I don’t know about you, but personally, I often find myself wishing that life came with a manual. But as you might have noticed, besides remote controls and blenders, not many of life’s daily operations come with instructions. No one ever really talks about the nitty gritty of how a lot of things function: how the ticket industry works is one of those unexplained things. We honestly couldn’t really tell you why that is; maybe it’s because there so many moving parts, or maybe nobody cares. Maybe nitty gritty sounds gross. It’s one of life’s little mysteries.
But regardless of the reasons, we think you should have access to an explanation of how the concert industry and ticket business function, both fundamentally and at the most intricate level. Whether or not you find an explanation necessary, we think it should be easily available should you ever want to know, and so we made it available right here. Check out our rundown of the nitty gritty basics of how the ticket industry works below. Batteries sold separately.
*Note: Wikipedia has a couple pages that discuss similar topics such as, ticket resales, ticket exchanges, and music agents. These pages are written by a consortium of people, many of whom are not in the ticket industry and provide inaccurate information regarding the secondary market and resale of tickets; however, the music agents page does a good job explaining the relationship of the artists and managers.
How The World Sold Tickets: A History
Back when stars like Elvis Presley, The Beatles, and Led Zepplin were touring in the 60s & 70s, their managers (also known as music agents) were crucial to their success. If a band was to tour ten cities, their manager would have to coordinate and plan the tour with ten different promoters and ten different venues, thus ten different contracts. I imagine that organizational chart looked something like this.
On a more serious note, this is what the workflow would actually look like:
Artist -> Manager -> New York Promoter -> New York Venue
Artist -> Manager -> Chicago Promoter -> Chicago Venue
Artist -> Manager -> Los Angeles Promoter -> Los Angeles Venue
Promoters helped managers with their local efforts, such as booking the venue and promoting the event locally. Contracts were (and, well, still are) complex, but the typical contract had a fixed fee for the venue and the promoter would receive 15% of the profits. Managers could get anywhere from 10% to 25%, leaving the average artist with 60% to 75% of the profit.
How the Game Changed: Ticketmaster
The tale of event ticket sale and distribution is a tale as old as time. Think back to the Colosseum in Rome; this stuff has been happening for thousands of years. The only big difference between then and now is that venues themselves no longer handle the operational side of selling tickets. Instead, TicketMaster convinced venues to let them sell the tickets on behalf of the venue. TicketMaster was able to convince venues to let them sell their tickets for two main reasons:
TicketMaster told venues that they would pay them to sell their tickets on their behalf
TicketMaster brought technology and operational expertise to the venue.
Back in the 70s each venue sold tickets on their own through their own box office, and as you can imagine, this was no easy task. Distribution, operations, inventory management – these were all extremely challenging tasks without any technology or software. So when TicketMaster came around with proprietary ticket software and told venues they were going to get paid to outsource the sale of tickets to TicketMaster, it was a no brainer for venues to consent to this.
Consumers often think TicketMaster is a monopoly. That’s because TicketMaster is the official ticket seller of the majority of venues in the U.S. However, venues do have a choice in who sells their tickets, and if a venue wants they can still sell their tickets through their own sales channels. Contrary to what consumers believe, TicketMaster’s value proposition to the venue is good. The only downside is that there’s an added cost to the consumer.
TicketMaster didn’t invent convenience fees, but the money they promised the venues did get funded from new service fees. In the 1980s TicketMaster charged an additional $2 on top of the ticket price; $1 went to the venue and $1 went to TicketMaster.
How the Concert Industry Works
Check out this chart we made to illustrate industry relationships and the flow of tickets below.
*You may notice that it shows there are up to six parties in between the musician and the fan. It’s important to note here that with the recent merger of TicketMaster and Live Nation (Live Nation Entertainment), most of these parties are now under one roof.
There are four major business segments of Live Nation Entertainment.
Live Nation Entertainment: This is the core business, which revolves around concerts and the global promotion of live music events in Live Nation-owned venues, venues operated by Live Nation, and rented third-party venues such as stadium events, concert halls, and music festivals (thus the Venue and Promoter shown above).
TicketMaster: This is the ticketing arm of the Live Nation business.
Artist Nation: Artist Nation provides management services in exchange for a commission from the earnings of the artist (this is the Manager or Music Agent shown above).
Live Nation Network: Live Nation Network creates and maintains relationships with sponsors (businesses) to reach TicketMaster customers through Live Nation concerts, artist relationship and ticketing assets such as their ticket websites.
What choices do Artists have?
Artists have the ability to choose almost everything except the ticket seller. This is because venues have long-term contracts with ticket sellers such as TicketMaster; however, artists choose their managers, the venues they’ll perform, and the promoters that will advertise their concert tour.
How Concert Tickets are Sold & Musicians are Paid
When most of us think of concerts, we think about the big sold out shows. In reality, the big shows only add up to a very small percentage of overall concerts. They do, however, generate a disproportionate amount of revenue.
The superstar artists headlining these shows are able to shop their tours around, and concert promoters will bid for the right to promote their tours. Large national concert promoters such as Live Nation and AEG Live will put multi-million dollar offers on the table for the right to promote artists that sell out these types of concerts. In these cases, artists receive guaranteed payments. Depending on the artist and the guaranteed payment that the artist will receive, the face value tickets will vary in price accordingly. Depending on the contract, the artists’ involvement will vary accordingly as well. Jay-z, U-2, and Madonna are just a few examples of artists that have guaranteed multi-year contracts with Live Nation. They receive a fixed guaranteed payment, and therefore have nothing personally to do with ticket prices. The lucrative contracts they sign explain why their face value tickets are extremely high.
Other artists such as Bruce Springstein, Radiohead, DMB, and Phish have different types of contracts; they typically choose to keep their ticket prices low. Whether we like it or not, when this happens there is typically a large amount of ticket resale activity. When artists set ticket prices below the prices that fans are willing to pay, ticket brokers, fans, and individuals tend to buy up as many tickets as they can.
There are of course smaller, more local concert promoters that continue to exist. They promote smaller shows and lesser known artists, but depending on the local promoter’s reach, they may even get involved with the very large concerts as well. A notable example of this is Bowery Presents. Bowery Presents is based in NYC and started promoting in 1993 with the roughly 300-capacity Mercury Lounge venue. Since then they have built a strong and powerful reputation in the local market (as well as massive email lists full of information). When promoting certain bands, a live agent or national promoter may choose to involve a promoter like Bowery Presents to help insure a concert sells out.
Additional reading on promoters: NY Times – A Small Strategy for Selling Concerts
Is the Sports Ticket Business Different?
Well of course, but maybe not as much as you think. It’s important to note however that the selling of sports tickets has started to change dramatically over the last 5-10 years due to many factors. These factors include the vast adoption of Stubhub, secondary marketplaces, and dynamic ticket pricing, to name a few.
Dynamic ticket prices means that ticket prices change daily, if not hourly. Anything that can indicate a change in fan demand will be used to better price. For example, if a hot pitcher is scheduled for a game and the pitcher is changed, the “face value” of the tickets (set by the team) will likely decrease. Other factors may include the weather, opponent, record, news, and any anything else teams can look at to better understand demand for a particular game and optimize ticket prices.
When one thinks about how dynamic ticket pricing works, it’s easy to understand how the secondary ticket industry work in general; that’s because secondary marketplaces are inherently dynamic in nature. Ticket resellers and ticket brokers are constantly adjusting ticket prices to better reflect the perceived demand.
It’s no surprise that primary sellers and teams want a piece of this action; when there’s a hot game, they want to make more money and reap the benefits, like ticket resellers do. If it’s not a hot game, and the sports team keeps prices stagnant, ticket prices on the secondary market will drop below face value. Fans would then have no reason to buy more expensive tickets from the team when they could just buy from resellers who’ll adjust their prices appropriately.
Are buying season tickets worth it? The success of Stubhub (along with adoption of dynamic ticket prices by much of the industry) is changing consumer behavior, and understandably so. The question of whether or not season tickets are worth it is causing sports teams to change the definition of season ticket holder as a whole. This includes changes in the amenities provided. For example, we’re starting to see a lot more perks included in season packages, along with assurances that the buyers are getting the best ticket prices. This means that dynamic ticket prices will never go below a season ticket holder’s face value.
Now of course there are two sides to this coin: the haves and have-nots. Sports business wrote an extensive article on this topic and discussed how season ticket holders are now able to sell unwanted or unused tickets, making the decision to renew their season tickets an easy one. The counter to this is that you no longer need to buy Yankees season tickets because you can buy Yankees tickets al carte.
How The Secondary Ticket Industry Works
Sites like StubHub are advertised as the fan-to-fan ticket exchange, but the truth is ~70% of tickets are listed by ticket brokers. The other 30% is comprised of season ticket holders and individual ticket resellers.
What is Scalping?
If you look at Wikipedia’s definition of Ticket Scalping, you will see that they call it a synonym of ticket resale. Specifically, they say this: “Ticket resale (also known as ticket scalping or ticket touting) is the act of reselling tickets for admission to events. Tickets are bought from licensed sellers and are then sold for a price determined by the individual or company in possession of the tickets. Tickets sold through secondary sources may be sold for less or more than their face value depending on demand, which itself tends to vary as the event date approaches.“
We disagree with this definition, and define ticket scalping as the following: “The reselling of tickets to an event on the premises or near the venue at which that event is set to take place at.” We distinguish the difference between resale of tickets and scalping based on the fact that one is done on the streets near the venue. In New York, this is what makes scalping illegal. The resale of tickets is legal as long as you are 400 meters from the venue.
Why does the secondary ticket industry exist?
Ticket scalpers and resellers have a notoriously bad rap, but the problem with the resale ticket industry is mostly it’s lack of transparency. Unfortunately this won’t be fixed until artists and fans are intellectually honest with each other.
A big problem here is the notion of “face value”. Because of publicity (and public sentiment), many artists keep the “face value” prices low; otherwise, they risk resentment from their fans. While some artists keep the face value low, they may make additional money via other avenues. Some of these avenues are transparent, like VIP packages. Others are more questionable, such as deals with ticket brokers (or even TicketMaster or Stubhub) behind closed doors. There are of course many artists that don’t do this at all. In these cases, brokers and ticket resellers benefit and fans are forced to pay more than face value.
Artists are put in a tough situations. They want their fans to be able to see them perform at reasonable prices, but touring is also their greatest source of revenue. Since music sales are more or less dead these days, one of the few ways artists can make money is by touring. I believe the general public will eventually start to accept that live music for popular artists is an expensive event. In turn, “face value” prices will continue to increase and better reflect the true supply & demand. This will help artists sell their tickets at more efficient prices directly to the fans. So although ticket prices will increase, ticket brokers, ticket scalpers and other middleman like myself will be less value.
About the Author – Brett Goldberg
As the Co-Founder of TickPick.com (a transparent ticket marketplace without the obnoxious service fees- seriously, no fees for buyers– and just a 10% commission for sellers) I myself am a middleman. I recognize that if pricing were to become that efficient, ticket exchanges like TickPick would struggle to exist. It is my belief however, that with the lowest fees in the industry and some of the best technology, TickPick will always help serve in driving price discovery.