Category: Ticketing and Scalpers

Stubhub & Co. Launch Stealth state-by-state legislative offensive strategy for Astroturf “Model” State Ticketing Laws

By Chris Castle

Yes, it’s kismet in the legislature–the sketchy ticket resellers are redoubling their efforts to normalize “speculative tickets.” They have found a willing partner in gaslighting with an organization called “ALEC”.

The American Legislative Exchange Council (hence “ALEC“) is a nonprofit organization that brings together private sector representatives and relatively conservative state legislators to draft (and pass) “model legislation” that pushes a particular narrative. (That private sector representation is led by Netchoice, aka, Big Tech.) Unlike other model legislation with a social benefit like say the Uniform Partnership Act, ALEC’s “model legislation” pushes a particular agenda. Examples would be “stand your ground” gun laws, Voter ID laws, and “right to work” laws.

Netchoice Members (Netchoice leads ALEC’s Private Enterprise Advisory Council)

ALEC’s many successfully-passed “model” laws are intended to be passed by state legislatures as-written. Like Al Capone’s green beer, it ain’t meant to be good it’s meant to be drunk. A cynic–not mentioning the names of any particular cynics–might say that the ALEC strategy is an end-run around federal legislation (like the fake library legislation that was shot down in New York). If ALEC can get a critical mass of states to pass one of their “model bills” as-drafted on any particular subject, then the need for federal legislation on that topic may become more muted. In fact, if federal legislation becomes inevitable, the ALEC model bills then provide guidance for federal legislation, or new federal legislation has to draft around the states that adopt the model bill.

So much for Justice Louis Brandeis’ concept of states as laboratories of democracy (New State Ice Co. v. Liebmann, 285 U.S. 262 (1932)), unless that lab belongs to Dr. Frankenstein. ALEC’s mission claims to promote principles of limited government, free markets, and federalism; I will leave you to decide if it’s more about checkbook federalism.

Ticketing Panel, Artist Rights Symposium 11/20/24, Washington DC
L-R: Chris Castle (Artist Rights Institute), Dr. David Lowery (Univ. of Georgia, Terry College of Business), Mala Sharma (Georgia Music Partners), Stephen Parker (National Independent Venue Association), Kevin Erickson (Future of Music Coalition)

Like so many of these bills, ALEC’s Live Event Ticketing Consumer Protection & Reform Act disguises its true objective with a bunch of gaslighting bromides that they evidently believe to be persuasive and then when you’re not looking they slip in the knife. Then when the knife is protruding from your back you discover the true purpose. I think this section of the bill is the true purpose:

This is an odd construct. The model bill starts out by requiring positive behavior of a primary seller (which would be the band on fan club sales or other direct to fan sales). That positive behavior immediately turns to using the ticket purchaser into an enforcer of the values beneficial to the ticket reseller. This is done by forcing a purchaser to be able to resell their ticket without regard to any restrictions placed on reselling by the artist. 

And you know that’s the intention because the section also requires there to be no maximum or minimum price. While the model bill doesn’t require any particular restriction on the platforms, it has enough in it that it can look like a consumer protection bill, but what it is really doing and apparently was designed to accomplish is eliminate an artist’s a ability to set prices.

ALEC is serious about violations of the act, including civil penalties. Their model ticketing legislation can be enforced by both the Federal Trade Commission and state attorneys general. Penalties can include fines of up to $15,000 per day of violation and $1,000 per event ticket advertised or sold. One problem with the model bill is that it appropriates jurisdiction already available to federal agencies like the FTC which is already failing to enforce the existing BOTS Act and other property theft laws.

The main targets seem to be Stubhub’s competitors like “Primary Ticket Merchants,” These are the original sellers of event tickets, such as event organizers or venues. “Secondary Ticket Merchants” may also be prosecuted as well as individuals.

We continue to study the proposed model legislation, but I tend to agree with Stephen Parker (NIVA) and Kevin Erickson (Future of Music) on my Artist Rights Institute panel in DC yesterday. The better model bill may be their bill passed in Maryland, recently signed into law by Maryland governor Wes More.

Key differences between Maryland and the ALEC bill I could spot:

  • Scope of Penalties: The Maryland bill specifies fines for speculative ticket sales, while the ALEC bill includes broader penalties for various violations.
  • Refund Policies: The Maryland bill explicitly requires refunds for counterfeit tickets, canceled events, or mismatched tickets, whereas the ALEC bill focuses more on transparency and restrictive practices.
  • Study on Resale Impact: The Maryland bill includes a provision for studying the impact of resale price caps, which is not present in the ALEC bill.

    It appears that the Live Event Ticketing Consumer Protection & Reform Act will be introduced at the ALEC meeting on December 5, 2024. This is where ALEC members, including state legislators and private sector representatives, will discuss and vote on the model policy. 

    Watch this space.
by Trichordist

Updates for Nov. 20 @ArtistRights Symposium at @AmericanU @KogodBiz in Washington DC

We are announcing the time schedule and speakers for the 4th annual Artist Rights Symposium on November 20. The symposium is supported by the Artist Rights Institute and was founded by Dr. David C. Lowery, Lecturer at the University of Georgia Terry College of Business.

This year the symposium is hosted in Washington, DC, by American University’s Kogod School of Business at American’s Constitution Hall, 4400 Massachusetts Avenue, NW, Washington, DC 20016.  We are also pleased to have a Kogod student presentation on speculative ticketing as part of the speaker lineup.

Admission is free, but please reserve a spot with Eventbrite, seating is limited!

The symposium starts at 8:30 am and ends with a reception at 4:30pm. The symposium will be recorded as an audiovisual presentation for distribution at a later date, but will not be live-streamed. If you attend, understand that you may be filmed in any audience shots, questions from the floor or still images. The symposium social media hashtag is #ArtistRightsKogod.

Schedule

8:30 — Doors open, networking coffee.

9:00-9:10 — Welcome remarks by David Marchick, Dean, Kogod School of Business

9:10-9:15 — Welcome remarks by Christian L. Castle, Esq., Director, Artist Rights Institute

9:15-10:15 — THE TROUBLE WITH TICKETS:  The Challenges of Ticket Resellers and Legislative Solutions:

Kevin Erickson, Director, Future of Music Coalition, Washington DC
Dr. David C. Lowery, Co-founder of Cracker and Camper Van Beethoven, University of Georgia
  Terry College of Business, Athens, Georgia
Stephen Parker, Executive Director, National Independent Venue Association, Washington DC
Mala Sharma, President, Georgia Music Partners, Atlanta, Georgia

Moderator:  Christian L. Castle, Esq., Director, Artist Rights Institute, Austin, Texas

10:15-10:30: NIVA Speculative Ticketing Project Presentation by Kogod students

10:30-10:45: Coffee break

10:45-11:00: OVERVIEW OF CURRENT ISSUES IN ARTIFICIAL INTELLIGENCE LITIGATION: Kevin Madigan, Vice President, Legal Policy and Copyright Counsel, Copyright Alliance

11:00-12 pm: SHOW ME THE CREATOR – Transparency Requirements for AI Technology:

Danielle Coffey, President & CEO, News Media Alliance, Arlington, Virginia
Dahvi Cohen, Legislative Assistant, U.S. Congressman Adam Schiff, Washington, DC
Ken Doroshow, Chief Legal Officer, Recording Industry Association of America, Washington DC 

Moderator: Linda Bloss-Baum, Director of the Kogod School of Business’s Business & Entertainment Program

12:00-12:30: Lunch break

12:30-1:30: Keynote: Graham Davies, President and CEO of the Digital Media Association, Washington DC.

1:30-1:45: Coffee break

1:45-2:45: CHICKEN AND EGG SANDWICH:  Bad Song Metadata, Unmatched Funds, KYC and What You Can Do About It

Richard James Burgess, MBE, President & CEO, American Association of Independent Music, New York
Helienne Lindvall, President, European Composer & Songwriter Alliance, London, England
Abby North, President, North Music Group, Los Angeles
Anjula Singh, Chief Financial Officer and Chief Operating Officer, SoundExchange, Washington DC

Moderator:  Christian L. Castle, Esq, Director, Artist Rights Institute, Austin, Texas

2:45-3:15: Reconvene across street to International Service Founders Room for concluding speakers and reception

3:15-3:30: OVERVIEW OF INTERNATIONAL ARTIFICIAL INTELLIGENCE LEGISLATION: George York, Senior Vice President International Policy from RIAA.

3:30-4:30: NAME, IMAGE AND LIKENESS RIGHTS IN THE AGE OF AI:  Current initiatives to protect creator rights and attribution

Jeffrey Bennett, General Counsel, SAG-AFTRA, Washington, DC
Jen Jacobsen, Executive Director, Artist Rights Alliance, Washington DC
Jalyce E. Mangum, Attorney-Advisor, U.S. Copyright Office, Washington DC

Moderator: John Simson, Program Director Emeritus, Business & Entertainment, Kogod School of Business, American University

4:30-5:30: Concluding remarks by Linda Bloss-Baum, Director of the Kogod School of Business’s Business & Entertainment Program and reception.

by Trichordist Editor

CHICKEN AND EGG SANDWICH:  Bad Song Metadata, Unmatched Funds, KYC and What You Can Do About It: Speaker Update for Nov. 20 @ArtistRights Symposium at @AmericanU @KogodBiz in Washington DC

We’re pleased to announce additional speakers for the 4th annual Artist Rights Symposium on November 20, this year hosted in Washington, DC, by American University’s Kogod School of Business at American’s Constitution Hall, 4400 Massachusetts Avenue, NW, Washington, DC 20016.  The symposium is also supported by the Artist Rights Institute and was founded by Dr. David Lowery, Lecturer at the University of Georgia Terry College of Business.

The Symposium has four panels and a lunchtime keynote. Panels will begin at 8:30 am and end by 5 pm, with lunch and refreshments. More details to follow. Contact the Artist Rights Institute for any questions.

Admission is free, but please reserve a spot with Eventbrite, seating is limited! (Eventbrite works best with Firefox)

Keynote: Graham Davies, President and CEO of the Digital Media Association, Washington DC.  Graham will speak around lunchtime.

We have confirmed speakers for another topic! 

CHICKEN AND EGG SANDWICH:  Bad Song Metadata, Unmatched Funds, KYC and What You Can Do About It

Richard James Burgess, MBE, President & CEO, American Association of Independent Music, New York
Helienne Lindvall, President, European Composer & Songwriter Alliance, London, England
Abby North, President, North Music Group, Los Angeles
Anjula Singh, Chief Financial Officer and Chief Operating Officer, SoundExchange, Washington DC

Moderator:  Christian L. Castle, Esq, Director, Artist Rights Institute, Austin, Texas

Previously confirmed panelists are:

SHOW ME THE CREATOR – Transparency Requirements for AI Technology:

Danielle Coffey, President & CEO, News Media Alliance, Arlington, Virginia
Dahvi Cohen, Legislative Assistant, U.S. Congressman Adam Schiff, Washington, DC
Ken Doroshow, Chief Legal Officer, Recording Industry Association of America, Washington DC 

Moderator: Linda Bloss-Baum, Director of the Kogod School of Business’s Business & Entertainment Program

THE TROUBLE WITH TICKETS:  The Economics and Challenges of Ticket Resellers and Legislative Solutions:

Kevin Erickson, Director, Future of Music Coalition, Washington DC
Dr. David C. Lowery, Co-founder of Cracker and Camper Van Beethoven, University of Georgia
  Terry College of Business, Athens, Georgia
Stephen Parker, Executive Director, National Independent Venue Association, Washington DC
Mala Sharma, President, Georgia Music Partners, Atlanta, Georgia

Moderator:  Christian L. Castle, Esq., Director, Artist Rights Institute, Austin, Texas

by Trichordist Editor

Save the Date:  4th Annual Artist Rights Symposium on Nov. 20 in Washington DC

We’re excited to announce that the 4th Annual Artist Rights Symposium will be held on November 20, this time in Washington DC.  We have some big surprises in store that will be announced soon with new partners and speaker lineups. 

The topics we plan on covering will be ticketing, song metadata and black box issues, creator rights of publicity and transparency for artificial intelligence.

Watch this space!

by Trichordist Editor

No Bots, No Billionaires: StubHub’s Grotesque IPO Demonstrates Another Artist Ripoff By Our Tech Oligarchs

By Chris Castle

StubHub is one of the richest thieves in the live ticket arbitrage market. The company is also a direct beneficiary of the U.S. government’s abysmal failure to enforce the Better Online Ticket Sales (BOTS) Act. Just like Spotify, another Goldman Sachs’ grifter, StubHub’s main objective is about to be a reality–a $16.5 billion initial public offering that will make its executives even richer. In case you were wondering where the value of all that touring was going, now you know. And StubHub’s IPO is yet another slap in the face to artists, not to mention the fans exploited by this tech oligarch.

Given the government’s newly acquired interest in the ticketing business as measured by the Department of Justice antitrust lawsuit against Live Nation, you would think that the DOJ and FTC would also step up to their obligation to enforce the BOTS Act. Remember, The BOTS Act, signed into law by President Obama in 2016, was designed to curb the use of automated software (bots) that purchase large quantities of event tickets, often within seconds of their release, to resell them at inflated prices through market makers like StubHub. It is so under-enforced that StubHub will no doubt be able to sneak out an IPO and slurp up money from the pubic trough before anyone knows better.

BOTS-driven Risk Factors

If it were ever enforced, the BOTS Act could have a significant financial downside for StubHub. I can’t wait to see the risk factors about bots in their IPO prospectus because let’s face it–if there were no bots and no boiler room operations, StubHub probably wouldn’t have much of a business. No bots, no billionaires. This one is not a theoretical antitrust case, this one is dealing with real-time massive consumer fraud about to be perpetuated and funded by the public financial markets.

The government’s enforcement of the BOTS Act is so poor that Senator Marsha Blackburn, a gifted legislator and one of the law’s co-authors, found it necessary to introduce even more legislation to try to get the FTC to do their job. The Mitigating Automated Internet Networks for (MAIN) Event Ticketing Act is a bill introduced in 2023 by Senators Blackburn and Ben Ray Luján that aims to give the FTC even fewer excuses not to enforce the BOTS Act. It would further the FTC’s consumer protection mission against IPO-driven ticket scalping. 

The sad truth is that the FTC didn’t take its first action to enforce the 2016 law until 2021. And that’s the only action it has ever taken. Yet we live in hope.

When the drafting sessions get started for the StubHub IPO, the underwriters really need to ask themselves how big a hit the company’s valuation will take when prosecutors figure out how dependent reseller platforms are on bots and market manipulation to extract hard-earned dollars from enthusiastic fans.

And it isn’t just bots by the way. MTP readers will recall our discussions about speculative ticketing which turns live event tickets into commodities to be traded like pork bellies–minus the consumer protection of the securities laws. Speculative ticketing is when a market maker like StubHub allows shady operators to offer the public a ticket that the seller doesn’t actually own and may not even exist. This is what happens when an artist has publicly announced a concert tour but has not yet put the tickets on sale. Speculative ticketing lets a scalper offer a ticket that doesn’t exist without properly disclosing that the seller doesn’t own the ticket being sold.

Now that just sounds criminal, doesn’t it? Selling something you don’t own?

StubHub RICO Suave

And speaking of criminal, StubHub is currently defending a civil RICO case in New York, accused of making a market for tickets it is not able to sell. The Kaiser v. StubHub class action lawsuit, filed on January 3, 2024, in the Supreme Court of the State of New York, alleges fraudulent ticket sales by StubHub, Inc. The plaintiff, Daniel J. Kaiser, a resident of Brooklyn, New York, claims that StubHub knowingly and repeatedly advertised and sold fraudulent tickets, thereby defrauding consumers and violating the Racketeer Influenced and Corrupt Organizations Act. 

What’s RICO? Civil RICO can be brought by private plaintiffs like Mr. Kaiser, but criminal RICO has to be brought by the government. Criminal RICO cases are initiated by government prosecutors, who must first obtain an indictment from a grand jury, followed by a criminal trial. While both civil and criminal RICO cases address racketeering activity, criminal RICO focuses on punishing and deterring criminal behavior, requiring a high standard of proof and resulting in severe penalties. Now there’s a risk factor. How’s this sound:

Potential Liability Under the Racketeer Influenced and Corrupt Organizations Act (RICO)

We are currently under investigation for potential violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). RICO is a federal law designed to combat organized crime by allowing for both criminal and civil penalties for acts performed as part of an ongoing criminal organization. The investigation is focused on allegations that certain activities conducted by our company and its affiliates may constitute a pattern of racketeering activity under RICO.

Uncertainty and Potential Impact on Business Operations

The outcome of this investigation is uncertain, and we cannot predict the timing, outcome, or potential impact on our business, financial condition, or results of operations. If we are found to have violated RICO, we could face severe penalties, including substantial fines, forfeiture of assets, and significant reputational damage. Additionally, a criminal conviction under RICO could result in imprisonment for our key executives, which would severely disrupt our management and operations.

Nothing says white collar crime like RICO. This kind of consumer fraud is happening on a massive scale, yet the FTC apparently doesn’t feel it rises to the level of an investigation priority. 

Making it Stop

In the face of this weak-kneed approach to law enforcement, artists could simply prohibit the resale of their concert tickets. If companies like StubHub keep trying, that very well may be the result, particularly with fan-to-fan solutions like Twickets competing with the likes of StubHub. How about this risk factor:

Restrictions on Ticket Resales Could Adversely Affect Our Business

Our business model relies significantly on the resale of concert tickets. However, many artists and event organizers have implemented policies that prohibit the resale of their tickets above the face price. These restrictions are designed to prevent ticket scalping and ensure that fans can purchase tickets at reasonable prices.

If artists or event organizers enforce these resale restrictions, it could limit our ability to sell tickets at a premium, which is a key component of our revenue generation. This could result in reduced profit margins and negatively impact our financial performance. Additionally, compliance with these restrictions may require us to implement new systems and processes, which could increase our operational costs.

Furthermore, any violation of these resale restrictions could lead to legal actions against us, including fines and penalties, and could damage our relationships with artists, event organizers, and customers. This could harm our reputation and result in a loss of business opportunities.

Investors should consider the potential impact of these resale restrictions on our business and financial condition before making an investment decision. There can be no assurance that we will not face additional restrictions or legal challenges related to ticket resales in the future, which could further adversely affect our business.

Underwriters be thinking, where do I sign up, right? Maybe not.

[This post previously appeared on MusicTechPolicy]

by Trichordist

Minnesota Bans Speculative Ticketing

There will be no pork bellies for StubHub in Prince Country. Minnesota Governor Tim Walz today will visit the iconic First Avenue venue in Prince Country to sign HF 1898, the state’s expansive new protection for fans, venues and artists against speculative ticketing abuse by the StubHubs of this world.

Readers will remember we have a big issue with speculative ticking (which we think is illegal securities trading like trading pork belly futures) so we are naturally quite pleased to see the Governor champion this legislation along with Minnesota Lieutenant Governor Peggy Flanagan plus State Senator Matt Klein and Representative Kelly Moller who co-authored the legislation. David and Mala Sharma testified against speculative ticketing in Georgia and Chris testified in Pennsylvania supporting that state’s proposed ban on the practice.

The key provisions of the new Minnesota law include prohibitions for:

  • directly or indirectly employing another person to wait in line to purchase tickets for the purpose of reselling the tickets if the practice is prohibited or if the venue has posted a policy prohibiting the practice
  • sell or offer to sell a ticket without first informing the person of the location of the venue and the ticket’s assigned seat, including but not limited to the seat number, row, and section number of the seat
  • advertise, offer for sale, or contract for the sale of a ticket before the ticket has been made available to the public, including via presale, without first obtaining permission from  the venue and having actual or constructive possession of the ticket, unless  the ticket reseller owns the ticket pursuant to a season ticket package purchased by the ticket  reseller. 
  • An operator, online ticket marketplace, or ticket reseller must not sell a ticket unless:
  • the ticket is in the possession or constructive possession of the operator, online ticket marketplace, or ticket reseller; or
  • the operator, online ticket marketplace, or ticket reseller has a written contract with the place of entertainment to obtain the ticket.

Good stuff, another step forward for the good guys.

by Trichordist Editor

I Grift Therefore I Am: Jared Polis Supports Silicon Valley’s “Speculative Tickets” Grift in Colorado

If you had a chance to watch the CLE panel that David Lowery, Mala Sharma and Chris Castle did for the University of Texas School of Law CLE last week, you’ll remember that the panel spent a good deal of time talking about “speculative tickets”. In fact, the title of the panel was “When is Ticketing Like Pork Bellies?” which was a direct reference to the similarities between speculative tickets and commodities futures contracts (like pork bellies).

The way this grift works is that somebody (or some thing in the case of bots) offers to sell a promise to sell a ticket in the future. The trick is that the ticket is not yet on sale anywhere but certain dates have been announced so it will be on sale. This could be any ticket, like a concert tour or a sporting event like the Super Bowl, the Rose Bowl, the World Series, and so on.

This is actually worse than a pork belly contract, because you know that the pork bellies exist when you buy the contract, you just don’t know the price. Market events could cause the price to fluctuate, but there will be some pork belly available somewhere. So to even call it a ticket is a misnomer. It’s a promise to sell something that may exist to get all Cartesian about it.

The grifter prices the speculative ticket promise at a premium, naturally. Some of them actually promise an actual seat, some promise a certain section or block of seats. They then list that ticket on a ticket reseller market place like Stubhub which was most definitely lobbying in force for the nonsensical Georgia ticketing bill that failed and which we assume is behind all these bills that keep popping up like syphilitic warts.

After the ticket is listed, a fan buys the speculative ticket promise and waits to get their actual tickets. And this is the really insidious part. As David noted on our panel, the grifter’s transaction is like covering on a naked short in short selling. Naked shorts are a very risky thing because unlike with speculative tickets, the market enforces the trade. You will pay on that bet unlike speculative tickets where there is no market enforcement except the occasional prosecution by a state attorney general or the FTC.

It seems impossible for the speculative ticket short seller to obtain the actual tickets without using bots. Plausible, perhaps, but seems very unlikely. Thanks to Senator Marsha Blackburn and Richard Blumenthal and their BOTS Act, federal law prohibits using bots, but again, it’s a science of getting caught. Senator Blackburn recently complained quite rightly that the FTC is not sufficiently enforcing the BOTS Act.

If the grifter cannot come up with the tickets, it is apparently very rare that the fan gets their money back. The fan will be offered all manner of things other than cash or maybe the grifter just slithers off into the night. Awful stuff, right?

The grifter is preying on the buyer’s love of the artist or the team (or the family member of the buyer) which is so great that they are willing to spend the money because they are made to believe they have a sure bet that will pay off with a real ticket. What kind of a heartless dickweed would do that to someone?

And here’s where Jared Polis comes in. If you’ve never heard of him, Jared Polis is the governor of Colorado. The Colorado legislature recently passed SB60 that would have joined other states in banning speculative tickets. But–on June 6, 2023 Jared Polis vetoed the bill.

So how did StubHub get to Jared Polis? Remember, Jared Polis is a 99er who made a fortune on the Internet before the Internet repriced itself. He also founded TechStars, so he’s a VC, too. So he knows all about grifters and could not give a rip about artists–as he has demonstrated many times. But his veto letter is worth reading because of its complete head up the ass approach to speculative tickets.

Polis goes through the “if you only had a brain” analysis saying there are some good things in SB60 which he could support but then there are the bad things which he, Polis the Lawmaker, simply cannot abide–like a prohibition on speculative tickets. Except he doesn’t call them speculative tickets like the Federal Trade Commission does, or the Attorney General of New York. Oh, no. In his veto letter, he calls them “innovative products that address existing market failures, such as online ticket waiting services“.

Wait a minute–are we talking about the same thing here?

The bill prohibits anyone that “Advertises, offers for sale, or contracts for the resale of a ticket unless the person has possession or constructive possession of the ticket and the person has an agreement with the rights holder.”

Somehow the bill language got transformed from protecting consumers against speculative ticketing to a whole new thing, an innovative product that a VC might invest in and even take that company public. Or could have in 1999.

Sure seems like Polis is in on the grift, don’t it? You can’t call it a conspiracy theory because there’s nothing theoretical about it.



by thetrichordist

The Attack of the StubHub Future Bots: @davidclowery asks the Georgia Legislature when is a Georgia concert ticket a “security”?

By Chris Castle

Silicon Valley’s answer to Charles Ponzi may be called StubHub or its parent company Viagogo. I’m sure you’ve run into the StubHub grift. A band releases tickets for a show, the bots descend and having grabbed the best seats turns to StubHub and its ilk to resell the ill-gotten tickets at ever higher prices. Everyone denies they did anything wrong, they had no idea where their tickets were coming from. Instead of being prosecuted for wire fraud and other bad juju, these ticket scalpers allow reselling of botted tickets on a grand scale. All the while decrying bots as an illegal practice while leaving out the “but we make money together” part. See Better Online Ticket Sales Act (“the BOTS Act”), 15 U.S.C. § 45c.

However vile is this grift, it’s kind of an old story. The only thing that’s breaking news about a Ponzi scheme is not the ghost of Charles Ponzi. Rather, its when smart people–you know, your betters–fall for it yet again. But StubHub revealed yesterday in the Georgia Legislature that they actually thought they would put one over on a wiley old committee chairman who just didn’t buy the huge helping of Smarm by the Bay when the Silicon Valley lobbyists oiled their way into the Georgia House of Representatives Regulated Industries Committee. You have to get up pretty early in the morning to fool and old fox and Valley Boys are not early risers.

The Chairman caught onto the con very quickly, and David Lowery helped to highlight the scalper scam. But the thing you always have to remember about our brilliant friend David is that he’s been known to pick up his pen and write the song that struggled to be written or the song that was not well received, but five years later be promoted as his best work. That’s why he’s got so many loyal fans. David takes know your customer to a whole new level, so was the perfect subject matter witness for the committee. 

So here’s the new twist. What if you didn’t have a ticket but thought that you could get one, no problem once they went on sale–thanks to your friendly neighborhood ticket bot farmer. But what if StubHub made a market for people to buy the opportunity to buy a ticket at some point in the future. That’s right–selling the botted ticket itself isn’t enough for these people. 

Now they want to sell bot futures.

The seller could not sell the ticket yet because there was no ticket available. But why leave money on the table? 

The seller of these future contracts was confident enough to make a contract with someone of unknown business acumen or sophistication who they convince that the seller would have a ticket available by the time the underlying tickets went on sale. As a market maker, StubHub would bring buyers and sellers together in a supposedly arms length transaction–I guess, I mean how would you really know how arms length it was–and the seller sold the buyer a contract to deliver a future ticket. Let’s call these contracts “futures” or “naked call options”. Or perhaps we should call them “securities.”

So just like short sellers have to cover their shorts, when the tickets get released somebody has to come up with the real tickets. Somebody would have to be confident they could get the very ticket described in the option contract–like you would be if you were the beneficiary of botting. Which, as StubHub will tell you, is illegal. So I’m probably just being cynical.

Technically, “botting” is circumventing “a security measure, access control system, or other technological control or measure on an Internet website or online service that is used by the ticket issuer to enforce posted event ticket purchasing limits or to maintain the integrity of posted online ticket purchasing order rules.”

Personally I think it’s worth asking if the act of selling the futures contract is itself a violation of the BOTS Act as a circumvention of various elements. StubHub may have a legal opinion telling them this is outside the BOTS Act, but let’s ask the FTC, shall we?

On the other hand, if StubHub is selling securities, there’s a whole different regulatory agency that should be examining their business, or it could just be Silicon Valley’s answer to hawala.

So when is a ticket a security? One way we can determine this is through a U.S. Supreme Court case that gives us a pretty clear test. One way—and it’s just one way–that an option on a ticket might be regulated as a security is if it is determined to be an “investment contract” under the test in SEC v. W.J. Howey Co.[1]   

The Howey test asks if:

1. there is an investment of money or some other consideration,  [Yes]

2. in a common enterprise, [yes]

3. with a reasonable expectation of profits, [oh, yes]

4. to be derived from the efforts of others. [Mos Def]

So that’s pretty inclusive criteria.  Before anyone brushes aside the possibility that the SEC could determine a futures contract to buy tickets to be a security, take a close look at those criteria because how the basic question is answered is one to discuss thoroughly with your securities litigation lawyer (or engage one). That advice may be a good idea whether you are either an issuer or an endorser of at the ticket or ticketing platform..

One might say that a one-off sale of a unique product—which is truly “nonfungible” in the sense that there is only one of the product in existence—may be less likely to be determined a “security” under the Howey test. But while any one ticket is a one-off, there are many tickets available to many shows as a general rule, so tickets probably are pretty fungible.

You really do have to get up early in the morning to put one over on a wiley old Georgia committee chairman. You can tell just by looking at the body language that he believes what another wise old bird told me as a youngster. If something feels illegal, it probably is.

[1] SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

by Trichordist