Let the Scalping Begin (Gwen Moritz Editor's Note)

by Gwen Moritz  on Monday, Mar. 11, 2013 12:00 am  

My husband, a reporter for another news organization, told me the other day that Rep. Douglas House, R-North Little Rock, had filed a bill to legalize ticket scalping, thinking I’d be furious. Furious? I’m delighted. Husbands can be so clueless.

He compared ticket scalpers to payday loan sharks and gasoline gougers, hoping to get a rise out of me. Payday lenders are bloodsuckers who set out to keep already disadvantaged customers in perpetual, escalating debt while charging interest rates that can easily top 300 percent on an annualized basis. Gas gougers take advantage of disasters to profiteer on a fundamental commodity. These activities are against the law in Arkansas and should be.

But ticket scalpers are merely selling a luxury item for which demand has outstripped limited supply. No children need go hungry; no parents are trapped in a spiral of inescapable debt; no employment is threatened by lack of transportation. Yes, some people will pay more than they can really afford for a ticket, but people make poor financial decisions all the time. The American economy would come to a screeching halt if making stupid, overpriced purchases were against the law — but in Arkansas, it’s illegal to make a profit on a particular type of asset that has appreciated in value.

Does anyone else remember back in 2007, when Miley Cyrus and her Hannah Montana tour came to what was then Alltel Arena? Ticket scalpers circumvented buying limits to snap up big blocks of tickets at the face value of $30 or $55, and then circumvented the scalping law by selling a Hannah Montana CD for $250 or $300 and giving the ticket away “free.” The uproar from outraged parents rivaled Rachel weeping for her children.

But the prices demanded by the scalpers weren’t the real problem. The problem was the face value. Cyrus’ promoters, in a misguided attempt to keep tickets “affordable,” had created an irresistible opportunity for arbitrage — profiting from the difference between cost in one market and value in another.

Because the face value was so low, scalpers could buy many tickets at face value while only having to sell a few at market value in order to break even. The potential profit was enormous while the risk from overbuying was slight. The result was artificial scarcity, which compounded the usual effect of supply and demand.

Had the tickets been priced closer to what the market would clearly bear — say, $100 to $150 — the scalpers would have had to risk much more for a potential profit that was much smaller. The risk of overbuying and overpricing would have kept the professional scalpers in check.

But it’s not just professionals who are bound by Arkansas’ law against the free market. In jurisdictions where scalping is legal, it’s merely a happy exercise in basic economics. You buy a ticket to an event that turns out to have more demand than supply, so you decide you’d rather have the extra money than the entertainment. You stand outside the venue and hold up the tickets until someone for whom money is less important than entertainment takes them off your hands. If a buyer doesn’t come along, you walk in and get the entertainment you paid for. Why should that be illegal? Where’s the crime? Who’s the victim?

My husband, determined to find a flaw in my reasoning, asked me what the face value of a Razorbacks football ticket would be if scalping were legal. Isn’t it just like a man to muddle up a perfectly rational economic exercise with something emotional?

The face value of a Razorbacks ticket is generally $55. But students get a big discount since they are already big-time customers of the University of Arkansas, and the season-ticket buyers who command the best seats are paying a big premium in the form of donations to the Razorbacks Foundation. So the face value is already something of a fiction.

The last Razorbacks tickets we bought were to the LSU game on the day after Thanksgiving. We paid a season ticketholder $100 for three tickets — far below the face value. Why? Because the Razorbacks sucked last season, and the supply of tickets was significantly greater than the demand. I’m not sure we didn’t overpay even at that price.

Someday, theoretically, the Razorbacks will have a better team and tickets will be in greater demand. And other factors will come into play. Will as many season ticketholders be willing to miss a game by reselling tickets? Will all the home games be played in Fayetteville, where there are more seats? Will the additional travel time and expense temper what some fans are willing or able to pay?

In other words, I think even the Razorbacks are luxury entertainment subject to typical market forces. Let the scalping begin.

(Editor's Note: House's bill was defeated in the Arkansas House on Friday, after the deadline for this column.)

Gwen Moritz is editor of Arkansas Business. Email her at GMoritz@ABPG.com.



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