Secret Deals Jack Up Prices for Concert Tickets

The world’s largest concert promoter is making a killing selling stealth seats directly to brokers, a small piece of what appears to be a thriving underground ticket economy.

SFX Entertainment Inc. sells nearly 200 prime seats to every show at Irvine Meadows Amphitheatre exclusively to ticket brokers, who then jack up prices charged to consumers a total of hundreds of thousands of dollars per year. Artists are hurt as well as consumers, because they don’t receive a penny for these seats.

The transactions are conducted under the guise of corporate sponsorship and involve three so-called “phantom” rows that can’t be found on any public seating chart, according to a six-week investigation by The Times.

The Times bought a ticket for one such seat to singer Jimmy Buffett’s April 29 show for $375--nearly six times the face value of the ticket. That seat could not be purchased from the Irvine Meadows box office or at any Ticketmaster outlet, but only from Mike’s Tickets, a Costa Mesa broker that leases dozens of seats directly from SFX.

“If these allegations are true, I will explore whatever methods necessary to recover the lost income for any of this agency’s clients,” said John Marx, senior vice president of contemporary music at William Morris, which represents such acts as Korn, Mariah Carey and Sheryl Crow.

Promoter Confirms Sales

SFX, which acquired Irvine Meadows and its concert promotion arm nearly two years ago, confirmed this week that it sells prime seats directly to Mike’s Tickets. SFX had never disclosed the practice to artists and publicly acknowledged the transactions only after repeated inquiries from The Times.

SFX says that reselling tickets is legal in California and that recent performance contracts include a sentence telling acts that corporate boxes may exist at SFX venues that are not listed on seating charts. Officials at the company insisted that they oppose scalping but are obligated to lease the seats to the broker under contractual arrangements they inherited with the purchase of the venue.

“The seats in that section are part of a box seat program that has been in place for many years,” said Mike Ferrel, chief executive officer of SFX, which is set to merge soon with Clear Channel Communications. “To the extent that those transactions represent any dealings with scalpers, it’s due to previous commitments, which we are trying to extricate ourselves from.”

SFX, a former radio corporation with no previous experience in the concert business, became the world’s biggest concert promoter over the last three years after spending $2 billion for more than 120 venues in 31 of the top 50 U.S. markets, as well as dozens of promotion firms. Included in the deals were a number of freewheeling independent promoters previously rumored to participate in ticket scalping.

SFX is not the only major concert corporation in bed with brokers. Hollywood-based House of Blues, the second biggest concert promoter in the country, was also recently caught doing business directly with brokers.

In fact, insiders say the income generated by Irvine’s phantom seats represents only a sliver of a giant black market that accounts for tens of millions of dollars annually in “ice” (or scalped proceeds) from major music and sports events across the nation.

Brokers often obtain concert tickets by hiring individuals to stand in line at the box office and through telephoned orders to Ticketmaster. Because there are limits on the number of tickets an individual can purchase, the process is labor-intensive and time-consuming. And there is no assurance the broker will get prime seats.

Insider ticket transactions, on the other hand, are typically bulk deals involving the best seats in the house.

Ticket brokering has evolved over the last three decades from a tiny sideline involving a few fly-by-night promoters into a thriving business for a network of brokers who control nearly a quarter of the season ticket licenses, corporate suites and premium ticket clubs at many of the nation’s largest entertainment facilities, sources say.

Brokers also obtain additional large blocks of tickets from promoters, who buy seats at face value and resell them for a profit to supplement revenue, as performers have come to take more and more of the total legitimate concert pie. Most rock stars now receive about 90% of the net proceeds from their concerts.

Promoters who sell tickets to brokers can derive huge potential windfalls from kickbacks and scalped proceeds over the course of a year, industry insiders say. Some artist managers are believed to sell tickets to brokers too.

‘In Every Major Market’

“It’s the concert industry’s dirty little secret,” said Tom Ross, founder and former head of Creative Artist Agency’s music division, which represents such clients as KISS and Eric Clapton. “The big scalpers move nearly 2,000 tickets to every event in every major market. It’s wrong. It’s unethical. And in some cases, it’s a breach of contract to the artists, who are the reason all of this money is generated in the first place.”

Scalping is against the law in many states where SFX and other large promoters operate.

In California, scalping a ticket on the grounds of an entertainment venue is a misdemeanor violation. It is not against the law, however, to set up shop across the street from any venue and resell thousands of tickets at exorbitant rates.

But even in California, concert promoters are barred from directly engaging in the practice because standard performance contracts require them to share a specific percentage of the proceeds from each ticket sale with music acts.

Promoters are discouraged from dealing openly with brokers for public relations purposes too. Indeed, many performers abhor the practice because it keeps devoted fans who have little money from obtaining good seats.

But that hasn’t stopped SFX from licensing dozens of prime loge seats exclusively to Mike’s Tickets.

“These seats are not available elsewhere--only through me,” said Mike Kaplan, owner of the ticket agency that sold the $375 Jimmy Buffett ticket to The Times. “There are three rows of box seats in front of row AA in the loge section that are not listed on the seating chart. We own most of them. They became available a few years ago and we stepped up and bought them.”

Irvine Meadows removed the so-called “phantom” seats from the public seating chart six years ago under a plan to transform the section’s first three rows into a corporate sponsor box seat area. Before 1994, the loge section ran 26 rows deep from AA to ZZ. The reconfigured loge section now is 23 rows and starts with the fourth row--repainted to read AA--and stops at row WW.

There are no longer any markings to identify the first three loge rows, which include 12 boxes and 132 additional seats, the area where many of the phantom seats controlled by brokers are located. Box seat ticket holders are issued VIP stickers to wear at the concert and are personally escorted to their seats by ushers at Irvine Meadows, which last month changed its name to the Verizon Wireless Amphitheatre.

Mike’s Tickets pays SFX about $100,000 a year to license four 12-seat boxes in the loge section. It also pays SFX thousands of dollars in additional fees to purchase blocks of other top seats around the venue. A Lake Forest broker named The Kind Tickets also leases at least one box from SFX. These brokers share seats in the phantom rows with legitimate corporate sponsors like Coors Light and Taco Bell, which also lease boxes from SFX.

Nearly a dozen artists’ representatives interviewed for this story said they had no idea that any rows had been removed from the venue’s seating chart until they were notified by The Times. Agents and artists’ managers said they were stunned to learn that SFX leased corporate boxes and other seats at Irvine Meadows directly to brokers.

Although SFX officials said contracts include a disclosure that corporate boxes may exist and may not be on the seating chart, there is nothing in the SFX performance contract to indicate that an additional 132 loge seats adjacent to the corporate boxes have also been removed from the chart. Nor does the performance contract, a copy of which was obtained by The Times, disclose that some brokers who lease corporate boxes can purchase other unlisted loge seats as well as a number of the best seats in the venue’s orchestra section, SFX sources said.

SFX officials blamed preexisting agreements for those discrepancies as well.

“We inherited these arrangements when we bought the building,” SFX chief executive Ferrel said. “We do not approve of them but are legally bound by contracts to honor them.”

Ferrel and other executives at the company, however, denied that SFX purposely hid “phantom” seats from performers and fans. According to SFX, Irvine’s first three loge rows are officially reserved for corporate sponsor box seats, which in recent years have become a standard feature at most facilities around the country. It’s an unfortunate coincidence, SFX executives said, that some of the corporations that rent boxes from Irvine turn out to be ticket brokers.

Ticket Charges as High as $800

Howard Tytel, executive vice president and general counsel of SFX, insisted that the company derives no additional revenue from ticket brokers at Irvine or any of its other facilities.

According to Tytel, SFX has a “zero tolerance level for ticket indiscretion” and employs accounting giant Ernst & Young to implement a “rigid, anti-scalping system” that includes surprise on-site audits of ticketing practices at many of its venues.

But the problem goes beyond the phantom seats.

SFX’s anti-scalping system apparently did little to prevent brokers from getting their hands on numerous other great seats at Jimmy Buffett’s two April concerts at Irvine Meadows.

Sources say SFX withheld about 6,000 prime seats for the two shows from public sale--nearly a fifth of the venue’s entire capacity. Many of those tickets ended up being hawked by brokers, some of which charged as much as $800 per ticket for seats in the front of the venue.

SFX says the reason it withheld so many seats at the Irvine shows was to help Buffett execute a ticket rebate promotion previously offered to fans who bought the top-priced VIP tickets to the singer’s New Year’s Eve bash at the Universal Amphitheatre. But only 350 people qualified to receive a total of 700 free tickets under that promotion, according to sources familiar with the rebate program.

Sources say SFX delivered about 4,000 tickets directly to the Howard Rose Agency, which represents Buffett. Sources within Rose’s agency say it turned the tickets over to Buffett’s manager, Howard Kaufman.

Neither Rose nor Kaufman would comment for this story.

Sources close to the singer, however, said a small portion of the tickets were distributed to fan club members, record company employees and guests of Buffett’s tour sponsor Corona Lite.

It’s unclear where all the rest of the tickets went--or how so many top seats withheld by SFX and Buffett’s manager ended up in the hands of brokers.

Last year, SFX Chairman Robert Sillerman acknowledged that scalping was rampant at a number of his company’s facilities. During a speech at the 1999 Pollstar Concert Industry Consortium, he said that fans surveyed in the first 1,000 seats at nine SFX amphitheaters had purchased their tickets from brokers, paying about $141 more than the face value.

Sillerman didn’t explain during his speech how brokers got their hands on so many great tickets, and he declined to comment for this article.

During the speech, however, Sillerman did suggest that SFX hoped to recapture revenue streams lost to scalpers by instituting a tier-pricing system for ticket sales. Under that system, which has since been implemented at a few SFX venues, the corporation cuts out the scalping middlemen by directly charging fans extremely high prices for the best seats and then sharing the profits with performers.

Sillerman is a savvy businessman who critics say entered the concert industry with a business plan that specifically accounted for hidden revenue streams generated by selling tickets directly to brokers. Knowledgeable insiders say SFX purchased a number of its venues and promotion firms after learning that they had previously hidden cash income derived from ticket broker sales or, in some cases, falsely reported such profits as “marketing revenue” or “additional ticketing revenue” on their tax returns.

Tytel denied the allegations, reiterating that he believes SFX has brought new business standards to the once free-wheeling concert industry.

“While we really can’t say a lot about what happened before we bought any of these privately held companies, the audited financial statements we reviewed did not include any line that in any way indicated revenue from scalping,” Tytel said.

“I would not disagree with you if you said that a lot of the privately held promoters going back historically may have, in one way or the other, been involved in scalping. But there is one thing you can be sure of now: With the advent of SFX as a national force on the concert circuit, scalping will not be tolerated in the future.”

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Stealth Seat

The Times bought this scalped ticket to singer Jimmy Buffett’s April 29 show, one of dozens of ‘phantom’ seats the public cannot buy directly.

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Source: Times research