Olympic Touts

First, I have been informed that "tout" is something of a British - English word, so I'll start by explaining that a tout is someone who hangs around sporting venues selling tickets.  Normally someone else's unwanted ticket that they bought.

I have to confess something here.  I am an Olympic Refusenik.  The only "benefits" of the games I have seen so far are: 

• It is much more difficult to get on the tube.  
• One only has to spend 5 minutes or so at a major train station before Boris Johnson's irritating voice comes up telling us that "This is… The big one" and advising us to go to an utterly useless website to re-plan our journeys.

However one Olympic story has grabbed my interest.  (OK, two stories if you count Boris and the zip wire!)  The twin outrage at empty seats in the arenas and ticket touts making money off the games.  As a friend pointed out on Twitter, it is wrong to draw too much of a connection between these two issues.  Most of the empty seats are, in fact, those that were reserved for the "Olympic family" of VIPs and dignitaries associated with the games.  If this is the case, it is highly unlikely that these would be the seats that touts are able to sell on.

However the attitude to touts is interesting in itself.  People do get genuinely very angry about touts, even those selling genuine tickets, and this often drives some economists crazy!  From our perspective, touts who sell genuine tickets are fulfilling an important economic function, moving goods and services from people who don't value them very much to people who place a great deal of value on them.

Let's go back to the point where tickets were being sold.  People were getting up very early in the morning to enter a "lottery" where they said which events they wanted to go to and would then "win" their tickets or not.  If you "won" the tickets, you still had to pay for them, but this way the tickets themselves could be priced below the market price so that the games could be enjoyed by everyone.  The fear is that otherwise the games will be a rich person's pleasure.

Naturally some enthusiasts entered the lottery for many events and ended up with nothing.  Others entered the lottery and won almost everything they said they'd want to go to.  People who won tickets to nearly everything they entered the lottery for would be spending far more money on Olympic tickets than they wanted. 

This is a prime example of an allocation mechanism that will create the conditions for a thriving secondary market.  On one side of the market we have people who really wanted to go to some Olympic events but ended up with tickets to far too many.  On the other side of the market we have people who wanted to go to lots of Olympic events but ended up without any tickets.  We should find some way to get excess tickets on one side to people who really want tickets on the other side.

If someone came along and offered to coordinate this process, giving of their time to match ticketless sports fans with over-ticketed sports fans and broker a deal, would we say that they were doing something wrong?  Is that something that should lead to an arrest, conviction and criminal record?  If they are doing it for free, then I, and I suspect a great many people, would say no.  It is only when they are making money from this activity that people seem to have a problem with it.  I have to admit to being puzzled as to why.  The process of brokering takes time.  Furthermore, if the tout reallocates tickets by purchasing them from those who don't want them and selling them on, then they are taking on considerable risk if they cannot find a buyer.  People need to be compensated for taking risks.

Tim Worstall suggests that it is a Victorian attitude to the grubby business of trade.  True wealth ought to be inherited rather than made.  There is something not quite right about this explanation being applied to modern Britain.  Two of the most popular television shows in the UK today are The Apprentice and Dragon's Den, where participants show off their business acumen, and these have propelled the businessmen involved to a celebrity status.  On the whole, Britain today is more comfortable with wealth creation than it has been in a long time.

I suspect that the explanation lies elsewhere.  I suspect the issue is the source of the wealth that is being generated by touts.  Tickets were sold in the primary market below market price and assigned via a lottery to ensure that the Olympic games were for everyone and could be enjoyed by everyone, not just the rich.  Had the tickets been sold at the market price, the games organisers would have made more money and the return on the investment in hosting the games for UK Plc. would be higher.  A similar argument could be made about touts at football matches and other sporting events.  The tout's profits are the profits that organisers decided to leave on the table so that the events would be "for everyone".  I suspect that this is the real source of the anger felt towards touts and it is why touting is illegal.  However, just because this is the source of the anger does not necessarily mean it is rational or sensible to make touting illegal.

While this argument may apply to other sporting events, it does not quite work for the Olympics.  The Olympic organisers chose (in the form of a lottery) an extremely inefficient means of allocating tickets that was always likely to create this secondary market.  There were alternative mechanisms that would have ensured tickets were initially held by enthusiasts for the sports involved.  Tickets could have been given away to the relevant sporting clubs across the country.  For example tickets for Olympic Judo could have been given away to local Judo clubs who would then have decided how many to sell; how many to allocate to members and so on.  If you want to find out who the e.g. badminton enthusiasts are, a badminton club is a good place to start.  Such an allocation mechanism would have been very good for the clubs allowing them to enthuse their members or raise cash for sporting equipment according to their own needs.  Such an allocation mechanism would not eliminate the problem of ticket touts, but it would have resulted in a smaller secondary market.

However, to an extent we have to accept that the premise of making the games something that was "for everyone" is a bit shaky.  We have the problem of touts because the people we are trying to "help" by giving them low cost tickets to sporting events would prefer to have the market value of the ticket rather than the ticket itself.  It is entirely possible that there are some people who lack sufficient disposable income to pay the market price of a ticket, but would not sell it at the market price if you gave it to them.  The question is how to distinguish them from the people who would sell their tickets at the market price.  Asking them to put their hands up does not seem to have worked.  

However, even if we could perfectly identify them, there would still be a secondary market.  Life happens and plans change, the events people thought they could make when the bought their tickets they can no longer get to.  Under these circumstances, it is understandable that they should want to get as much money as they possibly can for their ticket, and, in some ways, tickets like this should be reallocated through the price mechanism.  We could view this as redistributive - moving money from richer sports fans to (on average) poorer sports fans.  It might be better to accept that the secondary market exists and to start regulating it to protect punters from fraud rather than trying to stamp it out.