I. EXECUTIVE SUMMARY
This report is intended to shed light on the largely underground and unexamined ticket distribution system in New York, a system which diverts the most desirable sports, concert and theatre tickets away from the general public.
The process by which tickets wend their way from the original issuer to the ultimate consumer is complex and often illegal. In the general case, the consumer walks up to the box office or telephones a ticket agent such as Telecharge or Ticketmaster (or uses one of their outlets), pays the price on the face of the ticket (with perhaps a small additional service charge) and obtains the ticket that he or she wants. Too often, however, the consumer finds that the desired ticket (e.g., to "The Lion King" or the Yankee playoffs or the Spice Girls) is unavailable within minutes after it goes on sale, and if there are any tickets left, they are at the rear of the house, the highest tier of the stadium or, in the case of a hit show, the wait can be for over a year. However, while a "sold-out" sign confronts the consumer at the box office, the newspapers nonetheless are filled with advertisements for the most sought after seats -- at prices, depending on the popularity of the event, ranging into the thousands of dollars. The Attorney General’s investigation demonstrates that ticket distribution practices are seriously skewed away from ordinary fans and towards wealthy businesses and consumers.
This problem is not simply the result of the law of supply and demand. Rather, the availability of tickets and the outrageously high -- and illegal -- prices that brokers charge, to a large extent, can be laid at the door of illicit practices in the ticket industry and other practices that, although possibly not unlawful, are deceptive, unfair to the ticket buying public and supportive of the corrupt ticket distribution system.
Thus, the average disappointed consumer walks away with the suspicion that the tickets could not have all been sold, through the normal means, quite that fast. He or she often believes that someone, somewhere, had an "in," and that dutifully waiting on line or telephoning repeatedly was, in reality, an exercise in futility. To a large extent, that frustrated consumer is correct. This report attempts to explain why and highlights the myths, half truths, and outright criminality that causes the scarcity of tickets.
The entertainment industry is one of the core sources of revenue for New York. Just as we demand integrity of New York’s financial institutions and its securities marketplace, New Yorkers have a right to expect integrity in the system through which tickets are distributed. New York’s citizens and the millions of tourists who come to New York to attend entertainment and sporting events deserve to obtain tickets through a distribution system free of fraud and corruption.
A system that provides access to quality seating on the basis of bribes and corruption at the expense of the fans, without whose continued support the theatre could not survive, should not be tolerated. Indeed, Billy Joel stated in a recent interview that he would in fact stop doing live concerts because the system did not permit the "real fans" access to tickets.
He announced that he was going to stop touring in part because:
I am tired of being part of the rip-off.
The brokers that drive the prices up are ripping me off because, I’m not getting the money... and they’re ripping off the customer because the customer wants the ticket and they know that the market will bear a certain price.
The price that tickets to popular events command in the marketplace belongs to the performers, producers and investors who create the events, not the speculators who through illegality and deception take advantage of the excess demand in the system. Ticket scalping is sometimes referred to as a "victimless" crime. To the contrary, the victims of the current ticket distribution system are the fans, the producers and investors who create the events and the State of New York, which loses both tax revenues and credibility as the entertainment center of the world.
The facts and analysis set forth below have been collected through activities of the Attorney General’s Office, including:
In addition to addressing the endemic corruption in the ticket business through his criminal and civil enforcement powers, the Attorney General believes that nothing will change until the public knows how the system works and new legislation is enacted. Legislative and policy recommendations flow from this investigation, and are intended to improve the availability of entertainment tickets to consumers, as well as provide new powers to fight the illegal conduct. This report is intended to promote that process.
A. Corrupt Practices
Ticket brokers strive to monopolize the supply of tickets by paying illegal and substantial bribes (premiums over the face price of the ticket) to various persons who have control over tickets at the original point of sale. These persons with control over tickets include box office employees or their supervisors, managers of venues, ticketing agents (such as employees of Ticketmaster or Telecharge), concert promoters, security personnel, or a variety of house seat holders. The pay-offs made to a venue operator, agent or employee, (e.g., a box office employee), is historically known as "ice".
Ticket brokers must be licensed pursuant to New York’s Arts and Cultural Affairs Law ("ACAL"). Under ACAL, the payment or receipt of ice is currently a crime, classified as a misdemeanor, and also subjects a ticket seller to revocation or suspension of his or her registration as a ticket distributor. Payments of premiums to individuals other than agents of the venue (such as promoters and house seat holders) are not specifically covered by ACAL, but can be covered by other provisions of the criminal law, such as commercial bribery. Such payments are hard to prove. They are almost always made in cash, not necessarily at the recipient’s place of business, and generally occur between two people, without witnesses.
Brokers who pay ice must of course cover the cost of the bribe, which can range from 50 to 100 percent of the face price of the ticket. Therefore, they have to resell tickets substantially above the current legal maximum of an additional five dollars or ten percent of the face price (whichever is greater), and cannot operate within any reasonable cap. As such, these tickets are sold illegally, generally by out-of-state brokers to New York businesses -- such as securities firms that need tickets for clients. One major New York securities firm paid a New Jersey broker over $360,000 during 1994 to obtain for itself the finest seats at various venues, at clearly illegal prices, ranging from 150 to 600 percent above the face value of each ticket.
B. Unfair Practices
Aside from ice and bribery, huge numbers of tickets for popular events are diverted from sale to the public and are distributed through other channels. The extent to which tickets are channeled through this non-public system, and the persons and businesses that get their tickets through "connections," are subjects that have been shrouded in secrecy for many years. Whether in connection with illegal payments or not, the sheer number of seats withheld from public sale lends itself to manipulation and abuse. Such tickets are almost always the best seats in the house. Tickets set aside for theatre party or group sales agents wind up being resold by ticket brokers; house seats at theatres make up a great part of the ticket broker’s stock in trade, as do tickets set aside by concert promoters.
Moreover, the failure of venues adequately to inform the public -- as to the number and location of seats available for public sale, the date on which a new batch of seats for a show or concert might go on sale, or when unpurchased house seats become available to the public -- goes hand-in-hand with the practices set forth above. For example, during the 1994 Barbra Streisand concerts at Madison Square Garden, approximately 50 percent of the seats never went on public sale, i.e., they were withheld for the "house" -- the producer, the promoter, the record company, the performer, or other such individuals. Had this been disclosed to the public in the advertising for the event, the public would have had more realistic expectations about their chances of obtaining a ticket through general sales. The Attorney General believes that most consumers would be surprised to learn that for most events, a very large percentage of all seats and most of the best seats for a particular event are in reality unavailable to the public.
C. The De Facto Framework
Ticket brokers converge just outside of New York’s borders -- some, just minutes away -- to advertise and sell tickets to New Yorkers but generally claim -- incorrectly -- that they are not subject to New York laws. Box office employees and former box office employees either have special relationships with ticket brokers and scalpers or, eliminating the "middle man" entirely, are ticket brokers themselves. Concert promoters or their affiliates are also ticket brokers. And law enforcement is left to combat the problems of ticket diversion and commercial bribery with inadequate and outdated weapons.
Meanwhile, as more fully described in this report, insiders have little incentive to change the situation. The theatre and arena owners receive their flat fee rents and percentage of the gross no matter how or to whom the tickets are sold. Equally unaffected by ticket sales practices are the producers, promoters and star performers who receive a negotiated percentage of the gross. Group sales agents and licensed New York ticket brokers also do a substantial business with their respective share of the action. The latter group settles, by and large, for the hotel tourist trade and the less desirable seats. They work with unlicensed brokers, assisting them in "laying off" some of the risk of being left with unsold tickets. New York corporations and businesses have the ability to obtain the best seats on short notice for their clients and associates. The reason there are no good seats available at box office prices for the fans of New York sports teams or for the U.S. Open tennis matches is because, as the insiders say, they have all "gone corporate." The same is true for concerts. This has created a two-class system for access to sports and entertainment events.
Where, therefore, is the incentive for anyone in the business of sports and entertainment to change the system? Fans and theatre lovers -- those without special contacts or influence -- often turn to the Attorney General’s Office for help.
D. How Illegal Brokers Get Tickets
How tickets wind up in the lucrative resale market rather than in the hands of fans is one of the subjects of this report. The following is a summary of the methods by which ticket brokers acquire tickets -- those they are willing to talk about, as well as the corrupt methods they are not willing to acknowledge.
1. The Acknowledged Methods
There are various methods by which ticket brokers claim to obtain their product legally.
- Brokers send "diggers" to stand on line at the box office.
- Brokers use high-speed dialing equipment and other methods to increase their chance of getting through by the telephone.
- Brokers buy tickets, for a legal premium, from fans who have been able to buy tickets.
- Brokers send in numerous mail orders for Broadway shows, generally in the individual names of employees or of surrogates, such as family and friends.
2. The Unacknowledged Methods
The Attorney General’s investigation has uncovered illegal or corrupt methods by which ticket brokers consistently obtain the best seats to the most popular events in quantities that belie the "acknowledged" explanations as to their source.
- Brokers obtain seats from promoters, performers and representatives of venues (including box office treasurers and ticket sellers) by paying ice. In some instances, box office personnel have ownership interests in ticket brokers or have family members who are ticket brokers.
- Brokers obtain tickets from computer ticketing companies such as Ticketmaster, whose employees are skimming tickets for themselves and selling them to brokers (or from distant outlets less likely to have a great demand for a show in New York City). When additional dates are added for a performance for which there is a great demand, they may not be advertised, thus creating the opportunity for outlet operators to advise their "friends" when the additional tickets will go on sale. In one instance, a small video store with a Ticketmaster terminal is silently owned by a New Jersey ticket broker.
- Brokers obtain from the box office "house seats" that are not used by those persons entitled to use the house seats or that are held for performances at which such seats are released for theatre parties or large groups, or they obtain seats which were set aside for other promotional or marketing purposes (e.g., special agreements with credit card companies to hold a certain number of "best seats" for their gold or platinum card holders).
Brokers also buy from each other. One may have a "hook" (a contact) at one venue, others may have different "hooks." Thus, there is a constant stream of faxes flowing between them showing the tickets available. As a result of the variety of contacts or "hooks" among ticket brokers, different brokers tend to become known as specializing in certain events (e.g., Knicks and Rangers, Phantom of the Opera, etc.) Actually, this "specialization" is nothing more than having a "hook" with whom a broker can transact illegal business.
Members of the organized ticket broker industry basically have one answer to the question of how they get their tickets: the use of "diggers." While they resist discussing the issue of the source of their supply, if pressed they almost always say that they send "diggers" to stand on line at the box office or, less frequently, that they buy from original purchasers or have techniques for getting in on the telephone. This answer begs the question of how the brokers obtain the best seats in the house -- the seats commanding huge prices and demanded by the brokers’ business clientele, who expect large volume service on short notice -- in such large quantities.
In addition, diggers always seem to get the scarce number of high quality tickets available at the box office while the real fans are left "in the cold." Many such fans have called the Attorney General’s Office to complain about and describe the chaotic scene outside a venue when numbered wrist-bands (presumably instituted to assure fairness) are distributed a day before or hours before an "on-sale." Fans also complain about standing on line or camping-out for hours, if not days, to buy tickets for concerts, just to be told that all tickets are sold out or that the best seats are not available because they are reserved for the "fan club" or "VIPS." Diggers however, somehow manage to buy seats that are not available to the fans.
E. Policy and Law
This is a huge business. Hundreds of ticket resellers who work out of offices, not on the street, make a substantial living from it, indeed, become wealthy from it, as do many of their suppliers at the original point of sale. The statutes we have to deal with this system are holdovers from a bygone era. The Attorney General’s investigation has highlighted several short-comings in the existing law that ought to be remedied, as well as policies and rules that should be adopted by the industry. Following is a summary of these:
This report focuses not just on ticket scalping, but also on how tickets get from their original point of distribution to the resale market where they command such unconscionable and illegal prices, and how to assure increased access to tickets at reasonable prices to the large majority of the public who support, by their continued interest and enthusiasm, New York sports and entertainment events. The Attorney General’s investigation into the institutionalized system of fraud and corruption surrounding the ticket distribution system is continuing. It is the hope of the Attorney General that the findings and recommendations discussed below will trigger corrective actions that could be taken now.
II. AN OVERVIEW OF THE TICKET RESALE BUSINESS AND THE GOVERNING LAW
A. Ticket Scalpers, Ticket Brokers -- Premium and Non-Premium and Dump Houses
"Ticket scalping" has been embodied in the popular culture as an activity that generally takes place on the street, frequently in front of or near the venue for which tickets are being sold. Because of public safety concerns resulting from many people milling around event sites attempting to buy and sell tickets, the New York State legislature prohibited ticket resales within 1,000 feet of the property line of places of entertainment having a permanent seating capacity in excess of 5,000 seats, unless the operator has designated an area for resale of tickets that are not usable by the purchaser.(1) Street scalpers are, however, the smallest part of the immense ticket resale industry.(2)
The ticket resale industry in New York is by and large divided into those ticket brokers who operate and obtain licenses in New York(3) and those who do business in New York(4) but maintain that they do not do business in New York because they are located on the immediate outskirts of New York.(5) Places like Union City and Fort Lee, New Jersey, which are 15 minute drives from Broadway, are extremely popular with ticket brokers who sell tickets to New York events to New York residents.(6)
This distinction is, however, not set in concrete, but made only to serve as convenient shorthand for purposes of explication and discussion.(7) Some out-of-state ticket broker firms obtain licenses in New York. Other out-of-state ticket brokers own or are affiliated with New York ticket brokers and direct the bulk, if not all, of their seats to an unlicensed out-of-state affiliate. New York ticket broker firms, licensed and unlicensed, operate outside the law, sometimes flagrantly so. In addition, there are many formal and informal connections between New York and out-of-state ticket brokers and between those resellers who are colorably operating within the law(8) and those who are blatantly outside it.
In the group colorably within the law are ticket brokers with offices in New York City and concession desks in many New York City hotels.(9) They deal primarily in Broadway theatre tickets and their clients are frequently tourists to New York. Such brokers are licensed, charge anywhere between ten and over 60 percent above the face price of a Broadway theatre ticket and generally do not obtain the most desirable seats.(10) Resellers in this group are, therefore, generally referred to as "non-premium" brokers.(11) They may also be referred to as "dump houses" because some of the major ones assist the premium brokers by allowing the latter to lay off or "dump" expensive, about to expire, tickets that they would otherwise be left holding. Non-premium brokers argue that they are an essential part of the New York theatrical business because they actually help keep many marginal shows running by reselling their tickets to a largely tourist trade.
Non-premium brokers justify their mark-ups -- a clear violation of the law -- as "service" charges (which Article 25 does not expressly address) and as a necessary cost of doing business.(12)
In contrast to the non-premium brokers are those that are unlicensed and operating outside New York. Also known as "premium brokers," they are primarily distinguishable from the former group because they can generally obtain the most desirable seats or "hot" tickets on short notice and their primary clients are New York businesses such as stock brokerage firms, fashion and publishing industry companies, and advertising, law and accounting firms.(13) For such clients, money seems to be no object. Many have running accounts with out-of-state ticket resellers and their charges for tickets run into tens of thousands of dollars. For instance, during 1994 alone, a New York securities firm paid Herman Agar, Co., a New Jersey ticket broker, $367,980.99 for such tickets. See Exhibit B.
Mark-ups taken by premium brokers range from approximately 130 percent to over 450 percent. For example, on average, a $75 or $80 orchestra seat to a Broadway musical in New York City will be sold for between $100 to $110 by a licensed broker and for $175 by a premium broker. Tickets with a face price of $350 for the 1994 Barbara Streisand concerts at Madison Square Garden in New York City were being sold by premium brokers for prices as high as $2000. In the summer of 1995, $50 tickets for the Melissa Etheridge concert at Jones Beach, on Long Island, were selling for $450, and $50 tickets for R.E.M. at Madison Square Garden were selling for $350. In the summer of 1998, a ticket to the U.S. Open women's semi-final with a face price of $85 was being offered by SRO Entertainment for between $1700 and $2000.
A phenomenon clearly on the rise is the offer and resale of tickets by ticket brokers over the Internet. While purchasing tickets via the Internet may be more convenient for the consumer -- it is easier to shop around for locations and prices -- it does not change the basic structure of the ticket resale business. Ticket brokers must still obtain their supply of tickets at the original source and, whether by advertising in the New York media or sending an Internet transmission to a New York purchaser, they still subject themselves to New York law, since New York's jurisdiction is based upon whether the buyer or seller is located in New York. A recent survey of such sales found the following postings,(14) with bids expected to rise:
|
Event |
Face Value |
Bid on Ebay on 4/19/99 |
| New York Yankees at New York Mets, Friday, July 9; section 37, two tickets | $20 | $152.50 |
| New York, Mets at New York Yankees, Saturday June 5; Field box section 21, two tickets. | $100 | $300 |
| "The Lion King" on Broadway, May 28; third-row orchestra seats, three tickets. | $225 | $505 |
| Miami Heat at New York Knicks, May 5; section 223, two tickets. | $130 | $227.51 |
| Atlanta Braves at New York Yankees, July 15; lower level, main club box 250, four tickets. | $150 | $355 |
A new potential use of the Internet and one that may have more far reaching effects on the business of selling and reselling tickets involves the online-auction sites of concert artists.(15) Several artists are expected to begin auctioning tickets online in the summer of 1999. In fact, during the summer of 1998, concert performers Jimmy Page and Robert Plant auctioned 50 premium seats for their tour on Best Buy Online and gave the proceeds to charity. Of course, offering or selling tickets for over the maximum premium price to New York purchasers violates New York law. However, such sales are currently occurring and artists and promoters "clearly . . . realize the need to get in on the action."(16)
As discussed in the Policy and Legislative Issues Section, infra, excess profits in the system should benefit venues and creators of entertainment events:
The problem for artists and venues is that scalping takes money out of their pockets. This has always been the case with offline scalpers, but Web auctions offer a chance to level the playing field. The popularity of online scalping is forcing the industry to concede that there's a viable secondary market online.(17)
Currently, however, such "leveling of the playing field" is against the law. Whether the law can accommodate the entry of these new resellers over the Internet is an issue that the legislature should undoubtedly address.
B. Distinction Between Primary And Secondary Market
A ticket, the right of entry to a particular event, is originally issued by either the venue where the event will take place or by its producer. It is either physically produced in the form of a hard piece of paper or, if admission to an event is to be sold through a computer ticketing system, said seats will be entered into a computer program containing the exact number of seats, dates and locations available for sale to the public. In either case, tickets placed on the market are issued by the venue, and such venue is the "original ticket seller." The original or initial sale of the ticket may occur in a variety of ways: at the box office in person, by telephone, by mail or through a computer ticketing company such as Ticketmaster by telephone or at an outlet.
The role played by computer ticketing companies such as Ticketmaster and Telecharge has been a source of confusion. These companies serve the venue by providing the computer technology and the distribution system for ticket sales. As such, they are agents of the venue. As a matter of practice, these companies make their money by adding a fee to the price of each ticket, agreed upon with the venue, for their service in processing and distributing the ticket. While there has been much argument that these fees are too high, they should be distinguished from the charges added by ticket brokers and ticket scalpers upon the resale of a ticket. So-called "processing fees" may also be charged by a venue itself for the use of a credit card or for telephone processing.
Only after the ticket has been sold at the point of an original sale -- whether at a box office or by a computer ticketing agent at an outlet -- at the face price (plus a possible processing or computer company service fee if applicable), can the ticket be resold on the secondary market by a broker or scalper. This is where huge, sometimes extraordinary, mark-ups come into the picture.
C. Relationships Between Ticket Sellers and Ticket Brokers
All ticket brokers are not created equal. Aside from the obvious factor of size -- ranging from the large ticket resale business with annual gross receipts in the millions of dollars to the street scalper with a handful of illicitly acquired tickets -- certain resellers have access to certain venues where they have a "hook". Frequently, this hook is based on a familial relationship or an acquaintanceship based on prior working relationships in a particular box office.(18) In any event, certain resellers are able to obtain the most desirable tickets to certain venues and not others. Some resellers are "hooked" into certain Broadway shows; other resellers specialize in certain sporting events; yet others specialize in concerts. Nevertheless, large resellers have to provide a full-service operation for their large and demanding business clientele, as opposed to street scalpers who hawk what they have when they have it. Therefore, there is a great deal of inter-dependency and trade between ticket resellers. This is accomplished by a constant exchange of faxes, in which resellers advise each other on a daily basis of the tickets they have in inventory. See Exhibits C through E.
D. The Governing Law: Arts and Cultural Affairs Law, Articles 23 and 25.
The original sale of a ticket to any "place of entertainment" in New York is governed by sections 23.23 and 25.29 of ACAL.
Section 23.23 of ACAL creates the regulatory framework for the original sale of tickets at the box office. It provides for the registration as a "ticket distributor" of all owners, operators or operating lessees of places of entertainment, as defined in § 23.03(1)(i), and their agents, representatives and employees, including box office employees who at any time have control of the allocation or distribution of tickets. Any individual named on a "ticket distribution registration" is subject to an order canceling or suspending that registration or an order barring him or her from selling tickets when he or she has participated in receiving any premium in excess of the established price of the ticket ("ice") or any practice operating as a fraud upon the public or amounting to financial misconduct.
ACAL § 25.29 is the criminal counterpart of § 23.23(4). It provides that any operator of a place of entertainment or his or her agent, representative or employee, who receives a premium in excess of the established price (ice) shall be guilty of a misdemeanor punishable by a fine not to exceed $500, or by a term of imprisonment not to exceed one year, or both. See ACAL §§ 25.29, 25.35.
Except as discussed above, ACAL Article 25 deals with the resale of tickets.(19) It provides the statutory framework governing the resale of tickets and the resellers of tickets, as opposed to the original sale of tickets and original sellers of tickets primarily regulated by ACAL § 23.23. The primary mechanisms created by Article 25 require ticket resellers to be licensed with the commissioner of licenses of the political subdivision in which such business is conducted (e.g.,the Department of Consumer Affairs in New York City, hereinafter the "Department"); require places of entertainment to print the established price on the face of each ticket; and prohibit the resale of tickets for over the "maximum premium price," currently defined in § 25.03(4) as five dollars or ten percent of the established price, whichever is greater. In addition, § 25.25 requires licensees to keep records of the names and addresses of all persons from whom tickets were purchased and to whom they were sold, and the price at which such transactions occurred. These records must be made available to the Attorney General upon request.
E. The Relationship Between Ticket Scalping and Corruption in the Box Office
The Attorney General has concluded that one of the primary reasons for the inflated prices on the resale market is that certain brokers have to cover the cost of payments of ice. Ice is money paid, in the form of a gratuity, premium or bribe, in excess of the printed box office price of a ticket, to an operator of any place of entertainment or such operator's agent, representative or employee.(20) Box office employees and their supervisors who control the original sale and distribution of tickets are such agents. There can be no meaningful discussion or analysis of the ticket resale(21) business without considering the impact that ice has on that business.
Premium ticket brokers or sellers, discussed above, need access to large quantities of the best seats to the most desirable events on short notice in order to keep and satisfy their demanding client base. Such tickets cannot be obtained by standing on line or by paying diggers to stand on line, nor can premium brokers rely on getting through on telephone lines (even with sophisticated speed-dialing equipment). They must have an advantage. That advantage is derived by paying ice, sometimes in amounts that almost equal the face price of the ticket.
Joseph Nekola, the treasurer of the Jones Beach Marine Theatre box office was paid $ 20-25 over the face price for each ticket he diverted to brokers for Jones Beach concerts.(22) As one representative of a theatre acknowledged to a member of the Attorney General's staff, box office employees think of ice as both a gratuity and an entitlement; it represents the major source of illegally obtained tickets. As discussed infra in Section III, investigating and proving the payment of ice has been a challenge faced by the Attorney General's Office for years and the complaints about access to events did not always involve popular groups like the Spice Girls or Metallica.
For example, in January 1978, the great classical pianist Vladimir Horowitz was returning to play in New York after a long absence. Carnegie Hall advertised that 2500 hundred seats for the concert would be sold to the public commencing at 9:00 a.m. on the day of the sale. Horowitz aficionados started lining up to buy tickets the night before. It was a cold night and there were elderly people on the line. Using New York ingenuity, someone in the line obtained a roll of numbered tickets from a local store and assigned numbers to the waiting fans so that they could temporarily leave the line. As a result of this system, it became evident that the 2500 advertised tickets were not, in fact, available for purchase by the general public because when the "sold-out" sign went up, only 1900 tickets had been sold.
A group of disappointed Horowitz fans complained to the Attorney General's Office. The result of the ensuing investigation was the finding that the 600 missing tickets had, indeed, been set aside with the knowledge of management. The General Manager and Assistant General Manager of Carnegie Hall signed Assurances of Discontinuance.
F. Maximum Premium Price
The "maximum premium price" provision of New York law has become one of the "hot button" issues among ticket brokers and the lobbyists who represent them in Albany and in Trenton. The "maximum premium price" under current New York law is "the sum of the established price plus five dollars or ten percent of the established price, whichever is greater, plus lawful taxes."(23)
The maximum premium price is almost universally disregarded by ticket resellers. Nevertheless, ticket resellers, particularly those outside of New York, have mounted a strenuous campaign to convince the New York legislature to repeal the maximum premium price provision of ACAL regulating the ticket resale price (i.e., the secondary market price). This campaign has borrowed the high-minded phrase "free market" from economic theory in a totally inappropriate way, since monopolizing the supply of tickets at their original source through criminal activity hardly qualifies as free market activity.(24)
A bill supported by the East Coast Ticket Brokers Association ("ECTBA") was introduced in New York in 1995.(25) The argument made in support of the bill was that if the maximum premium price were repealed, ECTBA's members would move back to New York (although no evidence has been presented that they moved away from New York) and pay taxes in New York; and that as a result of free market forces, the price of tickets on the resale or secondary market would decrease. These are the same arguments that were made to convince the New Jersey legislature to repeal its ticket resale law in 1995. As discussed below, none of the promised benefits were realized and the "free market" experiment was abandoned after 18 months.
G. The New Jersey "Free Market" Experiment
New Jersey's ticket resale law(26) covers only tickets to New Jersey events. That is why ticket brokers who sell tickets to New York events to New York purchasers operate their businesses in out-of-state places such as Fort Lee, New Jersey (just across the George Washington Bridge). While these brokers attempt to take advantage of the gap created by the lack of uniformity between New York and New Jersey law by placing themselves physically outside New York's reach, the courts have clearly upheld New York's jurisdiction in such cases.
With respect to New Jersey events, New Jersey law prohibits brokers from charging over three dollars or 20 per cent, whichever is greater, above the ticket face price. In 1995, New Jersey adopted a law removing the price cap on all entertainment tickets for a period of 18 months, so that the legislature could assess "whether lifting the resale price caps makes more tickets available to consumers at prices lower than those now charged by unlicensed resellers."(27) The New Jersey Attorney General and New Jersey Director of Consumer Affairs provided Governor Christine Todd Whitman with an assessment of this 18-month moratorium. This report called into question, among other things, the reliability of data supplied by ECTBA, and it stated that "the brokers compare apples and oranges with regard to venues." For instance, as to the brokers' claims that ticket prices had fallen, the report stated that "if anything, [the information] points to opposite conclusions from those reached by the brokers."(28)
Similarly, claims of lower prices had been made by the brokers for bands such as Metallica, that did not even appear in New Jersey during the moratorium period. The report concluded that: [T]here is no definite link between the moratorium and ticket availability or price. Moreover the Divisions own experiences . . . lead to the conclusion that there is no factual support for the assertion that prices fell or supply increased because of the moratorium.
The Attorney General supports an increase in the "maximum premium price" in order to cover the actual business expenses of licensed brokers, as well as a reasonable profit. See Legislative Recommendations, Section VI, B infra. The maximum premium price, however, should not be so large as to cover the institutionalized bribery represented by the payment of ice to original ticket distributors.
III. HOW TICKETS MOVE FROM THE PRIMARY MARKET TO THE SECONDARY (RESALE) MARKET
A. Open Purchases by Illegal Brokers
In the category of information that is "hidden in plain sight" is the evidence provided by the records of numerous venues examined by the Attorney General's Office. Those records demonstrate that the venues are either openly selling tickets to illegal brokers or to individuals associated with illegal brokers as principals or employees. Although the Attorney General's investigation has not yet concluded, an examination of the records of venues such as the Arthur Ashe Tennis Stadium, Madison Square Garden, Radio City Music Hall, Disney's New Amsterdam Theatre, The Ford Center of the Performing Arts, Shubert's Majestic Theatre, Nederlander's Palace Theatre, Jujamcyn's Eugene O'Neil Theatre and of group sales agents has disclosed the purchasers who are affiliated with illegal brokers. This, despite the avowed official policy of each of the above venues either not to sell to unlicensed brokers or, as in the case of the United States Tennis Association and Madison Square Garden, not to sell to brokers at all.
When evidence of sales to brokers, directly or through associated individuals, was presented to the venues, licensed group sales agents and ticketing services, they had a consistent, across-the-board response -- that they cannot be responsible for vetting every individual purchaser to determine whether purchase is occurring on behalf of a broker. Ticketmaster's procedure with respect to "The Lion King" tickets was to sell, by telephone, up to 19 tickets per performance for an unlimited number of performances in one transaction (i.e., one phone call). Thus, there were telephone transactions that involved the purchase of hundreds of tickets. While telephone operators and the personnel that handle mail orders may not be able to recognize the names of principals and employees of illegal, unlicensed ticket brokers, transactions of the magnitude documented below should have raised a red flag that the callers were ticket brokers. Similarly, as discussed more fully below, records reviewed by the Attorney General's Office show single individuals as the purchasers of multiple season subscriptions to sporting events -- another circumstance that should have been more closely examined.
Of course, selling large numbers of tickets or season subscriptions to the same individual (even ticket brokers) is in and of itself not against the law, unless someone at the original point of distribution has received ice. However, the fact that venues do this supports the public's conclusion that average fans cannot get fair access to events at affordable prices, and is inconsistent with the stated policy of many venues not to sell to brokers. For example:
Disney's "The Lion King" A review of documents produced during our investigation disclosed that 26 individuals known to be ticket brokers or affiliated with ticket brokers purchased "Lion King" tickets in quantities of two and three hundred or more through the Ticketmaster phone center during the period of June 1, 1997 to December 29, 1997. Exhibit G. Others, who have not yet been identified as affiliates, had the same buying patterns.(29)
The Shubert Organization's "The Phantom of the Opera" In connection with a review of ticket sales for "The Phantom of the Opera" in 1994, the Shubert Organization provided the Attorney General with a list of the brokers who receive weekly allocations of tickets. Six of these brokers -- Manhattan Entertainment, Greens Theatre Ticket Service (which appears to be affiliated with Herman Agar Co., a major, unlicensed New Jersey ticket broker), Jacobs Tickets, Turf Tickets, Hickey's Tickets and ABC Tickets -- together, received 25 percent of the "best" seats (first 14 rows, center orchestra), for Friday and Saturday nights. Although the stated policy of the Shubert Organization is to do business only with bonded and licensed brokers, three of the above six ticket brokers are unlicensed and New Jersey based, including Herman Agar Co., Manhattan Entertainment and Jacobs Tickets, among the biggest (in terms of sales volume) ticket brokers in the tri-state area.
The Nederlander Organization's "Beauty and the Beast" and Jujamcyn Theatres' "Grease" Five of the six above-mentioned brokers plus two others - - Original R'Tyson and See-More -- received the house seats for "Beauty and the Beast" and "Grease" according to 1994 records.(30) These seven brokers, along with two others -- Capri and Rubin Ace (which is affiliated with Sherlock Tickets in Connecticut) also generally received the "best" seats, as defined above. Thus, nine ticket brokers always received the best seats to three of the most popular Broadway musicals in 1994 (the tenth, Jacobs Tickets, only received "Phantom of the Opera" tickets), whereas New York non-premium brokers,(31) which did business with the same theatres, never received the best seats. Of the above mentioned brokers, three -- Hickey's Tickets, Capri and Rubin Ace -- failed to comply with a subpoena issued by the Attorney General in 1994. The owner of another Richard Markowitz of Original R' Tyson refused to testify, invoking the Fifth Amendment protection against self incrimination. In addition, the Attorney General's Office was involved in extended litigation with Herman Agar, Co. and Manhattan Entertainment, Inc. subsequent to its execution of search warrants (in cooperation with the New Jersey Attorney General) at their New Jersey premises.
The Roundabout Theatre's "Cabaret" The Roundabout Theatre, a respected not-for-profit theatre organization, found itself with a major musical hit during the 1997-1998 season: "Cabaret." It came to the attention of the Attorney General that the Roundabout organization was openly selling tickets to ticket brokers, predominantly unlicensed, instead of the general public for between five and 25 dollars over the established or face price. The stated rationale for this apparent example of ice that was given to the Attorney General's Office was that these tickets were being sold as a package that included a souvenir T-shirt or a baseball cap. See Exhibit I.
The United States Open Although members of the public were unable to purchase any but the last two rows of seats to the 1997 U.S. Open by as early as April 1997, major unlicensed ticket brokers were able to acquire large amounts of tickets (some for the entire event, i.e. season tickets) in May, June, July and August of 1997 from the box office, despite the United States National Tennis Center's stated policy not to sell to ticket brokers.(32)
B. The Use of Surrogate Purchasers by Ticket Brokers
In a similar method designed to obtain large quantities of high quality tickets, brokers use surrogates and their credit cards. It has come to the attention of the Attorney General that a particular ticket broker uses dozens of different credit cards -- cards in the names of family, friends, associates and other enlistees. In one instance, the attorney for the owner of an unlicensed New Jersey broker purchased $15,177 worth of concert and sporting event tickets on behalf of the broker. He was one of eight people who were used in this enterprise. Ticket brokers and their affiliated purchasers claim that they are simply more adept than members of the public at getting through on the telephone because of their greater efforts (e.g., they pay closer attention to news as to when new tickets are going on sale, they use speed dialing and other techniques). Diehard fans obviously dispute this claim.
C. Ice and Corruption
The Attorney General's investigation of ticket distribution practices is notable for the number of anonymous letters and phone calls it has given rise to and the number of industry insiders who express consternation at the current system of ticket distribution, but who will not speak for attribution. The Attorney General has concluded that the practice of paying and receiving ice is rampant;(33) that creators and producers are tired of it because they believe the excess money in the system rightfully should be theirs(34) and reports in the press repeatedly carry unsourced quotes acknowledging the existence of ice and its "inevitability."
There is little movement in or out of the career of ticket selling, except that some ticket sellers become ticket brokers. While ticket sellers do not seem to change careers, they frequently move from box office to box office, primarily within the same organization, e.g., the Shubert or the Nederlander chain, but also between organizations.(35) Box office treasurers and ticket sellers are generally part of a tightly knit group that includes fathers, sons, brothers, in-laws and many other familial relationships.
Original sellers of tickets and ticket resellers have closed ranks because the substantial livelihood of both groups is at stake. One New Jersey ticket reseller, the owner of a New Jersey ticket brokerage business, came to the attention of the Attorney General through records showing that he and his employees purchased 700 tickets to "The Lion King" at the box office during ten days in July, 1997. (See Exhibit L, consisting of 23 pages of copies of credit card receipts in the name of the owner of the ticket brokerage firm, Ticket Town, and a cover page summarizing his purchases by date and time of day). On July 26, 1997, 164 such purchases were executed in 29 minutes and on July 28, 1998, 230 transactions took place in 40 minutes. Yet, the head of the New Amsterdam Theatre box office claimed he was not familiar with the purchaser. Testifying under oath at a hearing conducted by the Attorney General, the manager of the New Amsterdam Theatre box office (where "The Lion King" opened on November 13, 1997, after enormous advance publicity), stated that he did not know the purchaser, but remembered that his staff complained about processing his orders. The ticket broker refused to testify and only did so after he was granted immunity and faced being arrested on criminal contempt charges. Claiming to specialize in Broadway show ticket resale, he maintained in his July 28, 1998 testimony that he particularly specialized in only two shows, "The Lion King" and "Chicago." Despite having a business with four full-time employees and drawing a salary of approximately $125,000 per year, he was unable to give even the most rudimentary information about his business, such as his yearly gross, how many tickets he sells in an average week or even how many tickets were sold the day before his testimony. He willingly attested to his own illegal conduct of reselling $75 Broadway show tickets for anywhere between two and three times their face value, conduct for which he could not be prosecuted pursuant to his immunity agreement. He did not, however, advance the investigation with respect to sources or payments of ice.
Other corroborative evidence has been collected during the investigation. For instance, Exhibit M, is a list of telephone calls made in 1996 to illegal ticket brokers from the Broadway box offices of the theatres showing the four most popular shows on Broadway, "Phantom of the Opera", "Les Miserables," "Miss Saigon" and "Chicago." Similarly, Exhibit N is a proposal for "de-bugging" the home of a former box office supervisor at MSG sent to V.I.P. Tickets, an unlicensed New York ticket broker.
D. Agents of the Venue: Ticketmaster and Telecharge
Ticketmaster dominates the field of providing computerized ticket services to venues. It is the ticketing agent for almost every major concert and sports venue in New York, as well as for the Nederlander chain of theatres, Disney's New Amsterdam Theatre (where "The Lion King" is playing) and the Ford Center for the Performing Arts (currently showing "Ragtime"). The only competition Ticketmaster now faces in New York is Telecharge, developed and owned by the Shubert Organization, the owner of 16 Broadway theatres. Telecharge handles the telephone call-in operations for Shubert Theatres, as well as for the Jujamcyn Theatres, the owners of five theatres, and the National Tennis Center. Unlike Ticketmaster, Telecharge does not have remote walk-in outlets.
The standard Ticketmaster arrangement with a venue is to provide all ticket selling services for an event,(36) including accounting and inventory control. Regardless of where the tickets are sold -- at the box office, through a centralized telephone system or at a walk-in-Ticketmaster outlet or elsewhere -- the tickets will be issued from a Ticketmaster terminal.(37) All terminals have access to the same supply of tickets -- those that the venue has agreed to sell to the public. At the commencement of sale the computer terminals cannot access tickets that have previously been placed in a "hold" status. Generally, unless a certain number of seats have been expressly held for sale at the box office, the terminals in the box office have no advantage over those in telephone rooms or outlets -- it is first come, first serve, no matter which terminal sends the order.
Ticketmaster's remote outlets -- approximately 120 throughout the tri-state area of New York, New Jersey and Connecticut -- are, however, in terms of control and accountability, the weakest link in the system. The people who operate outlet terminals are either minimum-wage hourly workers at such chains as HMV or Rite Aid drug stores(38) or small entrepeneurships, such as sneaker stores and frequently, video stores.(39) In either case, there is almost no accountability for the terminal operators. There are consistent reports from informants in the ticket resale business about how certain small outlets have links with certain ticket brokers; that certain ticket brokers even control groups of Ticketmaster outlets. Indeed, the Attorney General's Office has obtained evidence that a particular video store and Ticketmaster outlet located in the Bronx is silently owned by a New Jersey ticket broker. Ticketmaster management has worked cooperatively with the Attorney General, including forwarding a communication it received from an independent outlet describing a person who offered to pay "thousands of dollars for preferential treatment during on-sales." See Exhibit O.
The methods used at such outlets to divert tickets to brokers are relatively simple. A terminal operator at an outlet may issue tickets for a minute or two prior to admitting the first public customer or in between customers, to convey tickets to an illegal reseller. The price of the ticket plus any legitimate service fee is paid. As in all such illicit ticket transactions, the venue is always made whole. The ice is paid to the terminal operator in cash by the ticket broker. Based on numerous reports of such activities, the Attorney General commenced an inquiry by examining the printouts of Ticketmaster outlets subsequent to the sale of tickets to the 1994 Barbra Streisand concerts at Madison Square Garden. Testimony on the findings of that inquiry was presented to the New York Assembly Committee on Tourism, Arts and Sports Development.(40)
Among the observations resulting from the Attorney General's inquiry were: (1) certain outlets had a higher number of transactions per unit of time than others (i.e., the time between transactions was only fifteen to twenty seconds as opposed to one to two minutes); and (2) all tickets were sold only in certain multiples, such as blocks of four or blocks of six, whereas it would have been unlikely for all fans on line to have wanted or needed the same number of tickets. Based on these other selling patterns, certain outlets were targeted for further inquiry.
The Attorney General found that 70 percent of the tickets issued at targeted outlets found their way into the resale market. The printout of one closely investigated Long Island outlet was totally irreconcilable with what was observed at that outlet. According to the printout, there were 40 transactions during a time frame when only 17 people were observed to have purchased tickets. Furthermore, the first person from the line to make a purchase actually obtained the sixth set of tickets issued, the sixth person obtained the 22nd and so forth, leading to the conclusion that the outlet operator was setting aside or purchasing tickets, in between sales, for resale to a ticket broker for personal profit. Interviews conducted at Madison Square Garden of persons sitting in the particular seats sold at that outlet confirmed that the tickets represented by the 23 transactions occurring when no one was on the line were resold by a Connecticut ticket broker. Fans who called the Attorney General's Office provided ample support for the conclusion that similar scenarios occur at other outlets in connection with other concerts. One caller who stood on line at a Tower Records outlet for Backstreet Boys tickets on March 21, 1998, said that the tickets were sold out before the doors even opened.
In connection with the sale of tickets to the 1998 Spice Girls concerts at Madison Square Garden, the Daily News reported:
[I]t appears merchants or their employees sold four-ticket blocks faster than humanly possible -- an indication that they were siphoning off tickets for themselves, friends or scalpers.In the most glaring example, 72 tickets were sold at one Manhattan outlet in the first three minutes. That translates to 18 sales of four-tickets blocks -- impossible, given the time required to print the tickets after taking each customer's order.
Ticketmaster has acknowledged that it may have had a problem at some outlets, particularly, small, independent outlets at such places as video stores and sneaker stores, but that it has taken necessary corrective actions. Ticketmaster also points to the difficulties it has encountered in attempts to terminate contracts of certain outlets for engaging in preferential and improper sales. Indeed, Ticketmaster's standard form contract with its outlets contains the following language:
[name of outlet] may only sell Tickets to customers physically present at a location. [name of outlet] may not accept orders for tickets or effect sales of Tickets by telephone.* * *
Scalping or brokering of Tickets by [name of outlet] or any employee or agent of [name of outlet], or the providing of Tickets to third party scalpers or brokers through preferential sale or otherwise, or the providing of inside information concerning Attractions, will be considered to be a material breach of this Agreement and, in the event of such activity, Ticketmaster may terminate this Agreement immediately.
Nevertheless, Ticketmaster's attempt to terminate its contract with a video store, Night at the Movies, Inc. ("NATM") for breach of contract, resulted in extended litigation. Court papers submitted by Ticketmaster describe its investigation of NATM. A Ticketmaster employee was sent to monitor NATM on November 14, 1997. A new block of "Lion King" tickets were to go on sale that morning. The employee/monitor arrived at NATM prior to 8 a.m. The store's security gate was half-closed and its door was apparently locked. He never lost sight of the store entrance between approximately 7:55 a.m. and 8:10 a.m. when he knocked on the still-locked door. There were no customers in the store during that 15 minute period, yet the computer printout showed that between 8:00 a.m. and 8:05 a.m., 18 "Lion King" tickets were pulled for cash transactions at precisely 8:00 a.m., six more at 8:01 a.m. and an additional five were pulled at 8:03, all charged to someone said by NATM to be a bona fide customer. Since no one was in the store at the time, however, it is likely that a NATM employee simply used that credit card to cover illicit transactions.
The above-related incident indicates the number of ways that tickets can be diverted from the primary market to the illegal resale market in the span of three minutes. First, information that a new block of "Lion King" tickets was going on sale was closely held; second, Ticketmaster outlet employees were pulling tickets for themselves; and third, surrogate credit card numbers were used as a cover for the purchase of tickets by insiders without the credit card holder having been present at the outlet.(41)
Ticketmaster appears to be attempting to phase out independent outlets and claims that all outlet sales account for only about 30 percent of its sales in the Northeast region. Some of the more recently opened outlets like The Wiz are staffed by hourly employees whose duties extend beyond ticket sales. There is, therefore, even less supervision and regulation of Ticketmaster outlets than there is of box offices.
E. The Use of Diggers: The Myth and the Reality
It is a myth that homeless persons account for the supply of tickets in the resale market. While many individuals are paid to stand on ticket lines, this does not account for the huge supply of tickets -- certainly not for the huge supply of the best tickets -- in the secondary market.
To the contrary, the primary manner tickets are diverted to the resale market is by employees of venues, as well as promoters and other insiders. Indeed, if homeless people simply stood on line like the rest of us, their chances of obtaining tickets to a "hot" event would be equal to those of the rest of us. They would have no better chance than anyone else on the line of getting the front row center, or whatever is the most desirable seat. But these are exactly the seats that unlicensed brokers have, and in large quantity, to supply their corporate customers who are willing to pay premium prices for such seats. Having the best seats is exactly what these brokers advertise.
To be sure, the use of "diggers" is one method ticket brokers/scalpers use to monopolize the supply of tickets to particular events. Brokers even have their own groups of diggers or "crews." Large brokers may have as many as 100 to 200 diggers in their crew.
This has undoubtedly led to the numerous complainants who have described the chaotic and intimidating scene at a venue when diggers arrive. They have no trouble identifying diggers, although security details retained by the venue are supposedly unable to make such observations, according to their testimony. Often the diggers engage in intimidation, literally taking any place in line they choose with apparent impunity.
The following letter received by the Attorney General's Office regarding a digger infested ticket sale at Radio City Music Hall for "Radiohead" (1998 Grammy winner for best alternative performance) typifies the many other such complaints this office has received:
Tickets "originally" were to go on sale . . . Saturday March 7th [1998] through Ticketmaster and the Radio City Music Hall box office. As a Radiohead fan, I had heard a rumor that wrist bands (for a place on line to buy tickets at the box office the next day) for the up coming concerts were going to be distributed at a side door of Radio City, between 5:00 and 9:00 p.m. on Friday March 6th. I arrived at the side door located in the middle of 51st street between 5th and 6th Avenues, at 5:00 p.m. where I found around 25 people waiting on an orderly line.
For two hours I waited with my friend, his mother and girlfriend and my wife as the line grew longer. About 7:00 p.m. groups of people began to arrive, most of which arrived by several cars and vans and simpl[y] proceeded to push and intimidate their way to the front of the line having no regard for anyone that had been waiting in line. By 8:00 p.m. the line had grown to roughly 300 rowdy people with the majority at the front, pushing towards the door. Without passing judgement, and trying to be as charitable as possible, [I] . . . . feel I can safely say that at least 80% of the people on the line had no idea what artist was playing in the concert they were waiting for, let alone considered themselves a fan of the artist. These people were clearly part of [a] well-organized system for scalpers to obtain the best tickets for illegal resale of the tickets at inflated prices.
I should also add that there was clearly inadequate security to control the mass of people. The only security officer we ha[d] seen was the one who told us not to sit on the street around 5:00 p.m. when there was still only 25 people on line. After my wife told me that she had witnessed several drug deals, and fearing for the safety of the women, my friend and I advised them to wait in the TV Land restaurant on the corner. The girl in front of us who had been there when I arrived, probably no older than 23 and less than 5 feet tall, was so intimidated by the arriving hoards that she fled after already waiting for almost three hours. After great stress and danger, my friend and I finally got our wrist bands by 8:00 p.m. Words can't truly explain how happy I was to be free of that situation. That night I could not fall asleep until 4:30 in the morning because my heart was still racing at the insensitivity, intimidation and lack of security that I had witnessed that evening outside of Radio City Music Hall.
To give Radio City their credit, when I went down on Saturday morning to buy tickets, there were numerous staff/security people that made sure everyone was in numerical order, according to the number on their randomly selected wrist band. My question, along with all the other fans I spoke with, was, where were the security personnel the previous night when no sense or order was maintained?
It would be obvious to anyone that these people were scalpers looking to make a fast buck at the expense of the New York City, Radio City Music Hall and especially the fans, without whom the concert could not be held. I should also note that the pamphlet distributed with the wrist band entitled "Ticket Sales Information" specifically states the following, that any rational man or women would say were violated that evening. I will enclose a copy of the entire pamphlet for your benefit. I quote:
1) Any person observed disrupting or breaking the line will not be permitted to receive a wrist band or to purchase tickets.
2) Anyone reselling tickets, or attempting to purchase tickets with the intent to resell them, will be denied the right to participate in the wrist banding process or to buy tickets.
I understand the demand for an event like this outstrips the supply: it is the nature of show business. But that does not mean the safety and well being of . . . New York's citizens should be in jeopardy, nor should Radio City Music Hall, the City of New York or the Artists in the concert lose out on money that is going in the pockets of scalpers. Radio City Music Hall is a treasured and culturally significant part of New York City and it belittles the integrity of the institution and the city to allow tickets to be distributed in this manner.
The testimony of persons who have stood on ticket lines with diggers and engaged them in conversation is that they are recruited at places such as the Port Authority bus terminal to stand on line to purchase tickets or obtain numbered wrist bands for major concerts. They are recruited on behalf of ticket brokers by a person known as a "crew boss" who is usually visibly stationed near the scene of an on-sale with the cash for the purchase of tickets and to pay the diggers their fee -- which is said to go as high as $60.
One mother of a young Spice Girls fan gave the Attorney General's Office a virtual reality tour of the atmosphere outside Madison Square Garden the night before Spice Girls tickets for their July, 1998 concerts were put on sale. Her account is set forth in great detail to give the reader a sense of the scene. She arrived with her beach chair at 10:00 p.m. the evening before the on-sale with eight friends. At that time, she estimated there were about 50 people ahead of her. At midnight, when numbered wrist bands were distributed, the orderly line of fans was overrun by approximately 100 diggers. The wrist bands were blue or green and pink. Diggers had blue or green wrist bands. The fans wound up with the pink. Continuing her story, the witness said she started talking to a digger whom she identified by name. He told her he was from Levittown and was currently collecting welfare. She gave him money to buy coffee. He told her that anyone with a pink wrist band, such as she had, would not get to purchase tickets. As the night wore on she decided to offer him $150 to purchase tickets for her instead of the crew boss from whom he would get only $50. He checked with his crew boss, who apparently agreed to let him make the extra money. At approximately 7:00 a.m. people with blue wrist bands were let into the building. Shortly thereafter it was announced that only 800 tickets were being sold at that location and, as the digger had predicted hours earlier, all persons with pink wrist bands could leave. The digger enlisted a friend to fulfill his agreement to purchase tickets for the complainant. The friend came out at between 9:05 and 9:10 a.m. with four tickets in the uppermost row of seats.
The foregoing account of the digger activity on this night is corroborated by ticket terminal records showing numerous consecutive cash transactions for the maximum number of tickets permitted to be purchased in one transaction. On this basis, it appears that 37 diggers purchased the first 148 tickets sold. All of these seats were among the "best" seats sold for the concert and the best seats sold at the box office. Madison Square Garden security personnel, however, including the two persons who were in charge of security on the morning of the on-sale and the night before, testified that they were unaware of any digger activity. In response to a specific question about diggers, the Supervisor of Events Operations stated: "No, no, I don't know who they are."
While diggers are perhaps the most visible part of the underground economy that supports the ticket resale market and probably the most irritating to fans, to a certain extent diggers actually camouflage the more insidious corruption of the ticket distribution system.
F. Mail Orders
During an on-site visit by the Attorney General's staff, a knowledgeable theatre executive divulged what he called a well-kept secret -- that the best way for the public to assure itself of obtaining good seats to a new show is by mail order, since mail orders are filled prior to phone and walk-in orders. This well-kept secret is, however, an open secret to ticket brokers who exploit this method extensively by using the individual names and addresses of their employees and other associates to obtain excellent seats before they are made available to the public. The use of mail orders by brokers appears to be part of an elaborate scheme between the brokers and individuals at the venues to cover up the fact that the brokers are draining highly desirable seats prior to the general sale to the public. A review of letters accompanying mail orders to a number of Broadway shows has shown letters with a surface similarity -- all seeking the same number of tickets -- are in fact from the employees of one ticket broker, Red Mark Entertainment. See Exhibit P. Although only one of these letters requests Saturday evening tickets, all of the orders were filled with top quality Saturday evening tickets. An additional 7 letters were notable because: (1) three were almost identical letters (two signed by the same person) requesting tickets for different dates, but identical seat locations; (2) the telephone numbers on three letters are the same; and (3) in some instances letters to certain venues provide unnecessary details e.g., "my family is coming in from California for a visit and this will be a surprise for them" as if to provide a cover of legitimacy for the order. See Exhibit Q. Most notably, when the addresses on a number of such letters were visited by the Attorney General's investigators, they were, in fact, not residences, but ticket brokers in Fort Lee and Union City, New Jersey.
IV. SEATS THAT ARE NEVER AVAILABLE TO THE GENERAL PUBLIC
| The chief obstacle to equal access and lower prices is the illicit and lawful diversion of tickets from the general public. There is a finite number of tickets available for any event, but in too many cases particularly the most coveted events, as many as 90% of the tickets are diverted from the general public. Diversion occurs both illicitly and lawfully, albeit unfairly. |
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Report to New Jersey Governor Christine Todd Whitman On Access to Entertainment in New Jersey |
"House seats" or "house pulls" or "management pulls" or "producer pulls" or "promoter pulls" are the "coin of the realm" in the entertainment and sports industry and in the more extensive business community. Simply put, access to house seats represents power. High quality seats are beyond the average consumer's reach. Indeed, the number of seats withheld from public sale for all major events seems to have increased continuously in recent years so that the most desirable seats simply are not available to the fan who lacks either the connections or the assets necessary to purchase tickets from illegal brokers. Even the fan who stands on line all night and is the first at the ticket window will not be able to get tickets near the stage or playing field. In addition to traditional house seat holders -- such as persons associated with a production or sports events (e.g., athletes, performers, creators, producers, promoters, owners, or agents) -- consignees such as credit card companies capture increasing quantities of the most desirable tickets and use them for marketing purposes.
A. Theatre Parties and Group Sales
Before opening, shows are extensively marketed to theatre party sales agents and subsequently to group sales agents who may purchase anywhere from 20 tickets to the entire house for a particular performance. These agents, in turn, engage in extensive marketing to groups such as charitable organizations -- which are exempt from the maximum premium price provision of the law -- and other groups. Group sales agents do not screen their clients as to whether they are legitimate organizations. Exhibit R sets forth a list of clients of the theatre party and group sales agents who sold tickets for " The Lion King" performances during the three-month period from November 15, 1997 to February 15, 1998, the date of each performance and the number of tickets purchased
If the theatre party is a large one, the performance is denominated a "party pull", which means that certain house seats become part of the theatre party seats and are not available to the house seat holder. On such occasions, however, although a certain number of seats are reserved for the theatre party, some unused house seats may be returned to the venue. Whether there are unused house seats for a party pull performance may be learned at any time until eight weeks prior to the performance, when the final payment from the group sales agent is due. At this time, these unused house seats are supposed to go into open inventory, but frequently wind up in the hands of illegal ticket brokers.
Of course, a group sales agent may order more tickets than are actually purchased by a particular group and sell those tickets to a ticket broker or simply place a group order for a ticket broker. See Exhibit S. These practices would be in violation of the contract such agents have with the theatres, but the theatres consistently state that they have no way to police the sales agents.
B. Manipulation of House Seats
The manipulation of the house seat system appears to be a primary way that desirable tickets reach the hands of illegal brokers. Some house seats are sold on a retail basis by persons (such as performers and creators) who are contractually entitled to seats for each performance of a Broadway play, and who provide them to a ticket broker for a premium as part of an ongoing arrangement. This, however, represents only a small number of tickets. At the other end of the spectrum, hundreds of tickets can be made available to illegal ticket brokers from the multitude of tickets withheld from public sale for a long list of parties related to certain events. For a typical concert, tickets are held for the act, the promoter, the talent agency, the record company, corporate sponsors, advertisers, marketing and promotional campaigns, "give aways," corporate suite holders and, of course, the "house." Some typical lists of holds are attached as Exhibit T. These tickets are also referred to as being "on consignment," meaning that they are held until purchased or, at a certain time, returned to inventory. Reserved seats must be paid for at the time they are actually taken by the consignee (except for relatively few complementary tickets or "comps"). If the tickets are not picked up, they are supposed to be returned to inventory for sale to the general public.
1. Theatre House Seats
House seats are generally handled on a designated house seat telephone line by a house seat operator (not necessarily located in the box office) who takes the order, writes up a house seat order form and conveys it to the box office where a house seat holder or a designee can pick up the tickets. If a house seat is not purchased by 48 hours (generally) prior to the performance, it is "released" -- no longer kept in a hold status -- and becomes available for sale.
During the weeks after the opening of a hit show, persons entitled to the use of the seats and their friends and relatives may use the seats. Into the run of the show, the demand by authorized house seats holders inevitably decreases. Experienced box office employees have become familiar with this pattern and sell these seats directly to brokers either at the time (generally 48 hours before the show) when they are supposed to go back into the system for sale to the general public, or even before such time, as the Attorney General's investigation has established. Exhibit U -- compiled by the Attorney General's Office from records of ticket sales for the period April through July 1994 for "Beauty and the Beast" and "Grease" -- shows the actual dates of sale of house seats and the dates of the performances. All of these sales to illegal brokers (those who generally resell at mark-ups of over 100 percent) took place during the time such seats were supposedly being held for house seat holders and therefore were not available for sale to the general public. Exhibit V, also compiled from records of ticket sales for "Beauty and the Beast" for the period of April through July 1994, shows that even those house seats that were held until the scheduled release were sold to ticket brokers and not returned to inventory for sale to the general public. This compilation shows almost 1000 house seats -- some that were to be held for emergencies, others that were part of a "party pull" -- all of which were sold to illegal brokers within the 24-hour period prior to the performance when they should have been available to the public.
Isolated seats placed in a hold status may never be detected. Thus, for example, certain seats may be sold to a ticket broker for every performance of a Broadway show. A supervisor, assuming that they are house seats because of their desirable location, may never become aware of it. This is what happened at the Virginia Theatre for a period of approximately 14 months during the run of "Smokey Joe's Cafe." The treasurer and assistant treasurer were ultimately fired by Jujamcyn Theatre for their activities, which consisted of "unauthorized statusing" (placing certain seats in a computer hold status that blocked their sale to the general public) of more than 500 seats. Because the locations so statused were premium orchestra seats (C109-114), management simply assumed they were house seats off sale to the general public.
2. Concert Holds
All unused concert holds are supposed to be returned to inventory for sale to the public. That is why sometimes a block of tickets may become available even on the day of the performance. Such tickets, however, generally also do not become available to the public. For the July 1, 1998 Spice Girls concert at Madison Square Garden there were to be 4,583 holds, according to the venue. See Exhibit T. In fact, according to subsequent records, SFX, the owner of promoter Delsener/Slater Enterprises ("Delsener/Slater") obtained an additional 217 tickets over its originally stated allotment of 200 tickets; Delsener/Slater likewise received an additional 78 tickets; and MSG management received an additional 72 tickets. For its Spice Girls analysis, the Attorney General's Office defined 4,750 seats as "best seats." Of these, only 1,154 were available for public sale, at least 148 of which were sold to diggers. The remaining 3,442 were held for various purposes, including 378 for the promoter.
Interviews conducted by the Attorney General's staff on the night of the Spice Girls concert with persons sitting in seats withheld from public sale establish that such seats were sold by illegal ticket brokers. Twenty-four people sitting in floor seats withheld for Delsener/Slater acknowledged that their tickets were purchased from ticket brokers. Two of these tickets were purchased from Taramack Tickets in Westchester, against which the Attorney General commenced a civil action, obtaining a default order and judgement.
Manipulation of the hold system occurs in various ways. In addition to grossly understating the number of tickets to be withheld from public sale, venue personnel appear to take ear-marked for sale to the public out of the system just prior to the public sale. The Attorney General has examined the records of sales for six 1998 concerts at MSG -- the Spice Girls on July 1, 1998, Celine Dion on September 3-4, 1998, and three Eric Clapton concerts on April 18-20, 1998. For these six concerts, 452 seats -- originally designated for public sale -- were not sold to the public on the on-sale days, but were held in a management hold status and subsequently sold at the box office by the current manager of box office operations and other ticket sellers. See Exhibit W. Similarly, for the July 17, 1998 Back Street Boys concert at Radio City Music Hall ("RCMH") 159 tickets were placed into a hold status, although no such status was designated on RCMH's manifest for that concert. See Exhibit X. These tickets were sold for cash after the March 21, 1998 public sale. See Exhibit Y.
The fraudulent scheme that occurred at the Jones Beach Marine Theater in 1996 was also based on the illicit placing of tickets into a hold status by the box office treasurer and assistant treasurer. As a result of scrutiny by the management of the band Hootie and the Blowfish, it became evident that tickets in the first ten rows for 37 of the concerts that summer were withheld from public sale (tickets for all concerts went on sale on the same day) and were subsequently sold to ticket brokers. The tickets withheld were valued at $300,000. Head treasurer Joseph Nekola ultimately pled guilty to grand larceny in the second degree, a Class C felony, and computer tampering in the third degree, a Class E felony.
3. Ticket Clubs
There are two major concert promoters in the New York area, Delsener/Slater and Metropolitan Entertainment ("Metropolitan"). Delsener/Slater, acquired in recent years by SFX, is by far the larger. Both organizations maintain their own "ticket clubs" of fee-paying members. In 1994, Metropolitan's club had between 100 and 200 members (which it still has); Delsener/ Slater's club had 400 members.
The concert promoter controls the original allocation of tickets to a concert. The number of tickets to which the promoter is entitled (a certain number are generally complimentary; the others are required to be paid for) is controlled by the promoter's contract with the venue. These tickets are, of course, among the best.
Before Delsener/Slater changed its policy and created its tiered membership system during 1997-98 and targeted corporate clients, its club members were offered a maximum of two tickets per concert, as were Metropolitan's members. On the basis of the above numbers, the maximum number of tickets that could possibly have been allocated to members for one concert was 800 for Delsener/Slater club members and 400 for Metropolitan club members. In fact, for the series of Barbra Streisand concerts at MSG in 1994, Delsener/Slater allocated 2400 tickets for itself, 1600 tickets more than required for club members, even assuming that every club member chose to attend a Streisand concert. MSG records for the September 4, 1998 Celine Dion concert show a similar pattern. For that concert Metropolitan allocated 1769 tickets for itself, 1369 tickets more than were required for Metropolitan's club membership. At least 14 of these tickets were offered for sale by Maxx Entertainment, Inc., a Connecticut ticket broker.
The new Delsener/Slater ticket club structure created tiered memberships, aimed at attracting corporate clients, for fees ranging from $250 to $5000. Information on the exact number of Delsener/Slater club members is not available at the time of this writing. However, if the above described pattern still holds, it appears that both Delsener/Slater and Metropolitan take substantially more tickets for each concert than warranted by the number of club members. Many tickets allocated to both promoters ultimately wind up in the hands of illegal ticket resellers.
The total income that can be derived from a ticket club based on the number of ticket club members, their membership and service fees -- an estimated $70,000 for Metropolitan in 1998, before costs -- does not appear to provide a sufficient financial incentive for organizing a ticket club. Accordingly, the inference that clubs serve as a vehicle for a lucrative trade with ticket brokers appears inescapable.
4. Sporting Events: The Subscription List
Most Knicks and Rangers subscriptions are sold to persons who have connections with the management of MSG. These persons include personal and professional acquaintances, business affiliates, as well as many celebrities. Indeed, 75 percent of the Knicks season subscriptions that became available in 1997 were management connected. The 25 per cent that were sold to the public were all located in the upper tier.
Ticket brokers or persons who obtain tickets for ticket brokers also obtain subscriptions through management. For example, Patrick J. Lynch, the owner of Curtain Call, a New Jersey ticket brokerage firm was on the management list with the notation that he was involved with MSG boxing, casting considerable doubt on the validity of the information on that list. Lynch obtained a subscription in 1997, more than a year after an internal MSG investigation (which resulted in the termination of five employees in its subscription department). As a result of that investigation, the three Knicks subscriptions and one Ranger subscription of the owner and employees of a New Jersey ticket brokerage, Prime Entertainment, were canceled. Despite the 1996 cancellation, Prime Entertainment obtained four Knicks subscriptions and one Rangers subscription in 1997, which were sold to its owner Gary Basse and three employees. Gary Shapiro of Great Seats, whose subscription was also canceled in 1996, reappeared on the 1997 subscription list. Scott Gould, who already had multiple Knicks and Rangers subscriptions, was on the 1996 list as requesting additional subscriptions. Despite MSG's express policy that subscribers who resell tickets forfeit their subscription rights, he sold tickets to Ticket Window, which is also known as 1-800 TICKETS.
In addition, eight other Knicks and six other Rangers subscribers who had subscriptions canceled in 1996 reappeared as subscribers in 1997. Indeed, 71 Knicks and 47 Rangers subscriptions were still being held by resellers after the internal investigation. Exhibits Z and AA. A holder of one of these subscriptions, the Nederlander Organization, sells seats to the ticket broker Redmark through Scott Nederlander. Exhibit BB. Another one of these resellers is a member of MSG's security staff who holds four Knicks subscriptions in total, three of these in association with his accountant. Individual tickets that were part of these subscriptions were sold by an illegal ticket broker, Your Ticket Place. This accountant testified before the Attorney General that he owns 12 Rangers and 12 Knicks seasons subscriptions. Ten of these subscriptions were obtained through a vice president of finance and a seasons subscriptions employee. This employee also provides the accountant with tickets to concerts, and is the same person who made the above mentioned arrangements for both Patrick Lynch and Scott Gould.
The accountant also testified that he generally gave these tickets to clients and employees or sold them at face price. In addition, he testified that he exchanged his seats with theatre connected people for Broadway shows and with out-of-state ticket brokers. He also sold some to ticket brokers. Indeed, some of these seats were resold by Your Ticket Place and Concert Connection, Connecticut ticket brokers.
The stance of the venues, as well as Ticketmaster and Telecharge (original ticket distributors), has been cooperative throughout this investigation. Substantial information has been provided to the Attorney General's Office voluntarily or pursuant to subpoena. It appears that as a result of the Attorney General's request for or subpoena of information and subsequent discussions of problem areas, or independently, some of the original ticket distributors have undertaken to institute reforms. However, even the positive steps they have taken to clear up the ticket distribution process have been reactive rather than proactive. The evidence of fraudulent or illegal conduct by individual or groups of employees at venues or in the employ of Ticketmaster is there to be seen by those employers. Some examples of measures taken by venues in reaction to the Attorney General's investigation and, in some instances, the concomitant press attention are:
In 1996, MSG terminated, for cause, five employees who worked in their box office and season subscription department, subsequent to an internal investigation that received assistance from the Attorney General's Office.
It was discovered at a Jujamcyn theatre that its treasurer and an assistant treasurer were placing a block of six tickets in hold status for every performance of a show without the authorization or knowledge of management. When this was discovered, approximately 18 months into the show, the employees were terminated. They were, however, subsequently hired by other venues -- one by the Nederlander Organization, the other by Radio City Music Hall.
As a result of an internal investigation of the practices of its box office employees, in May 1996, "RCMH" took advantage of a provision of its contract with Local 751 of the Treasurers and Ticket sellers union, which permitted it to issue a non-renewal notice to its members once a year, without cause, during a 30-day period at the expiration of the contract period. RCMH purchased tickets to many of its own concerts from illegal brokers (to wit: Global Travel and Entertainment Inc., Liberty Theatre Ticket Service and Turf Tickets) and was able to trace them back to individual ticket sellers in the box office. They placed these people under surveillance and established that one of them was having regular meetings in a nearby restaurant with a former RCMH box office employee who was now a ticket broker. Other individuals under surveillance appeared to have different contacts. RCMH decided to take advantage of the above contract provision and therefore terminated the employment of its box office staff and one supervisor, but not the head treasurer, and hired new personnel as of June 1, 1996. Many of the terminated employees, however, are now simply working at other venues.
In a change of policy in February, 1998, the New Amsterdam Theatre reduced the number of tickets that could be purchased in one transaction by telephone or at an outlet from 19 to two. Prior to this time, documents obtained by the Attorney General showed illegal brokers and their associates obtaining hundreds of "Lion King" tickets by this method. See Section III, A.
After an outpouring of complaints about diggers obtaining all of the wrist-bands and buying up all of the tickets available for sale at the box office on April 17, 1998 for the July 1, 1998 Spice Girls concert, MSG announced that its box office would no longer be open for first-day sales, i.e., tickets could only be purchased by telephone or at Ticketmaster outlets.
Some venues, such as Disney's New Amsterdam Theatre have taken steps to decrease the number of house seats withheld from public sale, although theatres generally decrease the number of house seats during the run of a show, in any event, as the demand for them decreases. The Attorney General is asking the theatre community to participate in a voluntary, concerted effort to cut down on the number of house seats from the inception of a show.
VI. POLICY AND LEGISLATIVE ISSUES
A. Policy
1. Perception of Unfairness
It's not murder or drug-running. No one is really hurt. Some people may not get into a concert or sporting event or they may get the worst seats in the house, even though they have waited on line for hours or they may resort to scalpers and illegal ticket brokers. Theatre goers, the industry repeatedly avers, do not suffer harm because tickets are available for the duration of the run of a play which can be for many years depending upon its continued popularity with the public. Gerald Schoenfeld, Chairman of the Shubert Organization, Inc. testifying in this regard, stated:
[D]espite suggestions to the contrary, someone who is willing to wait for a desired seat location will be able to purchase such a seat. If a specific desired location is not available at a particular time, that seat, or one nearby, will be available at a later date.
The "victimless crime" or "what's the harm" argument ignores the fact that a system perceived as both unfair and corrupt ultimately injures the industry that supports it. Recent reports have focused on the fact that the audience for the legitimate theatre is growing older and for the most part is not being replaced by younger audiences. Although several initiatives have been undertaken to attract young people to the theatre, even some creating a limited number of low cost tickets, none have addressed the perception of systemic unfairness in the ticket distribution system, which renders unavailable good seats to popular shows at inflated prices in a reasonable amount of time.
Illegal ticket resellers are able to provide (even guarantee) the best seats to the most popular shows within a matter of a day or two. They are even willing to sell (to take orders for) tickets that have not gone on sale yet. They know with certainty that they will have certain seats. This puts the lie to the claim that they are standing on line or calling just like anyone else (an act which in and of itself would not be illegal). Clearly, their business depends on pre-arrangements with insiders who control the vast percentage of best seats.
An investigator on the Attorney General's staff was able to obtain guarantees for Saturday night seats, in the first 15 rows (or the first five rows in the mezzanine), "prime seats" as they were described by the order taker, for several popular Broadway musicals within a week's time. The investigator was advised, however, that the tickets could not be mailed to him. The explanation was as follows:
Usually that's not possible for Broadway shows, although our agent [the speaker was an employee of American Express - their "agent" in this exchange is the ticket broker] can confirm tickets, they, you know, yes, one hundred percent, I guarantee I can provide these tickets. They don't actually, the tickets aren't unavailable [sic] to them until like the day before, sometimes the day of the show. So usually for Broadway shows we have to arrange to have them left at the box office. Very rarely do agents actually have them in hand in enough time to even have them Federal Expressed out. This is something that we do all the time. Again, I've never had a problem with having tickets left at the box office either.
It could be concluded from this exchange that the tickets were not actually available at that time because they were unreleased house seats required to be held until 48 hours before the performance, and that there was an arrangement that when the seats were released they would be sold to the broker rather than sold to the public. See Discussion of House Seats supra and Exhibits U and V.
2. Tax Consequences
One consequence of the underground economy in tickets is the loss of income tax revenues to the State of New York, as well as the City of New York and the federal government, resulting from illegal, unreported cash payments of ice to box office employees and other insiders.
In addition, illegal ticket resellers pay no sales tax on the huge mark-ups for which tickets sell on the resale market, sometimes rising to thousands of dollars for such events as the Knicks playoffs or the series of Barbra Streisand concerts in 1994. In a case brought by the Attorney General's Office against an unlicensed New York ticket reseller, a trial jury found the co-owners of Tickets on Request guilty of both reselling tickets for over the maximum premium price and of tax evasion by failing to collect $35,000 in sales taxes.
However, the trial court set aside the verdict on the tax charges. The Court found that while sales tax is required to be collected upon an admission charge, this requirement is not applicable to a service fee imposed by a subsequent seller, since this service charge is essentially unrelated to the price of admission. The Court considered the fact that state legislation had been recently introduced which would have amended the definition of "admission charge" in the Tax Law to include the mark-ups charged by brokers such as the defendants. Since this amendment had not yet been enacted, the Court concluded "that the legislative view is clearly that such tax obligations do not exist under current law."
3. Profits Derived from the Sale of Tickets Rightfully Inure to Investors and Creators
Nothing but an apparently self-imposed stricture and concern about the public perception prevents theatres, sport and concert venues, the source of the original sale of a ticket, to establish any price the market will allow on its tickets. There has been much recent talk about the so-called "free market." The market is indeed free at the point where the original sale price of a ticket is set, at the place of entertainment. These original issuers theoretically lose huge amounts of money by allowing their agents and employees who receive ice and the illegal ticket brokers who pay it to take in the difference between the established price of tickets and the amount they actually command in the marketplace.
If there is excess demand in the system which results in excess profits, these profits should not, in fairness, become a windfall for people who add no value to the product represented by the ticket. The people who should be participating in such gains are the creative people who produce the product and the investors or risk takers who finance it.
B. Legislative Recommendations
Any amendment to the current law should control the supply of tickets in the secondary or resale market. An additional goal should be to increase the flow of information to the public through disclosure regarding the number of tickets actually available for general sale to the public and through measures which attempt to assure members of the public a fairer deal when they buy tickets.
More specifically, the following statutory changes should be enacted:
For 77 years New York has legislatively regulated both the resale and the resellers of tickets. Yet, it has not succeeded in eliminating the abuse the law was intended to address. Although there has been repeated incremental change of the law, the goal of creating a fairer ticket distribution system that provides access to New York entertainment and sports events to average consumers at reasonable prices remains elusive. What has evolved is a complex network of persons actively deriving huge profits from the resale of tickets and a system of ticket distribution that favors wealthy individuals and firms with access to entertainment and sports events that is denied or greatly limited to ordinary fans and tourists.
This report is intended to shine light on an underground economy that persists because of a general lack of knowledge of the degree of the criminal activity involved. It is not just ticket scalping -- it is bribery and tax evasion on a grand scale. In addition to violations of law, it involves inequity such as the massive diversion of tickets to insiders and people with connections, whether as a result of fraudulent activity or otherwise. This report is intended to enhance public awareness of the nature and extent of the problem and to promote effective legislation. New York, the entertainment capital of the world, should pass a ticket resale law that provides sufficient protection to the public.
Finally, there is more that owners and operators of theatres, concert and sports venues can do, either individually or through organization, to police their own industry. The industry is better placed than government agencies to root out corruption and to set up standards and guidelines for itself and its employees. Decreasing the number of house seats and strictly controlling their distribution is just one example of an action that venues can undertake. Industry action to deter fraudulent and unfair ticket distribution practices will ultimately benefit the public, as well as the industry.
1. N.Y. Arts & Cult. Aff. Law § 25.11 (McKinney 1984 & Supp. 1997).
2. "Scalping is no longer merely the province of individuals who. . . sell [tickets] for a huge profit on the sidewalk" but also of "[t]icket wholesalers [who] buy up huge blocks of tickets and resell them at illegally high prices." Editorial, Broadway Robbery, N.Y. Times, Mar. 25, 1995, § 1, at 22.
3. N.Y. Arts & Cult. Aff. Law § 25.13 prohibits reselling or engaging in the business of reselling tickets without first procuring a license from the commissioner of licenses of the political subdivision in which such business will be conducted. In New York City, the Commissioner of Consumer Affairs performs the function of issuing licenses to ticket resellers. Many New York localities, however, do not have anyone who performs this function. One suggestion has been that all licensing of ticket brokers should be with the Secretary of State, rather than local municipalities. See May 1995 Comm. Hearing (testimony of New York City Commissioner of Consumer Affairs, Alfred C. Cerullo, III). Commissioner Cerullo noted that "ticket brokers typically do not limit sales to residents of a single municipality" and that they "can easily relocate when targeted for prosecution at the local level." Since ticket brokers conduct their business across county lines, as well as state lines, uniform, centralized licensing and supervision by the State of New York would be appropriate. As an alternative to central licensing with the Secretary of State, legislative consideration should be given to placing this authority with the Attorney General, along with increased enforcement powers. See Legislative Recommendations Section, infra.
4. For example, those who advertise in the New York media have New York telephone numbers, sell tickets to New York events to New York consumers for delivery in New York.
5. By defining "resale" as including sales "where either buyer or seller is located in this state," the 1991 amendment of Article 25 clearly affirmed New York's jurisdiction over resellers who do business in New York or who sell tickets to New York customers, but attempt to evade the law by locating their offices outside New York's borders. See N.Y. Arts & Cult. Aff. Law § 25.03(9).
6. In the heart of the theatre district at Eighth Avenue and 46th Street is a tavern by the name of McHale's which is a well-known "drop" for tickets. Tickets are left there in envelopes, for brokers who send messengers to pick them up. There is constant traffic of this nature, as observed by undercover investigators of the Attorney General.
7. Manhattan Theatre Ticket Service, Inc. is a New York entity which is affiliated with Manhattan Entertainment, Inc., a New Jersey entity. According to accounting records obtained by the Attorney General's Office pursuant to the execution of a search warrant in September, 1994, the New Jersey entity made deposits to the New York entity for the exact dollar amount that the New York entity was paying for tickets over a substantial period of time. See also, letter to Manhattan Ticket Service c/o Manhattan Entertainment, Inc. regarding bond renewals, Exhibit A. Such information demonstrates that Manhattan Theatre Ticket Service, Inc. and Manhattan Entertainment, Inc. were, in fact, operating as a single entity.
8. They charge over the maximum premium price, but they rely upon an opinion of the Law Department of the City of New York which interpreted the law as permitting ticket brokers reasonable charges for extra services actually performed.
9. The three dominant ones are: Applause Theatre & Entertainment Service, Inc., Theatre Service Americana, and Golden, Penn, Le Blanq Theatre Ticket Service.
10. See Public Hearing on Ticket Scalping: Before Assembly Comm. On Tourism, Arts & Sports Development 65, 322 (Aug. 16, 1994) [hereinafter Hearing (Aug. 16, 1994)](testimony of Allan Zelnick, Esq., on behalf of Theater Service Americana and Arthur Golden of Golden, Penn, Le Blanq Theatre Ticket Service.)
11. Statements of hotel concierges and others.
12. Hearing (Aug. 16, 1994), at 322-26.
13. Many premium brokers have stopped doing business with individual New York purchasers or will tell individual callers that they cannot deliver tickets in New York.
14. Jim Evans, "On the Net, Everyone Can Be a Scalper," The Industry Standard, May 3, 1999.
15. Id.
16. Id.
17. Id
18. A large number of box office employees are related to employees at other box offices, such as five brothers who worked at five different Broadway box offices (one is retired, but a son of one of them has come into the business). Many such ticket selling families also have relatives in ticket brokerage firms. Some box office employees and theatre insiders, however, by-pass this familial route entirely and just become ticket brokers themselves. For example, an employee of the Nederlander Organization who most recently worked in the box office of the Nederlander Theatre (where "Rent" is playing), worked at Global Travel and Entertainment in Comack, New York and as a ticket seller at Radio City Music Hall at the same time.
19. As noted below, the subject matter jurisdiction of New York law is based on the location of either the buyer or the seller of tickets. New Jersey, by contrast, derives its jurisdiction over the resale of tickets on the basis of the location of the event, i.e., it has jurisdiction only over ticket resales to New Jersey events. That is why ticket resellers located in New Jersey selling tickets to New York events arguably are not subject to New Jersey law.
20. Noted Broadway producer David Merrick stated during his testimony [Inquiry by Hon. Louis J. Lefkowitz, Attorney General of N.Y., into Financing and Ticket Distribution Practices in N.Y. Legitimate Theatre, Dec. 10, 1963] that the derivation of the word ice in this connection was based on two possible sources: (1) that such payments were recorded on ice that "melted away," or (2) a turn of the century political expression for items listed as "incidental campaign expenses" (i.c.e.). Orestes J. Mihaly & David J. Kaufman, Practice Commentary, N.Y. Arts & Cult. Aff. Law tit F, Art. 23 n.2 (McKinney 1984 & Supp. 1997).
21. "Resale" is defined as "any sale of a ticket other than a sale by the operator or the operator's agent who is expressly authorized to make first sales of such tickets." N.Y. Arts & Cult. Aff Law § 25.03(9). Computerized ticket services such as Ticketmaster are considered agents of the operator or original sellers of tickets under this definition.
22. Exhibit F is a document obtained in September, 1994 by the Attorney General's office at the premises of an illegal New York ticket broker, Redmark Entertainment. New York theatres are listed in the column on the left; on the right is a column showing the amount of ice required to obtain tickets at certain theatres, ranging from $20 for "Three Tall Women" (which was playing at the off-Broadway, Promenade Theatre) to $35 for "Beauty and the Beast," "Angels in America," "Grease," and "Tommy" at the Palace Theatre, Walter Kerr Theatre , Eugene O'Neill Theatre, and St. James Theatre, respectively.
23. ACAL § 25.03(4).
24. For further discussion of this issue, see Andrew Kandel & Elizabeth Block, The De-Icing of Ticket Prices: A Proposal Addressing the Problem of Commercial Bribery in the New York Ticket Industry, 5 J.L. & Pol'y 489 (1997).
25. A-7480.
26. N.J. Stat.Ann. § 56:8-27 to 39 (West 1989)
27. Memorandum of Governor Christine Todd Whitman to the Senate (June 19, 1995).
28. Report to Governor Christine Todd Whitman on "Access To Entertainment In New Jersey", at 16-17.
29. Subsequent to the Attorney General's inquiry regarding the distribution of tickets to "The Lion King", the ticket sales policy was changed with respect to Ticketmaster telephone and outlet sales to permit the purchase of 19 tickets per performance to two separate performances. Alan Levey, Vice President and General Manager of Walt Disney Productions, gave testimony at the Attorney General's Office on March 26, 1998. The exchange between him and Assistant Attorney General Elizabeth Block is attached as Exhibit H.
30. Jacob's did not receive either show; Green's was not on the list for "Grease."
31. Applause, Golden LeBlanq, Liberty, Allied, Edwards and Edwards and Keith Prouse.
32. See Exhibit J. Philip Molite testified at a hearing at the Attorney General's Office on March 18, 1998. See Exhibit K. At that time he had been the Ticket Manager at the USA National Tennis Center for twenty years. His employment was terminated several months after this hearing for reasons unrelated to his conduct as Ticket Manager. Mr. Molite acknowledged that he personally had sold a 1997 season subscription to Manhattan Entertainment, contrary to the stated policy of his employer. However he offered as explanation that absent a complaint that such seats were being offered by the broker at an "excessive amount" neither he nor the USA would have taken them off a list of long time subscribers. This is an astonishing response in view of the number of complaints and the level of outcry that reached the Attorney General's Office and the media in relation to the scarcity of seats (other than ground passes) and the unfairness of the distribution process in 1997.
33. Ice is generally acknowledged privately among persons in the sports and entertainment business. In public, references to it are more guarded. Gerald Schoenfeld, Chairman of the Shubert Organization testified on August 16, 1994 before the Assembly Committee on Tourism, Arts & Sports Development that among the methods used by scalpers to obtain tickets is the "attempt to bribe ticket vendor personnel to sell them tickets or give advance notice when new inventories of tickets are being released for sale." See Public Hearing on Ticket Scalping: Hearing Before Assembly Comm. On Tourism, Arts & Sports Development, 177 (Aug. 16, 1994) [hereinafter Hearing (Aug. 16, 1994)].
34. One persistent rumor among industry insiders is that over the ten years of its run, the ice paid on "Phantom of the Opera" tickets exceeded its net profits -- the basis for calculating the proceeds of most creative people and investors.
35. Joseph Nekola, the Jones Beach Marine Theatre ("Jones Beach") treasurer -- who pled guilty to a felony involving his receipt of ice in People v. Nekola -- and other former and current Jones Beach ticket sellers worked at Madison Square Garden ("MSG") during non-summer months; two ticket sellers whose employment at MSG was terminated pursuant to an internal investigation were thereafter employed by the Nederlander organization; two others terminated by Radio City Music Hall were thereafter employed by the Shubert Organization and the Nederlander Organization.
36. Ticketmaster does not provide the ticket seller at the venue box office, but it does provide the box office terminals.
37. According to Ticketmaster, approximately 60 percent of its sales in the Northeast region are transacted over the telephone.
38. The Rite Aid contract was recently terminated.
39. According to Ticketmaster, such independent stores currently account for only about five percent of its outlets.
40. Hearing (Aug. 16, 1994), Transcript at 21-26.
41. The same method can be used at a box office or telephone center.
42. "Diggers" may be used at theatres, as well as at concerts, for a particular hot show such as "The Lion King." A New Jersey ticket "wholesaler" who is known to specialize in "Lion King" tickets uses diggers to augment his own purchases and those of his employees. This broker was able to obtain approximately 700 tickets over a ten day period when the box office first opened for sale. Generally, theatre box offices sell tickets for up to a year in advance and extend that period in three month increments. Thus, as of this writing, "Lion King" tickets are available through the spring of 2000. Undoubtedly, this period shortly will be extended through September or October of 2000. At the time such new tickets are put on sale, those persons in the know -- primarily ticket brokers -- will attempt through the use of diggers, as well as family and friends, to purchase the best Saturday night (and in the case of "Lion King," Saturday matinee) seats in the new batch of tickets.
43. The distinction between theatre party agents and group sales agents has grown somewhat fuzzy over the years. In fact, many such agents, including the biggest, wear both hats. Theoretically, theatre party agents are the selling agents for the theatre to charitable organizations, which may resell tickets without any price restriction, solely for fund-raising purposes. Charitable organizations are generally only interested in musical productions and only during the first three or four months when a show is considered hot. If the party is large enough, there is an automatic reduction of house seats to make them available to the theatre party. Theatre party agents have the right to return up to 25 percent of unsold tickets to the theatre. These returned tickets may be sold to brokers. Although technically prohibited by their contract with the theatre from selling to ticket brokers, theatre party agents may dispose of these highly desirable tickets.
Group sales agents may sell to any group of 20 or more persons. No screening of the purchasers takes place, so ticket brokers occassionally purchase tickets in this way. If the group is large enough, there may also be an automatic reduction of house seats to make them available for the group. Although, as with theatre parties, the contract prohibits sale to brokers, there is no enforcement mechanism to prevent this.
44. One creative entrepreneur proposed to the United Way of New York City ("United Way") that he would run a ticket service for it (for which United Way would compensate him on a commission basis) to avoid the restrictions governing the resale of tickets in New York. Noting the amount of money to be made in the ticket resale business, he estimated that the United Way could net between $500,000 and $1,000,000 annually from this project. United Way declined to become involved.
45. This number varies depending on the size of the theatre and may be changed during the run of a show. For "The Lion King", it was 250 when the show began; it currently is 300.
46. Actually, the number of hours prior to the performance at which house seats are released is scheduled on a "time-release" basis, so that portions are released 72 hours prior to the performance, 48 hours prior to the performance and 24 hours prior to the performance. A small number of such seats are held until just prior to the performance for last minute "V.I.P.s" and for other emergencies. For concerts, there is generally a specified time prior to the performance by which reserved tickets must be released for sale to the general public.
47. How the remainder of such tickets were distributed has not yet been ascertained, although it appears that being a Knicks or Rangers subscriber was helpful. Twenty-eight Spice Girls management holds were sold to Knicks or Rangers subscribers. Interestingly, 16 management holds went to treasurers and ticket sellers at other box offices, including four seats each to two employees at "The Lion King" box office -- even though MSG's own box office employees were limited to two tickets each.
48. Interviews of persons sitting in seats allocated to Delsener/Slater at the July 1, 1998 Spice Girls concert at MSG revealed that at least 24 of those seat holders had obtained their tickets from ticket brokers.
49. A list of contacts seized pursuant to the execution of a search warrant by the New York and New Jersey Attorneys General at the premises of Herman Agar, Co. contained the name of the coordinator of Delsener/Slater's Club.
50. An August 3, 1997 New York Post expose under the banner, "What an Outrage! Ticket seeking VIPs," provided what it called a "top-secret" list of select Knicks ticket-seekers from 1993 to 1996. Both lists, the article stated, are broken into five parts, Priority 1 through Priority 5. Only the Priority 1 list was published. It shows the name of the person seeking the ticket and the results -- generally upgrade or granted, but in some cases the ticket seeker preferred waiting for better seats. A third column on the list is reserved for comments. It indicates which management person made the request and sometimes contains explanations for the request, e.g., the ticket-seeker is a relative of a well-known person or perhaps, his dentist. The existence of such management lists and their contents is, in substance, confirmed by the Attorney General's investigation.
51. Some of the persons terminated by MSG were simply hired as box office employees in other organizations such as Broadway theatres.
52. In this instance, the Attorney General was not aware of the misconduct until the termination was reported in the normal course of business on a ticket distributor registration form. The Arts and Cultural Affairs Law provides for an administrative procedure to revoke the ticket distributor registration of an employee in control of the distribution or allocation of tickets for box office conduct that operates as a fraud upon the public. The same law also makes it a crime to exact, demand, accept or receive any premium in excess of the regular or established price of the ticket. N.Y. Arts & Cult. Aff. Law §§23.23 and 25.29. If evidence of such misconduct is not brought to the Attorney's General's attention, however, even employees terminated for cause can simply move to another venue.
53. See Public Hearing on Ticket Scalping: Hearing Before Assembly Comm. On Tourism, Arts & Sports Development 64, 322 (Aug. 16, 1994) (testimony of Gerald Schoenfeld).
54. See Public Hearing on Ticket Scalping: Hearing Before Assembly Comm. on Tourism, Arts & Sports Development 64, 322 (Aug. 16, 1994) (testimony of John DeRosa).
55. People v. Rosenblatt, N.Y.L.J., (col.3) Jan. 25, 1999 at 29.
56. Id.
57. Id.
58. Id.