By Alex Wood
Journal Inquirer
Published: Thursday, May 13, 2010 1:53 PM EDT

When the price of a product in limited supply is lower than what people are willing to pay, there’s money to be made.

Smart traders throughout history have gotten rich by applying that simple principle.

And that idea is behind the success of TicketNetwork Inc., the Vernon-based company that has ridden the secondary market in sports and entertainment tickets to exponential growth in recent years.

The company — based at 137 Bolton Road, just south of Interstate 84 — says that its growth rate was 27,000 percent in 2008 and that it continues to experience “high growth.”

Because its stock isn’t publicly traded, the company doesn’t divulge financial statistics. But it confirms that its president, Donald Vaccaro, said in August that it was expected to have $400 million in gross sales that year.

TicketNetwork responded to written questions submitted by the Journal Inquirer but declined a request for an interview with Vaccaro or others in the company. The company has clashed with the JI over the newspaper’s refusal to re-assign coverage of an affiliated company’s proposal for an outdoor concert venue in Vernon on grounds that the JI’s Vernon reporter lives near the site.

The company says it doesn’t sell tickets. Rather, it provides a software platform for Internet-based ticket sales and exchanges by other companies. But clearly its success in selling those services turns on the success of the ticket brokers it serves.

Bans have failed

Ticket brokers once operated on the edges of legality and were reviled as “scalpers.”

But like other efforts to rein in market forces, the attempt to eliminate the secondary market in tickets through legal brute force has largely failed — and has been abandoned in numerous jurisdictions.

Connecticut’s legislature repealed the state’s anti-scalping law in 2007, although there are still restrictions on reselling tickets on the day of an event within 1,500 feet of the venue. The law also requires ticket resellers to give refunds if an event is canceled, the ticket is invalid, or the ticket isn’t as advertised.

The real question for TicketNetwork and others in the secondary market is whether entertainment promoters and other initial sellers of tickets will find ways to sop up their profits by developing sales techniques better tailored to exploit market forces.

An obvious way to do that would be to auction off tickets to the most popular events through online sites similar to eBay, rather continuing to sell them at fixed prices.

Some sports and entertainment promoters have already started using such auctions to a limited extent. The New York Jets, for example, auctioned off the right to buy season tickets in the “Coaches Club” section behind the team’s bench, drawing bids as high as $200,000 per seat, according to media reports.

Goal: Delighted customers

But experts say the sports and entertainment businesses are more complicated than simply wringing every possible dollar out of each ticket.

“The goal of sports teams is to develop long-term relationships,” explains Larry DeGaris, an associate professor of marketing at the University of Indianapolis. “You want fans to stick with you through thick and thin.”

“Most firms, sports teams included, seek to delight their customers,” he continues. “You want them to feel like they’re receiving a good value, especially your best customers. For sports teams, that means season ticketholders.

“If teams were to drop their prices for single-game buyers mid-season because the team isn’t doing well, season ticketholders will feel ill used,” DeGaris explains. “Conversely, if teams jack up their prices because the team is doing well, then fans who stuck by them through the lean years will feel taken advantage of.”

As part of the effort to keep season ticketholders happy, many teams facilitate season ticket “exchanges” to enable them to get full use out of their tickets and encourage renewal, he adds.

Entertainment events are different, DeGaris says, because they are typically “one-off events,” without season ticketholders.

Still, he says, “the common goal is to provide value to your customers. Venues don’t mind selling a ticket for $100 that might sell for $250 in a secondary market if the venue is sold out and they’re making a profit. That’s a win-win — the venue makes money, the customer is delighted and, hopefully, will come back.”

The suggestion of all this is that the long-term interests of sports and entertainment promoters may not always dictate that they maximize short-term profits. And the business strategies that result may leave money to be made in the secondary ticket market.

Frank Roach, who teaches in the University of South Carolina’s Department of Sports and Entertainment Management, describes the power balance in the live entertainment industry this way: “Ultimately, the act controls everything.”

A preventable phenomenon

If acts didn’t want secondary ticket sales to be happening, there wouldn’t be any, Roach says.

“The technology is there to prevent it,” he observes. “You can’t resell a seat on an airliner.”

In most rock concerts, a certain number of tickets are allocated to the band. One possible reason that bands wouldn’t object to secondary ticket sales is that they may be reselling some of those tickets profitably on the secondary market.

“That’s certainly been alleged by more than one person,” says Roach, who worked in the live entertainment industry before entering academic life.

Roach suggests that laws to curb the secondary ticket market are inconsistent with the way other sectors of the economy operate.

“We would never pass a law saying you can’t resell a house for more than you paid for it,” he says.

But at least one performer, Miley Cyrus, has used technology to thwart the secondary market. On the teen singer’s most recent tour, seats were sold via credit card, and buyers were required to present the same credit card and a government-issued identification card at the door.

“I think it worked fairly well,” Roach says.

Sucharita Mulpuru, a vice president of Forrester Research Inc. in Cambridge, Mass. and an author of the company’s January 2008 report, “The Future of Online Secondary Ticketing,” says such systems “will have an adverse impact on the secondary ticketing market because those types of events are their cash cows.

“The regulation of how tickets are distributed is absolutely a threat to that industry,” she adds.

On the Miley Cyrus tour, there were a few glitches, such as when a grandmother bought a seat for a grandchild, then died before the show. But Roach says, “They found a way to work around that.”

Giants may shape future

Roach is hesitant to make predictions about the future of the ticket market, especially in light of the recent merger of Ticketmaster and Live Nation Entertainment, two of the industry’s giants.

“Almost anything that happened prior to that really doesn’t matter, because it’s really going to change,” he says.

Mulpuru says Ticketmaster has made a “foray into the secondary space” by buying TicketsNow. But Ticketmaster complies with anti-scalping laws, which Mulpuru says remain “an impediment” to it in the secondary market.

In the January 2008 report, Mulpuru and her Forrester colleagues predicted that secondary ticket sales would grow at 12 percent annually over the next five years in the United States, reaching $4.5 billion in 2012. She told the Journal Inquirer in a recent e-mail exchange that the company hasn’t revised those figures, despite the big economic recession since the original estimate was made.

“One thing is for sure,” the report warns. “With astronomical profits in the secondary ticketing market and a positive outlook for the next five years, primary ticket sellers like Ticketmaster and Tickets.com are not going to let the online secondary ticketing market sit around for another decade without cashing in on the resale bounty themselves.”

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