Why Scalping Opponents Are Losing Their Heads

Posted: Nov 10, 2013 12:01 AM

When one thinks of ticket scalpers, one generally conjures a mental image of shady men waiting outside theaters offering scandalously overpriced tickets to late buyers from under several layers of trench coat. In Michigan, this less than savory image is only enhanced by the addition of criminality to a hypothetical ticket scalper. Yes, that’s right, in Michigan, reselling a ticket for even a penny over its face value is illegal, even for private citizens who can’t make events.

This unquestionably anti-market law limits who can sell particular commodities. It is, moreover, an odd example of an anti-market law in that it attempts to limit competition from more expensive sellers. There is no immediately obvious reason these sales would harm venues, who have already been paid for the tickets and fill their seats either way. The only question is who will ultimately pay the most for the privilege of sitting in those seats.

Michigan state Rep. Tim Kelly, R-Saginaw, recently introduced a bill that would lift the ban on ticket scalping, allowing free competition. Opposition has, so far been thin on the ground, though a few arguments have emerged against the idea, most of which are either plagued by inconsistency, or make little sense when applied to any other industry.

The first and most obvious complaint is that tickets might be counterfeited and sold at a ridiculously high rate. This, however, is not an argument for making scalping illegal, but for more aggressive fraud prosecution and better anti-counterfeiting measures. The existence of paperless tickets on sites like Ticketmaster (about whom, more in a moment) is one example of innovation rising to solve this problem without the necessity of law.

The second complaint is that venues have the right to attach whatever conditions to tickets they like — for instance, in the case of the National Football League attaching many anti-resale conditions to Super Bowl tickets. This is not an argument for a ban on scalping, although it relevant to the question of whether to ban restricted use tickets, as New Jersey does. Instead, it strips away a property right – the right to resell – from all event tickets, and thus would hurt those venues who would otherwise be fine with extended that right to ticket buyers.

In other contexts, the idea of a market middle man who profits from the resale of goods is not one we find inherently offensive. If we did, retailers wouldn’t exist.

The argument against permitting an open ticket market would be more resonant if there weren’t already major loopholes in the law that benefit powerful. Michigan bars the resale of tickets above face value, unless the reseller receives permission from the original seller. Sites like StubHub.com enter contracts with venues, promoters and sports teams that sanction them to resell tickets. Then there’s Ticketmaster, which already controls roughly 82 percent of the market for major venue ticketing services and is becoming a major player in the secondary market, as well. As Albert Foer, president of the American Antitrust Institute, pointed out in a recent New York Times op ed:

Ticketmaster says its restrictions on the resale and “gifting” of its paperless tickets act as safeguards against various practices: scalping; the bulk purchasing of tickets by automated software bots; and the use of counterfeit, stolen or lost tickets.

But in reality, the restrictions represent an effort to control the secondary-ticketing market and stifle competition from independent resellers and resale marketplaces like StubHub, where tickets are often sold for less than face value. (The American Antitrust Institute, of which I am president, received a modest contribution, in the form of sponsorship of a conference last year, from an advocacy group financed in part by StubHub.) Paperless tickets bought through Ticketmaster may be resold, for example, only through its own resale Web site, which often prohibits sales below face value, sets maximum sale prices and charges a fee for transfers.

Economist Mark Perry has been even more harsh, pointing out that in some cases, Ticketmaster’s fees end up adding as much as 29 percent to the face price of a ticket. This kind of skimming led comedian Louis CK to refuse to do business with the site, claiming its willingness to sell tickets for more than they actually cost hurts his fans, and by extension, him.

And, wouldn’t you know it, Ticketmaster has already come out against similar measures to this one, calling them “attempt[s] by out-of-state ticket scalpers to use legislation to shake the marketplace to protect their profits to the detriment of fans in Michigan.” Which is precisely what Ticketmaster itself, by virtue of selling paperless tickets which make competition harder, is doing. This kind of innovation on their part is not necessarily bad, but it is surely a stretch to ask Michigan to allow only one ticket resaler to operate within their state, while shutting out all the others.

Bottom line: The current law in Michigan is not merely anti-market, but inconsistent. Rep. Kelly's bill is a step in the right correction with respect to both errors.

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