Who needs tickets? Examining problems in the growing online ticket resale industry.

• Author: Kirkman, Clark P.

1. INTRODUCTION II. HISTORY: FROM 'SCALPING' TO 'RESALE' A. Pre-Internet Scalping and Anti-Scalping Legislation B. Growth of the Online Resale Industry III. 2007 HANNAH MONTANA TOUR: THE TICKET RESALE MARKET COMES OF AGE IV. TICKETMASTER, LLC V. RMG TECHNOLOGIES, INC. V. THE FUTURE OF TICKET SALES IN THE UNITED STATES VI. CONCLUSION I. INTRODUCTION

   In December 2007, I received two tickets to see the Detroit Pistons play the Washington Wizards at the Verizon Center in Washington, D.C. on January 2, 2008. The tickets were purchased using Craigslist.org, an online marketplace. The tickets themselves were premium seats, only ten rows behind the visiting bench, and they were purchased at a price below face value. The seller was not a career ticket broker, but merely someone trying to unload tickets to an event he could not attend.

   While online transactions involving regular people are common, professional ticket brokers are increasingly dominating the online ticket resale market. (1) It is beyond dispute that this secondary market for event tickets based on supply and demand will continue to exist in the United States, at least absent some radical shift in policy by Congress and state legislatures. The online resale market is growing rapidly; estimates of annual sales over Web sites like StubHub, eBay, Craigslist, RazorGator, TicketsNow, (2) Ticket Liquidator, and others totaled about $3 billion in 2006. (3) That number is expected to rise to $4.5 billion by 2012. (4) This market success has compounded the enforcement problems currently experienced by states that wish to crack down on scalping. "Because of the consensual nature of purchasing a ticket ... as well as the anonymity of Internet transactions, enforcing scalping laws across state borders may be too costly." (5) "Legal gray areas" in the personal jurisdiction and choice-of-law contexts also exist when bringing actions against these auction sites or the brokers themselves. (6)

   Though the primary beneficiaries of this burgeoning market are the resellers--who routinely make profits on tickets that more than double their face value (7)--the substantial utility to the consumer that the market provides should not be lost in the fray. First and foremost, the supply and demand model in this situation works well enough so that, in most cases, those who value attendance at an event the most will be able to attend. (8)

   Also, particularly for events that have not sold out, the secondary market provided by scalpers increases competition among all ticket sellers. (9) In such cases, if ticket scalpers did not make a business of reselling tickets, it is possible that promoters might take the opportunity to charge a more exorbitant price. Fans can also take advantage of the market forces of supply and demand by waiting until the last minute to purchase a ticket that is about to entirely lose its value to the scalper. (10) Finally, at least for those who can afford it, the secondary market alleviates the need to wait for hours, or even days, in line for highly sought-after tickets. (11)

   The ticket resale industry has taken on new attributes since transforming into an online business. While the Internet has helped many sectors of the economy grow in ways that were consistent with their pre-Internet model, the proliferation of online ticket resale markets has changed the dynamic of how tickets to events are distributed, especially for the most popular events. It can only be assumed that, if unchecked by public or private actors, the industry will grow to control more and more retail ticket purchases.

   First, at least one software company, RMG Technologies, has been identified as having designed and distributed software specifically targeting Ticketmaster's (by far the biggest distributor of face-value tickets) Web site in order to procure large quantities of tickets for RMG's broker clients. (12) Although Ticketmaster won both preliminary and permanent injunctions against RMG, (13) the case highlights an emerging issue of how tickets to events, nationwide, are susceptible to predatory practices by middlemen who compete with regular concert-goers for a promoter's ticket stock. To be sure, while the benefits of a ticket resale market have been highlighted above, it is hard to make a case for a system which allows middlemen to "cut in line" and comer the market on available tickets.

   Another problem lies in actually enforcing laws against ticket resale. Indeed, the historical justifications for anti-scalping statutes, as discussed below, no longer seem to apply. As this Note will argue, the transformation of the industry into a cyber marketplace, national in scope, calls for Congress to act. Such a regulatory scheme, superseding regulation by the individual states, will have the additional effect of remedying the personal jurisdiction and choice of law legal gray areas by transferring jurisdiction to the federal court system. Though some may argue that Congress, in this regard, could be meddling in an area historically reserved for the states, the interstate aspects endemic to the online ticket trade provide ample justification for such measures.

   For the good of both the consumer and those who participate in hosting events nationwide, these public policy considerations must be taken into account. Of course, promoters could set ticket prices at whatever they deem fit, utilizing the market forces made possible by the Internet in order to increase their profits; indeed, some have done exactly this. (14) However, it is far from acceptable for legislatures, particularly Congress itself, to sit idly by while "ticket brokers earn hundreds of thousands of dollars from an entertainment product that the [artists or] teams--not the brokers--create and develop." (15) Some promoters have already taken legal action against middlemen who have been able to make such a living. (16)

   This Note seeks to provide insight into the rapidly developing online ticket resale industry. Though ticket scalping is a business much older than the Internet, opportunities online have allowed the market to redefine itself and proliferate in a relatively short period of time. This Note will argue that the growth of a secondary market based on supply and demand for ticket sales in the United States, as a result of utilizing tools provided by the Internet, has many advantages for the average consumer. Some consumers have taken advantage of the opportunities this new market provides including an increased ability to get tickets at the last minute, to get the best seats to a particular event, and to be able to sell tickets that they are not able to use themselves. Also, conducting these transactions online negates many of the classic, nuisance-related rationales for the historical criminalization of ticket scalping by states.

   But, professional ticket brokers also have the opportunity and motivation to abuse these tools. Promoters, when setting ticket prices, take into account other factors besides simply how much they could charge for each ticket. They have long recognized goodwill interests and the promotion of a healthy fan base as legitimate reasons for making tickets affordable to the public.

   When brokers purchase large blocks of tickets for resale at vastly inflated prices, thereby capitalizing on promoters' attempts to set ticket prices at affordable levels, the biggest loser is the consumer. Also, computer software programs are being developed that give ticket brokers unfair advantages. For events that are certain to be in high demand, entering the secondary market may be the only way for consumers to get their hands on a ticket. At the same time, many state legislatures--the bodies that have historically regulated the industry--have scrapped their anti-scalping statutes as "outmoded and largely ignored laws addressing a bygone, pre-Internet era." (17) These forces have some industry insiders predicting an endgame, perhaps in as little as a decade, placing all ticket sales at the mercy of supply and demand. (18) Such an outcome would have a disenfranchising effect on the less affluent and their ability to see their favorite team or performer live.

   Part II of this Note traces the history of the scalping industry, the rise of the online market, and responses by various state legislatures. Part III examines the circumstances surrounding the 2007 Hannah Montana: Best of Both Worlds Tour, which saw some of the problems associated with online ticket sales manifest themselves to a degree large enough to garner the attention of the Attorneys General of Missouri and Arkansas. Part IV examines the case of Ticketmaster, L.L.C. v. RMG Technologies, Inc., (19) in which Ticketmaster alleged that the defendant software company was manufacturing, soliciting, and distributing software that allowed client ticket brokers to purchase large numbers of tickets while blocking average consumers. (20) Part V analyzes where the ticket resale market is heading, and asks questions about what can or should be done to ensure that the system is fair to all. Specifically, the Author contends that national regulatory action on the part of Congress is necessary to prevent the usurpation of primary market ticket sales by the ticket broker industry. Only federal action can adequately address problems ranging from ambiguities in personal jurisdiction to the financial and personnel constraints endemic in state attempts to regulate the online marketplace.

2. HISTORY: FROM 'SCALPING' TO 'RESALE'

   1. Pre-Internet Scalping and Anti-Scalping Legislation

      At the heart of what it means to "be an American" is the idea that we live in a free society; no sector of our society reflects this notion more succinctly than our supply-and-demand, capitalistic economy. The U.S. Supreme Court reached its apex in laissez-faire thinking in the early twentieth century in the famous case of Lochner v. New York, (21) which struck down a New York statute...