136 (2013)).  So-called “pay-for-delay” agreements, in which the innovator pays a generic or biosimilar company to stay out of the market, can be challenged by the FTC under these principles.
• Defendant:  The biosimilar company’s primary goal is to avoid achieving a $0 value.  To prevent this disastrous outcome, they would be willing to concede some value, but how much?  We’ll see below.
• Plaintiff:  The innovator faces a decline in revenue due to erosion of the price for pegfilgrastim and the entry of competitors taking market share.  Through this negotiation process, the innovator hopes to salvage some revenue from this product line which is reaching the end of its product lifetime for the innovator.  How much value might they be looking for?  Again, we’ll see below.

The zone of possible agreement (ZOPA) is a range of settlement values that satisfy both parties.  In this case, the settlement involves direct cash payments or a share of future revenue, but it cannot involve a pay for delay agreement.  What range might satisfy both parties?  Consider the following table:

In this table, the case of late entry into the North American market (10% share) is shown at the top of each entry; the case of early entry (50% share) is shown at the bottom of each entry in parentheses.  Both parties wish to avoid their worst outcome.  In each case (late entry and early entry), if the biosimilar company is willing to concede the difference between its best outcome and its expected outcome, the freed cash satisfies the innovator’s expected outcome.

Other factors will also come into play:  the relative strength or weakness of the patent infringement case, the bargaining position of the biosimilar company (are they short of cash or deep pocketed), the number other biosimilar products and their expected launch dates, etc.  However, this analysis does indicate that a zone of possible agreement between the two parties may exist.

Conclusions

Creation of a case-specific model of value which builds in the most relevant data on risk and potential cost and profit can be a useful tool of negotiation preparation.  These types of models help the negotiation team think several moves ahead in the bargaining process, as well as allowing the team to put themselves in the place of their adversary.

Some other issues to bear in mind include:

• Framing:  Whether a particular outcome is framed as gain or loss has strong psychological effect on humans.  Craver goes into this topic in some detail [1].  In considering a settlement, the litigant is well advised to consider emotional factors which influence their point of view.
• Hidden Costs:  It is important to consider all of the costs within this type of negotiation:  litigation costs, impact of the litigation on public perception (does the uncertainty of litigation frighten potential business partners or investors?), opportunity costs (do the rigors of preparation for a trial distract from other business activities?), etc..

All of these issues come into the decision of when and how to settle; however, as some wise person once said, “There’s always a number.”

[1] Craver, C.  Effective Legal Negotiation and Settlement, Carolina Academic Press (2020).

[2] Metrick, A.  Venture Capital and the Finance of Innovation, John Wiley & Sons, New York (2010).

[3] US District Court BPCIA Litigation, DiscussingTerms, December (2022):

[4] Research and Markets.  Global $4,037 Million Pegfilgrastim Biosimilars Markets, Analysis & Forecasts, 2015-2020, 2025F, 2030F, www.globenewswire.com/fr/news-release/2022/03/16/2404168/28124/en/Global-4-037-Million-Pegfilgrastim-Biosimilars-Markets-Analysis-Forecasts-2015-2020-2025F-2030F.html

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.

The post <strong>Negotiating a Settlement:  Biosimilar Pharmaceuticals</strong> appeared first on discussingterms.com.

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.

The post <strong>Concert Ticket Prices</strong> appeared first on discussingterms.com.