Wednesday, April 13, 2005

Legal Ticket Scalping by the Cubs

This is old news for Cub fans out there, but many of you may not have heard what is going on in Chicago with Cub tickets. For those who don't know, the Cubs are sold out every game and before each game there is a lot of buying and selling of the tickets over face value outside Wrigley Field. If sold over face value (the price printed on the ticket), it is referred to as "scalping" a ticket. This is a practice that is very old and very common. More thoughts about scalping in general later.

Scalping is illegal in the State of Illinois UNLESS you have a "brokers license". Basically you pay a fee to the state and you can set up a website, office, or whatever and sell tickets for above the face value, pocketing the difference. Ebay and other online sites have started to make ticket brokers obsolete, however. The key to all of this is to be able to get the tickets - for face value.

The demand for Cub tickets is so intense that for $45 seats down front you can get several hundred dollars each. For the Yankees games last year some seats went for over $1,000 ea. That is nice coin.

Here is what the Cubs did:
The Tribune Company (owner of the Cubs) set up Wrigley Field Premium Ticket Services. Before the season even starts the Cubs take the good seats and sell them to WFPTS for face. WFPTS then can scalp the tickets at street market rate. There is some accounting trickery going on here also, but lets just limit this post to the scalping theme. So basically, the Cubs and their owner, The Tribune Company set up a ticket broker to try to harvest some of the "lost" revenue that other scalpers or season ticket holders were receiving. So be it.

What is so very amusing to me about all of this? Several things.

1) If a person wants to pay $1000 to go to a baseball game, I say let him or her. It's their money and I don't care what they do with it. If that means that you can't go, so what. You will be OK. You aren't guaranteed any sort of right to go to baseball games. And, by the way, it is just a baseball game.

2) Why don't the Cubs just simply auction off every seat in the house? Have a huge online auction at the beginning of the year and let 'er rip. No more lines, no more "lost" revenue. No more crying about scalpers "making money off your team". The Cubs would receive exactly every penny that the market can hold for the tickets. There are some serious advantages to this system. First, auction off a set amount of season tickets, say the lower deck and bleachers (non-renewable - every season ticket is auctioned off every year). Then, wait until two or three weeks before the game happens to auction off single game tickets (the upper deck). The Cubs sell out every game anyway. So why not wait until later in the season to have auctions for single game tickets? That way, if the Cubs are in the playoff hunt, they could get even more money for the tickets. Why sell tickets in March for a game in September? Maybe Barry Bonds will be in town trying to break Hank Aaron's home run record. Of course, they could set minimum prices (like everyone does on Ebay now) so they would be out nothing. Remember, even if the Cubs stink, they still sell out every game. Another option may be "floating" prices. In other words, the Cubs would charge higher prices for the Cardinals games than for the Pirates games.

All of this depends on the financial viability of the Cubs. I don't know how viable they are. With a huge payroll like they have, they may be forced into selling all of their tickets before the season starts just to be able to bankroll the players salaries. This information is not readily available to me, and it is a point that needs to be made. That still wouldn't stop the Cubs from having an auction before the season started - maybe for all of the games. It would accomplish the same thing - cutting out the middle man, which is why the Cubs set up WFPTS.

3) The Cubs will suck again one day. The spread between face value and street value increases or decreases as a function of the success or failure of the team. My beloved Milwaukee Brewers have a face/street spread below zero. If you go to a Brewer game and encounter people selling tickets outside the game, usually the price is below face - people are trying to get anything for the extra tickets they have. Their competition is the box office and the face price. That is because the Brewers never sell out. Remember, the Brewers have not had a .500 season since 1992 - their attendance for the game on April 13, 2005 was 11,000. In a 40,000 seat stadium. A stadium with a roof so no threat of rainout. And that includes season ticket holders that didn't show up as those are always counted in attendance. As if that is not bad enough, you can always buy the $12 upper deck seats and move way down front - trust me, I do it all the time. Yes, demand will always be there for Cub tickets, but not the crushing demand of the here and now. Will the Cubs be able to skim enough revenue from their legal scalping operation to keep it afloat in the lean times? Time will tell. It seems so. Even in the early 90's when they weren't so good and I attended many Cub games, the place was packed.

4) Here is the bigger story - what the heck is wrong with scalping anyway? Imagine me, a business owner, going to my customer and stating that it is illegal for them to mark up any product I sell them because I have "lost" revenue. That is just plain silly. Automotive shops do it, grocery stores do it, home centers do it. Marking a product up and making it available at the right place at the right time is the whole foundation for any distribution business; grocery stores, home centers and the like are nothing more than distribution businesses that are retail based.

For any team to carp about scalping is just foolish. Hey team owner - IF YOU ARE PISSED OFF THAT PEOPLE ARE SCALPING YOUR TICKETS AND YOU ARE LOSING REVENUE RAISE YOUR DAMNED PRICES!!! Obviously the owner of the team doesn't have the ticket marked up high enough if there is someone else that is making a nice markup inbetween.

In the real world, this is how distribution companies (like Wal-Mart, Target and the rest) make their money. Manufacturers don't necessarily want to deal with all of the end users, so they sell bulk quantities of product to a middle man who breaks down the large quantities, marks the product up and sells those smaller quantities to the end users. What is more efficient for Proctor and Gamble - selling a skid of Crest to Wal-Mart or selling 10,000 individual tubes of Crest to 10,000 individual people? So letting middle men make a buck is a choice lots of manufacturers make. The Cubs are no different. They set a price for the ticket. They knew that middle men (legally and illegally) were making a mark up on the ticket. So the Cubs set up their own middle man with the choice seats. Simple.

5) For people to complain about the Cubs scalping their own tickets is a huge waste of time and air. If you are upset, there is one thing you can do and one thing only. Do not go to the Cub games. Very easy.

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