What Is Happening With GameStop Happens In Ticket Re-Selling: A Ticket “Short Selling” Explainer
January 28, 2021
A lot of buzz surrounds this GameStop situation on Wall Street.
It has the David and Goliath feel to it. A bunch on anonymous Reddit users have talked up a suburban-strip-mall, brick-and-mortar-type company like GameStop to knock out some big, bad short selling firms on Wall Street. So are you a Dallas Cowboys fan (Wall Street) or a Cleveland Browns fan (the Reddit users)? It is an alluring story for this reason.
Being in the ticketing world and having worked for and with ticket brokers for years now, there is a similar practice in the broker world. There is a segment of ticket re-sellers that “short,” or do “short selling.”
So this is how it works.
Say you see a concert tour is going on pre-sale and you think the tickets are over-priced. Katy Perry’s Witness Tour comes to mind, because ticket prices dipped after her 2017 album did not sell as well as hoped. So if you sensed that, you may have decided to “short” some of her concert dates. So you list on marketplace sites promising a specific section and row (buy not specific seats) guaranteed at a certain price. You may not target the entire tour but just a few specific shows – such as targeting off nights like Monday or Tuesday or target a market you think don’t have a lot of Katy Perry fans.
So the listing would guarantee, say for example, two seats in Orchestra B, Row 14 for $150 per seat. Current face value may have been $250 and you may feel the ticket price was going to dip to $100 before having to fulfill the order. If you end up right and a customer buys at $150 per seat, you eventually buy two seats in Orchestra B, Row 14 once they dip to $100 per seat (this us usually the week of the show), deliver the tickets to the buyer, then keep the $50 per ticket as profit.
Thought most ticket brokers buy tickets then re-sell the conventional way, some in the industry short sell almost exclusively. In a lot of cases, customers buying a shorted ticket can benefit. If the customer did not want to wait until last minute to see if ticket prices would go down, buying a shorted ticket gives the customer a discounted ticket guaranteed by the short seller, who is taking a risk it goes even lower than what the customer pays. As long as the tickets are delivered it all works out. Customers using Vivid Seats may not even realize when they buy “Zone Seating” that they are buying tickets being shorted.
But there are bad sides to the practice. First off, some brokers try to stretch the deadline to delivery seats to maximize or save on losses to their shorts. That can stress out the customer. I recall a colleague waiting until hours before the show for the short seller to finally deliver seats because prices were still high so they were waiting as long as they could for the price to dip and save money. When customers buy shorted tickets, there is a higher likeliness they will get tickets not in the same row or even section they thought they bought. Sometimes that is a good thing – buyers might get much better locations based on luck. But you do not buy these shorted tickets if you want location certainty. The worst case scenario is short sellers bet on locations that never become available so the order is cancelled and the customer is out of luck.
Possibly unlike the hedge fund world, there is a pretty strong incentive to eat your losses but deliver tickets if you lose money on a short or cannot deliver the location range you promised. The few marketplaces that offer these types of sales on their site will hit the short seller with a penalty if they do not delivery what was promised to the customer. That penalty ain’t cheap so you won’t survive long doing that. If large ticket brokerages held, say, Vivid Seats hostage over a ton of shorted tickets for a concert tour and eventually Vivid relented and did not penalize that large broker, well, that would sound like the deserved reputation of hedge funds or large Wall Street firms stemming from bailouts and lack of accountability during the 2009 financial crisis or the “vulture” activities in colonized economies and against vulnerable companies.
The retail investors vs. hedge funds dynamic and their interactions with exchanges and the government certainly is reminiscent of the tension between local or old school ticket brokers and Internet-based independent brokers interacting with the bigger players in the industry – Live Nation/ticketmaster (yep, they re-sell tickets too), pro sports teams (which are increasingly shutting out brokers left and right – but working only with a few large “consolidators” and keep a cut of the re-sell profits) and marketplaces (Vivid, StubHub, etc).
The local and independent brokers more or less resemble the WallStBets crew. They are mom and pop operations who have been re-selling tickets from the scalper-on-the-street or shopping mall retail days or are scrappy entrepreneurs who use the Internet to study up on trends, join subscription-based chatrooms that share presale codes and sometimes even band together to buy up a ton of tickets for a particular show to control the inventory pricing. The large brokerages – like the ones with tons of buying capital or use bots or with exclusive re-selling deals – more or less can have the reputation of hedge funds. The local and independent brokers may feel like the big guys can “cheat” (use bots and only barely get fined if they get caught) or make an exclusive deal with teams which shut out the local brokers or sometimes just longtime season ticket holders the ability to keep value in their seats or have access to that re-sell market.
The secondary market exchanges like Vivid, StubHub and even ticketmaster are seen as the NASDAQs of the world, the institutional marketplaces where the buying and reselling happen that to the local and independent brokers may bend to or favor the larger brokers, pro sports teams and large concert promoters like Live Nation (which owns ticketmaster and have been known to use dynamic pricing and even re-sell their own inventory). Then you have how all this is regulated or not by state and the federal governments.
Just like this GameStop stock price, we don’t know where all this ends. But while in the throws of a global pandemic, the one certainty is the coming changes in the buying and re-selling market. The David side of it is just hoping it can compete and Goliath has to play by the same rules.