Legit learns to live with resale business

Call it the secondary ticket market, or just call it scalping. Either way, it’s a vital element of the Broadway biz.

Legiters estimate that when you factor in the coin made by resellers, as much as $200 million could be added to the annual Broadway gross of nearly $1 billion.

And even though New York state has adopted a laissez-faire attitude — in a legislation change last year that removed caps on resale prices — the market can still stir up controversy among Broadway denizens, who argue resellers are snapping up revenue that should rightly go the producers and creatives of a hit show.

With the repeal of price caps providing another catalyst for broadening the secondary market, the legit industry is finding itself forced to redefine its relationship to the guy in the trench coat.

To begin with, he’s probably not even wearing a trench coat.

The market works differently than it did in the alley-skulking days, but not so much because of the legal change (which took effect June 1, 2007) that made the market a little less gray in the eyes of the law.

After all, the law — which restricted resale prices to 20% above the face value of a ticket — is generally agreed to have been ineffective and unenforceable.

“To be frank, it was mostly a technicality,” says Sean Pate of StubHub, the online ticket auction site owned by eBay. “A lot of the activity was already happening even with the law in place.”

So there were few drastic changes prompted by the passage of the bill last June.

Spying an opportunity to cash in, more resellers jumped into the market. But fears that the removal of caps would send resale prices skyrocketing proved groundless, thanks to the new bump in supply.

“Deregulation has invited more people into the resale market,” Pate says. “We see more tickets available, and prices that are consistent or have gone down.”

Pate estimates that the average Broadway ticket goes for $150 to $200 on StubHub.

“But in a lot of cases, people are selling tickets for less than face value,” says Donald J. Vaccaro, topper of TicketNetwork, an org that, among other things, provides software specifically designed for ticket resellers. “For example, brokers lost millions of dollars on ‘Young Frankenstein’,” he adds, estimating that ducats — snapped up by brokers before the show’s bad buzz hit — ended up selling for 40¢ or 50¢ on the dollar.

The broader change in scalping has come with the increased prominence of online ticket sales. Thanks to the Web, resellers can operate like day traders: more sitting at a PC in pajamas, less loitering in alleys. (A large number of resellers are non-pros merely hoping to unload a few tickets they bought in advance but are no longer able to use — but the majority of inventory is concentrated among a small number of high-volume brokers.)

With deregulation, the market at large has a further chance to grow. Hollywood Media Corp., which owns Broadway.com, reported last month that margins from Broadway ticket resales rose from 15.9% to 17.5% in the first quarter of 2008 (over first quarter 2007), an increase the company attributed to the legislature’s changes in the law.

Even primary vendor Ticketmaster has gotten in on the secondary act, acquiring online marketplace TicketsNow earlier this year.

Secondary ticketing, of course, has long been a source of frustration for many legiters, who consider brokers and resellers to be middlemen inserting themselves between producers and their customers.

And primary ticket outlets like Telecharge are finding they have less of a national profile than brokers do.

“People don’t know how to buy tickets,” says Charlotte St. Martin, exec director of the Broadway League. “There is so much misinformation about where you go to buy a regular price ticket or to find out about availability.”

Proponents of the secondary market argue that sales are sales, even when some of those buyers try to turn a profit by reselling. “It’s in the producers’ best interest to sell out their ticket inventory in advance,” Vaccaro says.

Some industry watchers foresee a future of mutually beneficial partnerships between legit producers and secondary marketplaces. Madonna laid out a potential road map for such deals when she endorsed StubHub last month as the official reseller for tickets to her upcoming concert tour. The pop star reportedly gets compensation from StubHub — a fee that essentially gives the artist a cut of resale profits — while StubHub gets a handy publicity boost.

Many Broadway denizens aim instead to direct consumers away from resellers.

“I see the majority of our efforts as working toward making the primary market the market,” St. Martin says. “We want to have the ticket revenue go to the people who are taking the risk, and to the royalty pool.”

An audience loyalty initiative and an upcoming Broadway concierge program are among the League’s efforts to make the primary market more accessible for ticketbuyers.

Of course, legit producers have taken a page from the secondary market already.

The advent of premium-priced seats (with “The Producers” in 2001) was an attempt to muscle in on what had traditionally been the territory of scalpers: high-end ticket locations and availability at high-end prices. Only in this case, the extra coin goes to producers and creatives.

Combined with the increasingly prevalent discount schemes on the other end of the pricing spectrum, Broadway is moving toward taking as much advantage of the free market as scalpers do.

Still, whether legiters like it or not, it seems there will always be a place for the secondary market.

“They’ve become an important part of our business, because they sell a lot of tickets,” says Paul Libin, producing director of Jujamcyn Theaters, which helped usher in the age of premium seating with “The Producers.” “It’s going to be a part of the market forever.”

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