An Options Market for Sports Tickets

Have you ever wanted tickets to a big game your favorite team was playing in, but couldn’t afford scalper’s prices? A new web-based service, The Ticket Reserve, has a solution to your problem. This company has created an options market for tickets to championship sporting events. After opening an account, members can buy options to purchase tickets to a number of specific championship sporting events – NFL postseason games, BCS bowl games, NCAA Men’s basketball Regional Finals and Final Four, etc. – at face value for a given team. For example, I could currently purchase the option to a ticket to the Final Four to see my alma mater, West Virginia University, for $27. If the Mountaineers make the final four, I would pay the face value of the ticket ($140, according to the web site), plus my $27 option. If the Mountaineers didn’t make the Final Four, my option would be worthless and I would be out $27.

The web site appears to be a fully functioning options market. Owners of options for tickets can sell them at any point in the future for any price that the market will bear, with the possibility for profits or losses. If West Virginia’s basketball team plays poorly in the upcoming months, the value of my option would fall; if they play very well, the value of the option would rise. Well developed options markets already exist for many commodities, so it’s not surprising that this one has appeared.

The economics of ticket scalping is interesting. Most models of scalping assume the existence of two types of consumers: “die hard fans” who buy tickets long in advance, rearrange their schedules, and sometimes travel long distances to see the event, and “busy professionals” (both terms appear in the literature) who cannot commit in advance to attending events, but only find out if they want to go a short amount of time before the event takes place. Event promoters cannot easily distinguish “die hard fans” from scalpers who buy tickets early and sell them to “busy professionals” at a higher price later, and scalpers can always undercut the promoters if they try and hold back some tickets to sell to “busy professionals” close to the time of the event.
(A good discussion of the economics of ticket scalping can be found in “Some Economics of Ticket Resale” by Pascal Courty in The Journal of Economic Perspectives (2003), vol. 17, no. 2, pp. 85-97.)

The Ticket Reserve is clearly aimed at “die hard fans.” One problem faced by “die hard fans” is that, no matter how far ahead they might plan, tickets to some sporting events – the 2006 Rose Bowl, for example – have such high demand that it is very difficult to purchase any tickets at all in advance. And transaction costs and information assymetries might also keep “die hard fans” from purchasing tickets to events that will take place many months in the future. Based on information on the web site, The Ticket Reserve has access to some number of tickets to these sporting events. Although they sell the tickets at face value (presumably to avoid anti-scalping laws), they make money by selling many different options to the same tickets – potentially hundreds of options to each Final Four ticket depending on how many fans of different teams want an option to purchase them.

Hat tip to Tyler Cowen at Marginal Revolution for the link.

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Author: Brad Humphreys

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