All Commentary
Monday, October 26, 2015

In Defense of Scalper Bots

Scalpers do invaluable work is hosting a petition to ban “scalper bots.” These services that buy tickets in bulk and sell at high prices later are exploitative, they say. As the petition says:

Any fan of a popular band has likely fallen victim to a scalper bot — a computer program that ticket scalpers use to buy tickets faster than actual humans can. It’s estimated that 60% of tickets are purchased by bots! Scalpers then sell those tickets online for ridiculous prices.

Some politicians are getting interested in the idea. The Better Online Ticket Sales Act would criminally punish the selling of bot-purchased tickets with a $1,000 fine.

Actually, scalper bots (mechanized ticket brokers in the secondary market) are blessing for artists, consumers, venues, and the market for live music generally. Hampering them would harm everyone.

Scalper bots dramatically reduce the risk for bands and venues, assuring high tickets sales and hence revenue long before the performance date. The bots bear the risk in hopes of a higher demand for tickets. Like futures traders, they are arbitraging between present knowledge and future demand. It’s a pure speculation on their part, all in hopes of a profit.

The scalper bots are companies such as Ticketmaster, CheapSeatsTickets, TicketZoom, StubHub, VividSeats, TicketCity, and so on. New competitors are showing up every day. The internet makes it all possible. They do indeed arrive the minute that seats go on sale, buy up half the seats, and continue to market them until the hours before the show. They are shelling out the big bucks and transferring risk from artists to speculators, all to the benefit of consumers.

If artists and venues object to this behavior, there is an easy solution. They could dramatically raise the initial selling price. If they raised them high enough, they could potentially make speculation less profitable. There is a potential public relations problem is doing so (people might think less of Beyonce if floor seats were only available for $8,000 initially).

But there are also financial issues here as well. Higher prices means reduced demand and reduced cash flow immediately for tickets sales. Bands that do this are making a big bet that they have guessed the right relationship between the quantity of available seats and the intensity of consumer demand. For bands and venues, this is a lot to take on. Their main goal is to see a tour become predictably profitable. So they take the “bird in the hand” rather than hope for “two in the bush.”

In fact, bands and venues are outsourcing the high-risk speculation on future demand for tickets to companies that specialize in making the best guesses. There is a potential for a huge upside, but there is a real danger of downside risk too.

There are no guarantees. Sometimes the bots win and sometimes they lose. Sometimes the price for certain seats fall before performance even as others rise. A seat on the floor next to the stage might initially sell for $300 and go for as high as $5,000 the day before, while the “nosebleed” seats might be initially priced at $100 and sell for $10 in the hours before. Bot companies hope that high profits on a small number of seats can cover possible losses in other seats.

Most concert venues have to be booked a full year or more in advance. A band with a hit today could be rocketing to the top in one year or it could be forgotten about entirely.

And it’s not only about popularity. An indie band might book a venue with 300 seats, and they could be wildly popular and make a lot of money. Or an artist like Taylor Swift can book the Georgia dome with 56,000 seats, and find that her managers had exaggerated demand. It could prove to be a disaster. Selling out a venue too early suggests that prices were too low. If the bots do their work properly, there should still be available seats (at some price) on the afternoon before the event.

Either way, it’s a high leverage undertaking. Let’s say there is an indie band that books a tour one-year in advance, with a plan to play only for small-scale venues. Twelve months later, this band has gone viral, thanks to some unexpected fluke like a Vine video that millions of people share. What happens to the price for seats? It goes through the roof. The winners in this case would be the smartest scalper bots who bet on rising popularity.

It’s true that the band and the venues could be kicking themselves later for not having seen this coming. But this is no different from those who failed to buy Amazon stock in 2001: in a capitalist marketplace, those who take the risk earn the rewards (or pay the price for failure). Moreover, if the bots had not bet on their success, their tour might never have happened at all.

If you have ever longed for a ticket to that special event, and followed seat prices online, you discover that they are more volatile than airline fares. During the week before a concert, there can be wild swings in prices, even hour to hour. A seat going for $120 on Monday might sell for $300 on Wednesday. That same seat might fall to $50 on the day before or go for $500. It all depends on consumer demand.

The shifting prices are all about the gradual discovery of the relationship between supply and demand and the search for precise meeting points at which exchange can take place. There is no final answer to the question of the right price for seats, not until the first notes of the concert itself.

There is no guaranteed win for the scalper bots. These companies could be wiped out by one bad speculation. Let’s say that Taylor Swift inadvertently says something in an interview that leads to a sudden tank in her popularity. Or consider Broadway shows and their notorious volatility. A bad opening night followed by a devastating review can cause a collapse in prices.

The remarkable contribution of ticket brokers is that they guarantee that if even a band or an act completely flops, the artists and venues are still going to get paid. In fact, that guarantee is necessary for why they are able to go on the road to begin with.

Now there are all sorts of politicians calling for an end to scalper bots. Proposals range for imposing mandatory physical sales, banning online trading, to even controlling prices through political means. These efforts will only drive scalping into the underground. And it could result in far fewer touring bands and venues willing to book them a full year in advance.

The next time you have a sudden hankering to go to a concert tomorrow night, and you are able to still get tickets at this last minute, thank a scalper bot. They are doing the world of performance art a great service.