United States: Live! Tonight! Sold Out! – Lessons From FTC's Online Event Tickets Workshop

If you've ever tried to buy tickets online to a concert, sports game or play, you're probably familiar with a host of typical frustrations. How has the event already sold out when tickets have just gone on sale? What are all these added fees and why weren't they disclosed up-front? Am I even purchasing from an authorized vendor and does the seller actually own the tickets it's putting up for sale? To address these and other consumer concerns, the FTC recently held a workshop exploring consumer protection issues and deceptive marketing practices in the online event ticketing industry. The event featured representatives of the FTC, the NAD, the New York Attorney General's office, trade associations, venue managers and online ticketing platforms such as Ticketmaster, Live Nation, SeatGeek, StubHub and Eventbrite.

Why is the FTC so focused on these issues? As FTC Commissioner Rebecca Slaughter emphasized, consumers will spend around $10 billion this year for online tickets and therefore it's become a priority to ensure that consumers have clear, complete and truthful information about what they're buying. She followed with a warning to the events ticketing industry: "Consumer frustration with opaque and deceptive ticket pricing has passed its boiling point – consider yourselves on notice."

The workshop addressed issues relevant to online ticketing platforms generally, with a focus on deceptive advertising, marketing and pricing practices in the industry. Here's a rundown of takeaways:

Pricing Transparency.

"Drip" vs. "All-In" Pricing. According to NAD Director Laura Brett, considering that additional fees for online ticket sales can be substantial (often up to 30% of the ticket price), these fees are material to consumers' purchasing decisions and therefore should be disclosed at the time the consumer first views the ticket price. The NAD urges online ticketing platforms to use an "all-in" pricing model in which the total ticket cost initially seen by consumers is inclusive of all taxes, fees and charges. But in fact, few major platforms actually do. By contrast, "drip" pricing, in which ticket prices are subject to increase during the course of the purchase process as taxes and fees are added, is common in the industry. On the panel, representatives from Ticketmaster, SeatGeek, StubHub and Eventbrite all expressed concern that without clear and uniform regulatory guidance, the industry's pricing practices will continue to suffer from a collective action problem in which no individual platform will have incentive to unilaterally adopt increased transparency measures that may put it at a competitive disadvantage relative to others in the industry. As a result, pricing disclosure models remain inconsistent across the marketplace, hindering consumers from being able to effectively compare overall ticket costs between platforms. Brett suggested that in lieu of more targeted regulation, ticketing vendors should observe the FTC's Dot Com guidelines, which require pricing disclosures to be clear, conspicuous and consistent with consumer expectations.

The NAD is clearly focused on the issue considering its recent claim against StubHub alleging misleading "drip" pricing practices. Last year, the NAD referred the claim to the FTC when StubHub declined to comply with the NAD's recommendations to more clearly disclose additional taxes and fees. StubHub argued that it had initially launched an "all-in" pricing model in 2014 only to reverse course when it lost market share in an industry that did not follow suit.

  • Takeaways:
    • Disclose total fees up-front – or at least, as soon as possible in the process without requiring the consumer to click through multiple pages. Certain sites, for instance, use a clear toggling function on the price initially shown that reveals the "all-in" amount.
    • Don't wait to disclose mandatory taxes and fees until consumers have already reached the check-out stage of the purchasing process or entered credit card information.
    • Tax and fee information should be disclosed prominently, not in a smaller or lighter font, in an inconspicuous location on the page or behind a vague hyperlink.
    • Just because a pricing practice is prevalent industry-wide is no guarantee that you won't get a claim.

Fee Itemization. What's a "service fee"? How about a "processing fee", "fulfillment fee" or "facility fee"? The workshop addressed abundant skepticism over whether consumers actually understand what these terms mean. Industry representatives cited a variety of costs to justify what consumers perceive to be high fees, including the costs of implementing technologies to guard against bots. According to the panelists representing online ticketing platforms, the platforms generally retain a majority of the fees collected but in some cases share these amounts with partners or third parties (such as "facility fees" shared with the venue, credit card commissions or taxes). As with pricing, it's always best to be as transparent as possible to consumers about the nature of the fees being charged. For instance, Ticketmaster recently settled a class action lawsuit alleging that it deceptively marketed certain fees as pass-through costs (such as a "UPS fee") when the fees were actually profit generators for Ticketmaster not directly tied to the underlying costs.

  • Takeaways:
    • Taxes and expenses should be individually broken out (and added up) for consumers.
    • Each fee should be accurately described to match the underlying cost or service that it goes toward covering. If consumers may be confused about whether a fee is a third party pass-through cost, sellers should clearly disclose.

Primary Market Issues.

Ticket Availability, Re-Sellers and Bots. A fundamental problem that has confounded primary sellers of online tickets is how to ensure that tickets are actually reaching consumers without first being scooped up by secondary sellers. In the era of online ticketing, the issue has been exacerbated by the proliferation of bots which are programmed to search for and reserve the best seats faster and at a scale not achievable by human users. As a result, in some cases the only way for a consumer to procure tickets is to buy them on the secondary market with a mark-up.

Price Structuring and Market Alternatives. According to Eric Budish, an economics professor at the University of Chicago and keynote speaker at the workshop, event tickets are commonly underpriced – i.e., tickets are priced at a level at which demand substantially exceeds supply. To explain why ticket underpricing is so prevalent, Budish theorizes that performers may seek to ensure their shows are affordable to loyal fans and may prefer the buzz of a sold-out show to a higher-priced show that is less well-attended as a result (even if it means the particular performance generates less profit overall). Yet, the practice of underpricing produces the conditions in which a secondary market thrives by incentivizing ticket speculators to profit from the disparity between the price at which the ticket sells on the primary market and the amount that customers are willing to pay. As Budish notes, one option available to primary sellers to curb the secondary market is to make tickets non-transferable and prohibit re-sale. However, by consequence, fans may find themselves frustrated to be stuck with tickets to shows they can no longer attend and those tickets that could otherwise be re-allocated to other fans who want to go to the show will instead remain wastefully un-used, resulting in empty seats.

Another alternative Budish describes is to set a market clearing price in the primary market (rather than underpricing) – for instance, by using auctions to retain the surplus that would otherwise be captured by secondary sellers. As Ticketmaster's CEO at the time remarked in 2003 when introducing such a model, "The tickets are worth what they're worth. If somebody wants to charge $50 for a ticket, but it's actually worth $1,000 on eBay, the ticket's worth $1,000. I think more and more our clients – the promoters, the clients in the buildings and the bands themselves – are saying to themselves 'Maybe that money should be coming to me instead of Bob the Broker.'" Although the auction model has not been widely adopted, primary ticket sellers have been experimenting with other new models such as launching their own verified secondary marketplaces within their sites (if ya can't beat 'em, join 'em). As these alternatives illustrate, the way the primary market pricing model is structured will have downstream effects on the demand for and availability of tickets in the secondary marketplace.

Regulatory Solutions. In 2016, to combat the problem of bots, Congress passed the Better Online Ticket Sales (BOTS) Act which makes it illegal to use bots that game ticket systems to get around purchasing limits or to participate in the sale of tickets acquired in violation of these requirements. Websites that advertise or market secondary ticket sales could also be liable if the platform knew or reasonably should have known that the tickets being re-sold were procured using bots. Though the FTC was granted enforcement power under the law, panelists at the workshop were generally dubious that the BOTS Act was sufficiently enforced to serve as an effective deterrent.

Technological Solutions. As a result, primary sellers have been engaging in an ongoing arms race to implement technological measures to stymie bots. Many vendors have implemented CAPTCHA technologies, requiring users to perform image recognition tasks (such as accurately reading distorted letters or identifying common objects in images) to weed out bots. To circumvent these technologies, secondary sellers have programmed increasingly advanced bots or have outsourced these click-through tasks to cheap overseas labor. In response, vendors such as Distil (featured on the panel) have developed complex technologies for bot mitigation, designed, for instance, to analyze mouse movements to determine whether a user is human. Alternative strategies include Ticketmaster's Verified Fan pre-sale program which vets a user's ticket purchasing history before permitting a sale.

Resale Market Issues.

Speculative Ticketing and Other Deceptive Practices. When buying tickets on the secondary market, consumers may be misled as to which entity is selling the tickets or whether the re-seller actually owns the tickets listed for sale. The panel raised concerns that sites of re-sellers often mimic the appearance of official venue or authorized vendor sites, causing confusion that leads some consumers to pay inflated prices. Another practice with high potential for consumer deception is "speculative ticketing" in which a re-seller lists tickets for sale without actually having those tickets yet (in expectation that it will be able to obtain them). Although illegal under certain state laws, panelists implored the FTC to take a critical look at whether speculative ticketing should be permissible, what associated disclosures should be required and what restitution is appropriate for buyers who have detrimentally relied on speculative tickets that the re-seller was ultimately unable to obtain.

Overall, it's clear that the FTC is scrutinizing practices that prevent consumers from buying tickets, mislead consumers about price or availability, or deceive consumers about the entity from which they are purchasing. Stay tuned for updates.

www.fkks.com

This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.

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