If anybody could take on the live entertainment promotional machine Live Nation Entertainment (NYSE:LYV), it would be the legions of Taylor Swift fans affectionately known as “Swifties.” Following the crashing of Tickermaster’s systems — a business unit under Live Nation — as fans rushed to buy Swift’s presale tour tickets, they naturally revolted, bringing a legal spotlight on the entertainment industry’s secondary market. However, the complex issue sees no easy solution, thus clouding LYV stock.
Fundamentally, two significant headwinds impact the fan experience which Live Nation supposedly serves. First, Live Nation Entertainment represents a merger between Live Nation and Ticketmaster, which the Justice Department approved in 2010. However, this combination created an industry juggernaut that “…still has no equals in its reach or power,” per the New York Times.
The NYT also reports that the Justice Department discovered that Live Nation repeatedly violated antitrust provisions associated with the merger approval. Therefore, the federal agency launched an investigation late last year, coinciding with the Taylor Swift ticketing controversy.
Second, Swifties and fans of other entertainment and sports teams complained about unfair digital competition. Today, ticket scalpers utilize CAPTCHA-busting bots that purchase tickets online at blistering speeds. Later, the human overseers of said bots can often dramatically raise prices for the low-inventory tickets in the secondary market.
In response to the obvious impact on the fan experience, Live Nation proposed a series of ticketing fair practices. Among the proposals stand a request to ban speculative tickets; that is, tickets sold through deceptive marketing tricks or sales of tickets not yet physically procured.
LYV stock still fell more than 9% in late Friday trading.
A Convoluted Issue Vexes LYV Stock
While Swifties and other live entertainment fans may take comfort in blasting ticket scalpers, the practice features a long history. According to investigative news agency Reveal, “[n]ear the dawn of the Enlightenment era, members of England’s upper class would send servants to hold their seats for hours before plays began. As years passed and fewer households employed live-in help, a new caste of workers, called ‘shabby boys,’ assumed this place-keeping task.”
Fast forward to 1999, then-New York Attorney General Eliot Spitzer discovered that overseers for popular events funneled tickets to preferred third-party brokers who paid bribes. “Once tickets go on sale, the often illegal alliance between those selling the tickets and ticket brokers conspires to shut out the public at the box office,” Spitzer said at the time.
As stated earlier, scalpers now use modern means to actuate a practically ancient practice. The result remains the same: forcing fans to pay exorbitant prices or not attend their desired event. Given the public shaming, it’s no wonder that LYV stock stumbled so badly.
If that wasn’t enough, President Joe Biden referenced the controversy during the State of the Union Address. At one point, Biden urged Congress to require online ticket sellers to disclose all transaction costs upfront. The president pointed to the Junk Fee Prevention Act, which on paper, should cut down on excessive or undisclosed fees.
However, legislation alone might not solve the issues plaguing LYV stock. After all, Congress passed the Better Online Ticket Sales Act of 2016 to combat competition from bots. Yet, it’s clearly still an ongoing problem.
Who’s Really the Problem?
Perhaps the ultimate complexity hanging over LYV stock centers on the moral question: who’s really the problem here?
While it’s easy to slam scalpers as nefarious profiteers, it’s important to remember the economics of the practice: the very existence of a secondary market implies that tickets “…have been undersupplied, underpriced or a combination of the two.”
Of course, the simple solution would be for artists to increase supply (perform more) or raise prices. The former approach is untenable due to the physical limitations of the human body. However, the latter approach would cast a poor light on the entertainer(s).
In some ways, entertainers may need scalpers to cover for an unsavory component of free-market enterprises. At the end of the day, it’s just another complexity that dogs LYV stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.