An Internet site has begun offering “sports-ticket options.” I’ll let Brad Humphreys’s “Sports Economist” blog explain: “For example, I could currently purchase the option to a ticket to the Final Four to see my alma mater, West Virginia University, for $27. If the Mountaineers make the final four, I would pay the face value of the ticket ($140, according to the web site), plus my $27 option.” Over the course of the season, the market for the option fluctuates, and one can sell or buy it. Here’s the catch: “If the Mountaineers didn’t make the Final Four, my option would be worthless and I would be out $27.” Tom Kirkendall and Tyler Cowen, an exceptionally intelligent lawyer and economist respectively, also comment, as does Wired Magazine.
And, yet, somehow, all three bloggers miss a large point of the exercise: to try to get around the anti-gambling laws. Despite the site’s claim to be merely a market-clearing place, there’s no option available for one to actually offer to sell one’s tickets. So where are the tickets coming from? (In case of the Rose Bowl, from the event itself.) Or going to?: the Wired story never interviews anyone who actually ends up with a ticket. Not to suggest that the site is actually ripping people off—with a 17% commission on every transaction and with the vast majority of options expiring worthless, the site makes more per ticket than any scalper does. A recent Forbes story covers a smaller competitor.
For you securities-law geeks out there, here’s the SEC’s no-action letter. I leave to others whether the site is accurately describing its activities. And, of course, the fact that one agency promises no action with respect to the securities laws is no guarantee that the aggressive Department of Justice will take no action with the gambling laws.
2 Comments
I don’t understand — how can it be an attempt to dodge the anti-gambling laws, if the site-user never gets any money? (The two outcomes you describe both involve the customer paying up — $167 or $27 depending on whether WVU makes the final four.)
I assure you that, for decades, entrepreneurs have engaged in all sorts of financial arrangements to profit from gambling/wagering without “getting any money” other than a transaction fee, and that this has not deterred the Department of Justice from pursuing the arrangements.
If, by site-user, you’re talking about the person wagering, that person is placing a $27 wager that, if his team wins, he will obtain the right to purchase a ticket (worth much more) at face value. You can see why this would be considered gambling if one were to replace “if his team wins” with “his raffle ticket will be pulled”: the DOJ wouldn’t allow one to sell interstate raffle tickets over the web, either, even if the prize is merely the option to pay face-value for tickets.