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Aug 01, 2016

For Econ Teachers Looking To Bring Supply and Demand Curves To Life...

The departure of Lin-Manuel Miranda could mean lower demand for “Hamilton” tickets — and lower profits for ticket scalpers. Sara Krulwich/The New York Times

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What happens when demand far outstrips supply as it has done for tickets for the Broadway smash “Hamilton?” Prices go up and scalpers mint money. NY Times takes it from there (I bolded the final line):

On July 9, Lin-Manuel Miranda, the founding father of “Hamilton,” took his final bow in the title role of his hit Broadway musical. Other original cast members, like Leslie Odom Jr., who played Aaron Burr, also left the show after that performance and Daveed Diggs took his final bow within days. But the change in the cast was notable for more than matters of casting: It could well have been the high-water mark for demand for “Hamilton” tickets — and for profits reaped by ticket scalpers who make up part of what is known as the secondary market in ticket sales.

For most of May, the median price of a ticket on the secondary market was around $850. Between the Tonys and the July 9 performances, it pushed toward $1,600. Before Mr. Miranda’s announcement of his departure, ticket holders were offering a seat for the July 9 performance at an average of $2,700. With the news of his exit, the average asking price quickly climbed to $10,900 a seat.
Mind you, the average face value of a “Hamilton” ticket was $189.

Here’s their analysis showing how scalpers profits compared with profits of the actual producer of Hamilton (which were around $250K in profits per night):

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The article provides a fascinating look into the level of sophistication of ticket brokers (a.k.a. scalpers) and the rise of the ticket bot :

Scalping can be explained with high school textbook economics. When ticket prices are set too low to balance demand against the supply of seats, any person holding a ticket can find a sea of buyers willing to pay more than asking price for the seat.

Increasingly, that ticket holder is not a guy at the theater door with an extra ticket. It’s a person employing sophisticated software, a so-called ticket bot, to buy a huge number of tickets moments after the theater releases them. In the time a human buyer can find the calendar feature on a ticket site, a scalper’s network of hundreds of bots has already bought the maximum limit of tickets for multiple days of shows.

With the speed of the internet, scalpers have greater reach into ticket purchasing than ever before. The professional tier of scalpers buys and sell thousands of tickets a year, and leverages millions of dollars of inventory. Some scalpers use custom-written software to manage their inventories and adjust their prices based on real-time market analysis, much like traders on Wall Street. (It should come as no surprise they prefer to be called brokers.)

For those of you thinking, wait a minute, this doesn’t seem fair that so much of the profits are going in the buying/selling of tickets instead of the producer of the show…

In April, the New York State Attorney General, Eric Schneiderman, issued a comprehensive report looking at current law and abuses, ultimately concluding changes are needed to fight the persistent use of bots. Subsequent lawsuits extracted settlements and penalties from some nonlicensed or bot-using scalpers.

Want a deal when it comes to buying Hamilton tix (or other high-demand performances), read on:

Fans can still get a seat at “Hamilton” for less than a thousand dollars, if they are willing to wait for it — either buying months in advance from the theater or just hours before a performance, as scalpers drop their asking price.

Good luck!

 

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About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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