Fix for ticket scalping? A ‘resale royalty’ paid to artists and venues

The current ticket resale system drives up prices for fans while returning no additional income to artists. As a fix, Chris Castle explores a “resale royalty” paid by ticket resellers to artists and venues proposed by Mala Sharma of Georgia Music Partners and artist and advocate David Lowery.

by CHRIS CASTLE of Music Tech Policy

StubHub brought Silicon Valley lobbying tactics to the Georgia Legislature last week but thankfully they didn’t put one over on the Members of the Legislature. This outbreak of sanity and common sense was helped along by the testimony of Mala Sharma of Georgia Music Partners and David Lowery (who lives in Athens and teaches at the University of Georgia Terry College of Business). Mala and David mentioned a very interesting concept in their testimony: Resale royalties paid to artists and venues when tickets are resold. So how would that work?

David made this statement in his written testimony:

Paying it Forward: Resale Royalties for Scalpers:  StubHub may refuse to police itself but the State of Georgia can recover some of the value of StubHub’s free riding by establishing a resale royalty to be distributed to artists and venues for transactions occurring in Georgia.  This is a very intriguing idea that would essentially force scalpers to return some of the value they have extracted from the artist’s brand.  I speak of the resale royalty as returned to artists and venues, but I am program-agnostic.  The payment should also be returned to the performers, universities, or taxpayer funded venues around the state.

The resale royalty could be a way to continue to support communities that were hard hit by COVID and venues that survived based on the Save Our Stages funding.  It would be better to find this support from free-riders than from hard working Georgia taxpayers.

The “free riding” reference is to StubHub making a market for ticket resellers who price tickets far, far above the price set by artists, and then capturing the value of the artist and venue’s marketing efforts and brand value without ever contributing to the brand investment or marketing spend. A resale royalty paid by scalpers would help rebalance the investment by taking a share of the reseller’s gross income.

How would that work? Here’s some draft language that might be a starting place referring the collection and distribution to Georgia’s Department of Revenue, which is sort of the State-level IRS. I chose 5% as the base rate, but that could be more or less.

A ticket marketplace or other commercial reseller shall remit and pay a minimum resale royalty on all sales of tickets for which the reseller is required to pay sales tax in this State.  Such minimum royalty shall be calculated as the greater of an amount equal to five percent (5%) of the total price paid by the seller of the ticket, inclusive of fees paid to the ticket marketplace, or the royalty uplift.  The royalty uplift is calculated by dividing the total price by the face price of the ticket concerned, and multiplying the quotient by five percent (5%).  By way of example and without limitation, if the face price is $100 and the total price is $500, the quotient is 5 and the minimum resale royalty is 25% of $500.  

The minimum resale royalty shall be paid by the ticket marketplace reseller to the Department of Revenue accompanied by an itemized statement setting forth the athletic team, performing artist, or charitable organization promoting or performing at the ticketed event as reflected on the face of the ticket.  The Department of Revenue shall pay 50% of the minimum resale royalty to such athletic team, performing artist, or charitable organization promoting or performing at the ticketed event and 50% to the venue at which the event occurs.  The Department of Revenue shall promulgate appropriate forms and regulations to implement such payments.

Private individuals selling or gifting tickets outside of a ticket marketplace or other commercial reseller shall not be required to pay the resale royalty.

It’s important to note that this approach does not interfere with the property rights concerned in the transaction. First, the artist (or venue) selling the ticket may still set the terms of the ticket sale including both the price and the transferability. If the artist does not want the ticket to be transferable, they still have the right to set that prohibition. If they do allow the ticket to be transferrable, then a resale royalty rewards them for that decision to give up their right to make the ticket nontransferable. This may actually motivate more artists to permit transferability. Because the resale royalty is conceived as a minimum, the artist could always elect a higher resale royalty than 5% as a condition of transferability.

Neither does the resale royalty interfere with property rights of the ticket buyer or seller once the artist permits transferability. 

Because the ticket marketplace already pays a sales tax to the Department of Revenue (or comparable state agency) the resale royalty would simply be an additional payment at a slight incremental cost. Of course, processing the resale royalty would simply be a cost of doing business for the marketplace (like StubHub), so no service charge or ticket fee could apply to reduce the royalty payment. The Department of Revenue is in a better position to track down the artists and venues, particularly artists who reside in Georgia and venues located in Georgia since they already pay income or other taxes to the Department of Revenue. Plus the Department of Revenue handles unclaimed property in Georgia so could retain any unpaid royalties.

I’d be interested in any comments on this idea, but it seems like a novel approach to protecting the investment of the artist and the venues, including taxpayer financed community centers and arenas in tertiary markets.