# Scalper Algorithms, from Richard Owen

June 30, 2013 |

The Mrs and I are at Twickenham to see Rihanna with two no show tickets to sell.

What is the correct algorithm for touts (a.k.a scalpers in the US)?

First ask to buy then use that as a reference for an offer?

What is market standard discount an hour before start?

And what average vig does a tout make?

Here is my fast hand analysis of the market made by ticket touts.

Touts are generally criticised as parasitical, like many financial market participants. However, they provide a valuable service. Since concertgoers know there will be a market made, they are willing to show up for events without tickets. Last minute spare tickets that would otherwise be worthless to punters are therefore saleable.

For a £60 Rihanna ticket at Twickenham as the base of calculation we can note the following:

- Initial instinct in selling a ticket before the event to a tout might be to accept a discount to face value.

- The touts take advantage of this by using anchoring. Different touts rapidly quote heavily reduced prices of £5 or £10. This is accompanied by pained faces and "there's no punters around love" despite a stream of people walking by.

- Conversely, reverse anchoring is recommended: ask the tout "how much to buy a ticket?", then when they quote their price say, "ah, that's good, I have one to sell". And vice versa.

- In fact, the touts carry inventory, some of which they must have purchased before the event. This indicates that they expect to trade out their inventory for par or above, in order to avoid capital losses.

- Since the market is disorderly (although there may be unspoken 'exchange rules'), a punter could in theory join them and front run the next bid.

- All this suggests that tickets should never need to be sold for less than face value, despite this being the typical deal struck by punters looking to sell. This is especially true for ticket pairs.

- The tout's inventory drops to zero value at the time of the event. However, with Twickenham as our example, there are plenty of pubs and clubs nearby, one assumes that the last minute backup plan is to prowl the pubs offering the tickets to couples at knockdown prices. If offered a £60 ticket for £10, the price of a few drinks, one assumes it is easy to trade out of the inventory to locals at the last minute.

- As a finger in the air, one feels a buyer looking for a ticket before the event would pay ~£150 (and this is without factoring in any 'hotness' of the tickets in the weeks before the event thanks to EBay, etc.).

- Thus, for sake of calculation, if you assume (wrongly) for each tout a 50% chance of having to sell each ticket held in a forced sale just before the event at £10 and a 50% chance of getting it bid at £150, it suggests an average liquidation value of £80.

- If tickets are on average bought at ~£20 and sold/liquidated on average for £80, for a £60 ticket that's £60 or 100% roundtrip vig. For pre-purchased inventory, that's £20 roundtrip profit or 33% vig.

- So if 80% of inventory is pre-purchased and 20% bought in the market, that's an average vig of £28 or ~50%.

- For a ~50k seater concert, £3m of ticket inventory exists. So for every basis point traded (5 tickets) that's £300 face value.

- So for each basis point traded (5 tickets) that's £140 profit to the touts.

- It's hard to guess the actual number of basis points traded without empirical data. If you guessed 25bps, that would be £3500 profit to the touts.

- Since taxi drivers double up as the stereotypical tout, and they typically make ~£12/hr, for three hours work (£36), that would suggest an equivalent hourly income for ~100 taxis drivers (ignoring a fee for "return on risk capital").

- The above suggests either (i) very thin trading <<25bps of face value, (ii) my vig estimate is way off, or (iii) this is a way to make supernormal profits by taxi drivers. I eyeballed about 5 touts in total at our gate, so generously say 25 total.

## Jeff Watson writes:

My dad used to scalp tickets when he was a kid. He financed me to scalp the Rolling Stones 1971 concerts, and I had to pay kids to sit in line to get the tics. Typical of my dad, I did all the work and he got his 60%. Still, it was a good learning experience, I made a couple grand (which was a lot of money in 1971), and that money was the seed money for my first excursion into soybeans and commodities in general. Had I never scalped the Stones concert, I would probably be a drone in a lab somewhere with a much different career path. Funny how the most minor things in life can affect the biggest changes. Heck, the most minor things in the market can do the same thing.

## Richard Owen responds:

That reminds me of a story told to me by a friend acquainted with one of London's most successful touts. He is known at "Gary One-Point-Eight". Why? Because he bought a house in Chigwell worth £1.8m with the proceeds.

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3 Comments so far

1. Bill Brauer on July 1, 2013 2:03 pm

Think you have to distinguish single event tickets from season events and multiple shows. I think in many cases tickets are in fact sold at less than face value. Once a team falls apart underlying demand evaporates. Try selling Chicago Cubs tickets in September. Many sellers obtainthe tickets on a gratis basis and will take well below face in any event. Promoters lose money on shows not infrequently. Where the aggregate demand was less than the capacity of the show, what hope is there for the tout with walk-up business?

2. Brian on July 6, 2013 11:42 pm

Just as Victor gained insight from the tracks to develop market view points, I attribute much of my macro market understanding to my time as a broker (aka ticket scalper). It paid quite a bit of my way through college and still is a fun hobby.

The additional comparison I’ll add is that the price an end user is willing to pay a broker for a ticket can be looked at as two things. 1, a measure of utility and 2 a disconnect or understanding of current pricing.

In terms of utility, that is, the satisfaction one receives from goods or services, can be engineering by a broker. The time of the event, location of the seat, quality of the game and quality of the customer (drunk) can all work in favor or against the broker to maximize the spread.

Sound familiar? — emotions in trading

Disconnect of pricing puts importance in sales practice to the broker and leaves the end user at a big disadvantage. If the market is \$40/ticket and has dropped sharply in the last hour from 60 to 50, you gain knowledge of the slope. The end user may see face value of \$60 and assume that is the going rate.

Sound familiar? — Errant quotes and unnecessary broker fees.

3. Craig Bowles on July 13, 2013 7:49 am

There’s probably a way to use an event’s workers to scalp. One time we went to the Kentucky Derby and decided to corner the market on Winston Lights. We bought up as much of the supply as we could near the track and got the bathroom attendents in the infield to sell them. We split the profits. The bathroom attendents made extra money and probably got more tips from it. We couldn’t see the races anyhow, so monitoring supplies gave us a mission between mint julips.