Today’s guest columnist is Jesse Lawrence, founder of TicketIQ and FanIQ.
New York Gov. Kathy Hochul is expected to sign into law a bill that would require ticket-selling sites to disclose all fees upfront. In addition to being a welcome departure from the current bait-and-switch model used by the majority of online ticket sites, it would be the most impactful regulation of the ticket market over the last 25 years.
Unlike the 2016 anti-bot law, the current bill isn’t focused on the opaque ticketing supply chain, but rather the consumer experience of buying tickets. Anyone who has purchased a ticket knows what it feels like to discover—in the final step of the five-minute checkout process—that a $100 ticket is actually $125, only to still buy it anyway. The bill won’t limit “market-driven” profit maximization, but if properly enforced, it would create a baseline of pricing transparency that saves ticket buyers time, money and frustration, all thanks to a basic quirk of behavioral economics.
Economists call the practice of not disclosing fees upfront “drip pricing.” While it’s become synonymous with the event ticket industry, the effect of drip pricing appears to be universal. A 2009 study by Raj Chetty, now a Harvard professor of economics, titled “Salience and Taxation: Theory and Evidence,” showed that tax-inclusive price tags in a grocery store reduced demand by 8% compared to tax-free price tags. While it made for an interesting paper, it didn’t make for good business, and the experiment lasted only a month.
The ticket market, on the other hand, has been exploiting its own version of drip pricing to great benefit for decades. Just how great was detailed in a 2015 paper by Berkeley economist Steven Tadelis. Tadelis was part of a team hired in 2015 by Stubhub owner eBay to measure the effects of moving from drip to all-in pricing. The results were consistent with what happened in the grocery store experiment, just in reverse.
Events with drip pricing had a 14% higher conversion rate than events where fees were exposed upfront. Additionally, and perhaps most important, the average transaction price for events with drip pricing was 21% higher than events without. In addition to impacting conversion rates at a listing level, drip-pricing also appears to skew the consumer’s point of reference for what constitutes a “good” deal for the event overall.
Whether via loss aversion or the sunk cost fallacy, the eBay-Stubhub study showed that once you have a user on the hook for a ticket, it’s difficult for them to get off. While that data should have been enough for any bonus-seeking executive to keep drip pricing, the management at Stubhub/eBay did the opposite: They went all-in on all-in. According to Tadelis, the belief around the table, which he agreed with, was that market-leading Stubhub would force the competition to evolve. Along the way, they’d engender massive consumer goodwill, and win more market share.
It was a virtuous vision of the ticketing market, and one that was doomed to fail. With the exception of a few sites like Tickpick and TicketIQ (of which I’m the founder) that use all-in pricing, ticket buyers continue to be subjected to an ever-escalating game of price deception. Fueled by a mix of private equity-funded marketplaces seeking returns and smaller players seeking survival, drip pricing has become industry “best practice.” Not even teams, the market makers themselves, can avoid playing the game.
While consumers have accepted the punishment doled out by the ticketing business for the last two decades, as an industry, it’s dangerous to assume that they will continue to do so. Moving the current bill into law is a big step, but it means nothing without enforcement, both from the public and private sector. Not only do penalties need to be substantial enough that they are not just a cost of doing business, but private-market advertising platforms like Google and Facebook also must also play a role, through proper vetting of ticketing advertisers.
In addition to TicketIQ, I’m also the founder FanIQ, a platform that help teams, venues and festivals manage direct-to-consumer marketing. We spend dollars on both legacy ticket-marketing platforms like Facebook and Google as well as emerging ones like Snap, TikTok and Pinterest.
As the result of a 2018 law passed by former New York Gov. Andrew Cuomo that limited speculative selling, Google has a very high bar for ticket advertiser approval. In doing so they’ve shown it’s possible for a marketing platform to make money while being an honest actor. Emerging ticket-marketing platforms need to follow suit. If they do, the government won’t have to worry about fines thanks to another basic law of economics: supply and demand.
While there are some lower-volume ways to find ticket buyers, paid digital advertising is the most scalable source of customer acquisition on the planet, and the primary growth driver for the industry in 2022. By following Google’s example, marketing platforms focused on live events can ensure that any marketplace continuing to use drip-pricing will suffer the ultimate penalty: They won’t have anyone to sell to.
In addition to TicketIQ, a leading ticket search engine, Lawrence founded FanIQ, a data-driven ticket marketing platform for sports teams, venues, festivals and other live-event promoters. You can find him on Twitter here.