Academic journal article The Cato Journal

Creating a Futures Market for Major Event Tickets: Problems and Prospects

Academic journal article The Cato Journal

Creating a Futures Market for Major Event Tickets: Problems and Prospects

Article excerpt

In a 1995 article in this journal, we discussed the legal, economic, and ethical concerns in trying to prevent "free-market" ticket scalping. (1) Since the time that article appeared, the Internet has become a source of information as well as a business and contract formation tool. Knowledge, products, and negotiations move in far more efficient manners because of the facilitation of inexpensive communication and interaction via the Internet. Major event tickets--those that attract national audiences such as the NFL's Super Bowl, the PGA's Masters, the NCAA Final Four, or even a Bruce Springsteen concert--are traded openly on eBay and other Websites.

Yet, despite the vast amount of personal wealth in the United States and the relative ease with which consumers can travel to any event site in the country, the availability of this new technology that facilitates national and international exchanges of price information and tickets has not created a nationally organized futures market for major event tickets. This paper explores this "market failure" and considers the likelihood of correcting it. The first section examines the character of tickets, exploring their nature as call options. The following section looks at the ticket resale statutes of 50 states along with various municipal statutes and describes the current legal environment surrounding ticket sales. The third section considers the different distribution channels open to potential consumers of major ticket events. The fourth section reviews recent microeconomic studies of event pricing and ticket scalping that have appeared since the time of our previous article. The final section explores the reasons that the major entertainment event ticket market remains fragmented and examines whether a nationally organized national market will emerge in the near future.

Major Event Tickets as Call Options

For major events held in stadiums, arenas, amphitheaters, or concert halls with limited seating capacity, tickets are normally put on sale weeks or months in advance. They are initially sold at a printed face value (plus, at times, an allowable service charge). The usual explanation for a printed face value is a preassigned value for purposes of possible refunds despite the reality that refunds from event organizers are quite rare. In fact, event tickets often indicate on their faces that (1) they are a revocable license; (2) admission may be refused; (3) promoters and organizers are not responsible for lost tickets; and (4) the stated face value may only be repaid under certain conditions with some tickets actually having NO REFUND printed on the front. Given the lack of administrative purpose, the real reason for a printed face value is perhaps the same as the reason for placing a par value on a common stock or option--the face value is simply a starting point that provides a legal measure of what is "fair" or "equitable."

Tickets to major events share other characteristics with call options. Because event sponsors do not typically require identification to enter the event, the tickets become bearer instruments once they are sold. Like a call option, the holder has the right, but not the obligation, to occupy (or call in) a certain seat over a certain period of time.

If tickets as traded today are essentially call options, then it would follow that such bearer instruments of value could be exchanged, just like stock options, in a nationally organized futures market. Likewise, ticket markets could have standard rules of order and trading behavior that are specified for licensed brokers. In such a market, the NFL could, for example, take the seats designated for the "general public" for the Super Bowl and have a public offering the day after this year's Super Bowl using the tools, access, and customers of the national exchange. Bid/ask prices could be posted every trading day until the following Super Bowl. …

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