Personal Finance —Ep.6 - Why Are "Hamilton" Tickets so Expensive?

📸 IG handle: DollarSenseLA

“Hamilton” tickets went on sale for the LA Pantages Tour at 10am on April 30th, ranging from $85 to $750. When I first heard about the sale weeks before, I planned on waiting in front of a computer at 9:50am on the day of, trying my luck to get a couple of tickets for my wife and me. But when the day came, I completely forgot. Out of curiosity, I checked the prices on Stubhub the next day for the Sunday show (8/13). Tickets now range from $400 to $6,000. What a jump!

WHY ARE HAMILTON TICKETS SO EXPENSIVE?

Two words: online Scalpers

Let me start by defining what a scalper is. With respect to event ticket sales, a scalper is a person who resells tickets at a large or quick profit. Scalpers often carry a bad rep, because ticket buyers perceive them as opportunists who make tickets unaffordable for the mass. After some discussion with people around me, I learned a lot of the emotions derive from at least of one of these three attributes of a scalper: lack of hard work, lack of skill, or lack of risk.

My attitude towards scalpers is different. In my opinion, scalpers are shrewd opportunists, who play a very similar role to stock traders. Your opinion may be different, but hear me out. Proprietary traders buy and sell stocks in the stock markets (e.g. the New York Exchange, the NASDAQ Stock Market) for the sole purpose of making a profit. They do not create any underlying productivity. Similarly, scalpers buy and sell tickets in the ticketing markets (e.g. Stubhub, Live Nation) for the sole purpose of making a profit. They also do not create any underlying productivity. However, here is where the general attitude diverges. When a trader finds a way to buy low and sell high in as little time as possible, he/she is applauded as a genius! When a scalper does the same thing, he/she is deemed as despicable.

SCALPERS SERVE IMPORTANT FUNCTIONS IN THE SECONDARY MARKETS

Not only don't I think scalpers deserve a bad rep, I actually think scalpers provide real economic value in two ways.

First, scalpers help provide price discovery in the ticketing market. This goes back to economics 101, with basic supply and demand. When Hamilton goes on sale at Pantages for as low as $85, the price is so attractive that it draws the attention of tens of thousands of people with this popular musical. However, the Pantages Theater can only hold around 2,700 seats for each show. It creates a disequilibrium because demand is much greater than supply, thus creating the pressure to bid up prices. People KNOW if they can get the ticket at face value, they are getting a GREAT deal. They would either use it themselves, or sell at a profit. It wouldn't be smart to resell at the same price. However, if you are the exception who wants to sell it at face value, please email me!!! :)

This is a very similar situation to the LA housing market, where we have more people wanting to buy homes than homes available for sale, thus creating the pressure to bid up house prices. When scalpers step in, their trading in the secondary market helps “discover” the true market price of each ticket. Otherwise, the world would never know a Hamilton ticket could be worth $3,000.

Second, scalpers are hustling to provide for oneself and possibly one’s family, in a world where the alternative could be unemployment. I don’t think it’s most people’s dreams to be scalpers. It is just an unconventional way of making money. Nowadays, people find all sorts of creative ways to make money. I actually think we need the creativity. For example, a niche but sizable group of people are making good money by being Youtube/Instagram “celebrities”. As a group, they have become so big, they even help form an entire industry with companies, such as Fullscreen, Vimeo, Buzzfeed, which all provide real jobs to the economy.

BUT I STILL CAN'T AFFORD HAMILTON TICKETS...

From the social aspect, I completely understand anyone who’s unhappy with scalpers, for scalping makes it seem art can only be consumed by the social elites. It is definitely not a good social message. Can we ban it though?

WHAT IF WE BAN SCALPING ENTIRELY?

We can learn a lesson or two from the communist world. When I was young in China in the early 90s, I remember my father was getting ready to visit the United States for the first time. One challenge he had was to exchange his money into US dollars. You may or may not know this. China has been artificially setting a below-market currency rate for decades to prop up exports. It is a similar situation to Hamilton ticket prices, which are also set below the true market rate. Knowing that he would be screwed to exchange money from any Chinese bank, my father resorted to the black market.

He took me along on the exchange mission in the afternoon of a cold winter. We took the bus and got off at the financial district. There we met a man, who’s dressed in a thick black coat, in an alley behind a bank. After a secret signal, the man approached my father and pulled out a wad of cash in dollars. At the same time my father pulled out an even larger wad of cash in Chinese RMB. Within minutes, they counted the money and walked off in different directions. The transaction was complete. The point of my story is, banning scalpers does not eliminate the demand for popular shows that are set at low prices. It will simply create a shadow economy. In modern days, it will probably be done on Craigstlist with Bitcoins, instead of in an alley with cash.

WHAT CAN WE DO TO MAKE TICKETS AFFORDABLE?

I, too, want see Hamilton without forking over $1,000 for a decent seat. I think scalpers are simply the symptom, the true solution lies within the secondary tickets platforms, such as Ticketmaster resale, Stubhub , Live Nation and other similar sites.

These secondary market platforms can easily change the game by imposing a maximum resale value of x% (maybe 150%?) over the face value of the ticket. This is how it works. If the ticket was bought for $100, the ticket could not be sold for more than $150 on these sites. (Thanks SieWai, a co-worker of mine, for giving this idea!) It creates a large enough incentive for people to trade, but at the same time, it puts a ceiling in place.

Even better, these secondary ticketing markets can also create a way to let resellers to choose a certain percentage of resale proceeds to support the artists. For example, on the same ticket with a face value of $100, if the seller chooses to sell at $150 and donate 10% to support the artist, the scalper will end up with $45 in profit and the artist will end up with $5 (10% of $50).

NEXT EPISODE

I am going back to discuss housing in the next episode, building on the foundational knowledge of episodes 1-4. Specifically, I will compare Buy vs Rent, touching on how much money you can save from tax deduction alone on a $650k home. Stay tuned!