Legal Issues

by Mike Masnick


Filed Under:
accounting, booking, concerts

Companies:
ticketmaster



Does Ticketmaster Undercount Tickets Sold To Underpay?

from the concert-accounting dept

Over the years, we've noticed some questionable "accounting" practices in various parts of the entertainment industry. There's recording industry accounting, where labels make a ton of money and most musicians end up in debt. There's Hollywood accounting, where some of the most successful movies of all time are somehow declared "not profitable" so they can avoid paying actors any residuals. Then there is music performance rights accounting, where only the top 200 touring acts get to collect royalty money.

So what about ticket sales for events? Eric Goldman points us to an ongoing lawsuit, in which a producer of events, Club Escapade 2000, is suing Ticketmaster for severely undercounting ticket sales at an event. The event was a soccer match held at the University of Texas El Paso's stadium between two Mexico City soccer teams.
According to Plaintiff, the event was “extremely popular” — traffic was backed up on the highways and news outlets reported large crowds of twenty to forty thousand people attending... Much to Plaintiff’s surprise, Defendant reported that it had sold only 13,151 tickets.... These numbers seemed too low to Plaintiff, and Plaintiff began an investigation of Defendant’s audit reports... Plaintiff allegedly found that on the day before the event, March 24, 2009, Defendant reported that the number of tickets sold was 14,408... The very next day, though, the reported number of sales dropped to 11,098... According to Plaintiff, this was suspicious because there were no refunds or exchanges... Based on this suspicion, Plaintiff hired an expert in digital imaging who examined the video footage of the soccer match... The expert estimated that attendance was likely as high as 24,311.
Kinda makes you wonder if this is standard practice... and if this is why the legacy entertainment guys seem to assume that all fans want to screw them over. Perhaps they're just used to every one else they run into trying to screw them over.

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  1. icon
    Danny (profile), 8 Dec 2011 @ 7:55am

    Re: Re: Auditing is possible

    This is an opening for my to offer my theory (insert Anne Elk joke here) about Ticketmaster and why they are hated so much.

    As I said above, TM competes for business at the level of getting promoters and arenas to choose them. They often win that competition by offering really good (legal) kickback deals to clients, and raising the cash for those deals by milking the retail customer with very high "convenience" charge fees. In olden days, ticket services used to charge arenas X cents per ticket sold. TM made their name in the industry by turning that around and saying to arenas "we will give you X cents for every ticket we sell for you; and we will charge you X cents for every ticket of ours you sell at your box office."

    The outcome of this is that arenas realized that ticketing, something they used to consider an expense, could now be a new revenue stream--and they made more money if the severely limited local box office sales. This change happened in the 1980s.

    Pre-Ticketmaster, service charge used to be 25 cents or 50 cents a ticket; you know what it is today. And that is because the retail customer is providing the revenue stream through TM to the TM client (and TM nets a good deal of money from this as well.)

    A side note: the details of each contract are secret, so the promoters (music act promoters usually, but in this case we have a soccer game promoter) don't get to see them. So the promoter has a hard time taking a fraction of this arena kickback (the industry term isn't kickback--it is "inside charge"). This (and concessions, of course) is how arenas make enough money to stay afloat.

    So, how high can service charges go before this model falls apart? Well the model isn't going to break because arenas move to a competitor. Arenas like the big kickbacks on service charge. The model only breaks when the charge is so large that people stop going to shows.

    That leads to my theory. It is simple micro-economics. They way TM finds how much people will pay before they stop going to a show is to continue to raise service charges to the point people are screaming bloody murder about Ticketmaster, but are still buying tickets. If the charge is too high, they stop buying. If people aren't screaming bloody murder about how Ticketmaster is a bunch of thieves, then the service charge can still go higher.

    This works from a "brand" point of view because it doesn't matter how much the retail customer hates Ticketmaster. They still have to buy tickets through them if they want to attend an event where the arena has selected TM as its ticket agent.

    Of course in real life the model is a bit more complex: there is ticket scalping, the TM contract is sometimes with the promoter--not the arena, and TM has gotten into promoting events itself recently. But the general idea holds.

    I should point out, no one in TM management has ever said this to me--it is my own theory, it belongs to me. But it is consistent with everything I know about the company and the industry. And it is, as far as I can tell, completely legal. Ethics? Your mileage may vary.

    So to the poster above: you can call this greed. But nothing in this model suggests fraud. Nothing in my personal experience with Ticketmaster ever suggested fraud was occurring. And, in fact, part of TM's brand with arenas and promoters is scrupulous accuracy and honesty in their event audit reports--so both sides know the data is truthful. Any fraud at all severely damages that brand.

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