22 October 2007

Scalping and hedge funds

Here's one for you.

Is it beyond the realm of possibility that hedge funds use scalping as an opportunity for arbitrage profits?

Arbitrage is the activity where you buy something somewhere, knowing full well that you can offload it again somewhere else for a profit.

Consider this: Roughly about 40,000 tickets for the Big Day Out in Melbourne went on sale to the paying public at about $120 a pop. This translates at revenue (excluding freebies) of about $4.8 million.

They're currently retailing on Ebay at upwards of $200 each (buy-it-now prices).

This is a pretty hefty capital gain in anyone's language, and it’s not too hard to see where the attraction for an unscrupulous hedge fund operator might lie.

Working against the hedge fund manager is, if we use our Big Day Out example, a limit of 4 tickets per purchaser. This isn’t too hard to get around – it wouldn’t surprise me in the least if someone wrote something that automated the whole process.

Having said that, I’m unsure whether there was some kind of visual verification like what is required for my blog comments. I’m also unsure if these can be gotten around quite so easily.

And selling them on Ebay pretty much guarantees anonymity (for the hedge fund, at least)as well as the ability to conduct some kind of very basic future hedging through a reserve/starting price guarantee mechanism.

Of course, the 14 day limit on auctions also conspires against quick sales, but you can see where this is heading.

And, of course, we know that there isn’t much that hedge funds won’t do in order to churn a quick profit.

So I suppose that my question is this – what are the practical limitations that I'm not considering? I know they're there, I just don't know what they are.

4 comments:

Greg said...

Hedge funds aren't into it because it's not profitable enough. This is probably due to the relatively small turnover and the fact that the headline acts (eg AFL Grand Final) have specific legislation banning scalping.

I don't have a problem with scalping: it's just the market working properly to ensure that tickets flow to where they should.

Scalping only exists because they've under-sold the tickets in the first place.

But people don't get this, and not just because most people don't understand how prices are arrived at. There seems to be an almost visceral hatred of scalping by the unwashed though. Concerts, sporting events, you name it. Why?

Clearly, some people are going to miss out on seats. The question is, what is a sensible criterion for determining those poor sods?

The wets out there regard "unwilling to sleep in a tent while queueing for two days" as a valid filter. Bullshit. Too bad if you're disabled, got a young family, are employed or have other responsibilities.

The idea in using time instead of money is the "real fans" will make the sacrifice. Well, real fans can also hock their plasma telly or forgo three month's of coffees - or just pirate enough albums to pay for concert tickets!

There's no doubt that a gig (or a footy match, for that matter) can be ruined if a sizable part of the crowd is composed of uninterested corporate hospitality recipients on comps more interested in schmoozing than the main show.

But this is much an argument about Fringe Benefit Tax and corporate largesse than ticket pricing mechanisms. Want to keep it real and don't care about money? Well, "secret gigs" and the like are the well-worn answer to that.

Bigger picture, undercharging on tickets (that is, charging under the Willing to Pay price) results in underinvestment in venues. We have smaller and fewer and shabbier venues than we would have if we "floated" ticket prices. So using money as the criterion is fairer too as it means less people having to miss out next time.

Perhaps now is the time to embrace open markets for tickets. If retiring Baby Boomers riding the property and mining boom are happy to fork out $450 to watch Sting, maybe that can be channelled into huge stadia around the country. A string of 300,000-seat venues could be their legacy to humanity.

And with P2P seeing recording become less profitable, musicians will have to actually work for a living and thereby fill those venues!

I wait for the day when Ticketmaster is bought by eBay and we can bid directly on individual seats.

Dikkii said...

Hedge funds aren't into it because it's not profitable enough.

Not sure that I agree with this.

My example might not have been a big one, but when a moderately large hedge fund I know puts no more than 10% of its total portfolio into certain investments, and is only about $15mill in size, my example is showing seriously big bikkies.

Again, this fund is considered moderately large.

Hedge funds go for quick wins, and scalping is a no-brainer.

I'm actually undecided on scalping. I see it as the free-market in all it's glory. On the other hand, I also see it as the exploitative process that it is.

What I am annoyed about though, is the utter crap that promoters spew about wanting to stamp it out, and they have the very means at their disposal that they can use in order to stop it.

If they wanted to, of course. Clearly they couldn't give two shits about it.

And, as I pointed out in this comment, promoters are only short-changing themselves by not charging enough.

Too bad if you're disabled, got a young family, are employed or have other responsibilities.

I work with a bloke who is all of the above, yet he does this everytime Hawthorn makes the finals.

He was also the club mascot one year, managing to milk a grovelling public apology out of Sandy Roberts after he made some slur about him being pissed.

And with P2P seeing recording become less profitable, musicians will have to actually work for a living and thereby fill those venues!

Ramen to that, brother! Testify!!

Oatesy said...

Hedge funds go for quick wins, and scalping is a no-brainer.

Risk still exsists.
http://www.abc.net.au/pm/content/2006/s1730257.htm

http://www.abc.net.au/sport/content/200608/s1728535.htm

The White Party (armand van burien) also saw a great quantity of ebay tickets cancelled, though was somewhat less reported by the media.

Though I sit on the fence as 'undecided' on scalping. The buying and selling of scarce resources in line with demand and opportunity is something I should support. You do not wish to wait in a line for three days in the rain, then you pay a premium to someone who does, services rendered and all that.

Then again, not sure I am happy paying the same premium to someone with a faster internet connection. Is it possible that software exists to purchase tickets automatically?

At the very least the scalpers should be taxed on the profit...

Dikkii said...

The White Party (armand van burien) also saw a great quantity of ebay tickets cancelled, though was somewhat less reported by the media.

That's interesting, because it wouldn't be a "big" concert or sporting fixture.

Would this be an example of Ebay protecting their public image, I wonder?

Then again, not sure I am happy paying the same premium to someone with a faster internet connection. Is it possible that software exists to purchase tickets automatically?

I could be wrong, but I think most ticket agencies have waiting lists where you can pre-order for certain gigs/matches etc.

At the very least the scalpers should be taxed on the profit...

Theoretically they are - depending on whether they do it professionally (income) or not (capital gain) this would be assessable if the ATO chose to pursue it.

Mind you, gathering evidence wouldn't be a cheap use of ATO labour.