The Government is threatening to broaden rather than repeal a restriction on the resale of event tickets in HK, a restriction which is probably unconstitutional anyway. This runs against the interests of event organisers and performers who benefit from the secondary market as we explain. It also runs against the broader public interest in consumer choice. Let the market function, and repeal section 6 of the POPE Ordinance. What next - a restriction on reselling wine or IPO shares for a profit?

Carrie Lam's latest assault on free markets
17 April 2018

It seems that the HK Government, lacking a popular mandate and fearful of any protest whatsoever, sometimes feels compelled to intervene and stomp all over the free market in response to any populist issue, regardless of the harm it may cause to HK's economy and reputation. The latest intervention comes from Chief Executive Carrie Lam, who is considering capping prices for event tickets at no more than their face value, after a legislator complained that tickets for a popular comedian's event were fetching premiums in the secondary market.

The Basic Law and the POPE Ordinance

Reselling goods and services is the essence of commerce and free markets, but if that "good" is an event ticket then its resale attracts the derogatory term "scalping", as if to compare it to the somewhat illegal activity of removing the skin from someone's head. And yet, if Carrie Lam has read the Basic Law (we believe that she has), then she would know that under Article 105, the HKSAR shall "protect the right of individuals and legal persons to the acquisition, use, disposal and inheritance of property". That includes event tickets, unless the ticket contract prohibits transfer.

As we've said before, there is already a draconian anti-market law in HK, section 6 of the Places Of Public Entertainment (POPE) Ordinance, which bans ticket resales (at any price) in a "public thoroughfare, or in the entrance hall of, or approaches to" a POPE (even if you are not running a business). The same section bans resale above face price, regardless of location within HK. However, the section only applies to POPEs licensed under the ordinance. A separate POPE (Exemption) Order exempts places managed by the Government's Leisure and Cultural Services Department or the Home Affairs Department from the licensing requirement in section 4, so section 6 does not apply to such places, including many of HK's largest venues.

Section 6 is probably void for lack of constitutional necessity, although nobody facing a HK$2,000 fine (and no jail time) has ever felt it worth risking millions in legal fees (or seeking legal aid) to contest the point. For a restriction on a Basic Law right (in this case, the right to dispose of your property) to be constitutional, it must have a legitimate purpose, and the retriction must be rationally connected and "proportional" - no more than is necessary to achieve that purpose. It may also be necessary to show that the objective is sufficiently important to justify limiting a fundamental right (HKSAR v Leung Kwok Hung, para 33-39, Court of Final Appeal, FACC1/2005).

But rather than repeal section 6 and allow a free market in tickets for events at all venues, Mrs Lam is considering extending the restrictions to Government venues, raising the penalty and even requiring tickets to be issued to registered names rather than to bearer.

A so-called "real-name" system would require identity checks on the entrances, slowing admission to a crawl and causing problems for tourists who left their passports at the hotel, children without ID cards and so on - their guardians would have to bring birth certificates. A real-name system would also allow the Government to track who is attending events or shows that have politically sensitive content, and who their friends in the same booking are. So maybe you shouldn't attend the next performance of "An evening with Benny Tai and Joshua Wong".

The secondary market benefits performers

The secondary market benefits performers in several ways, by raising the overall proceeds to the ticket issuer and providing more flexibility in sales. If, weeks or months before an event, you have a choice between two otherwise identical tickets in the primary market, one of which permits resale and the other does not, then you will prefer the unrestricted ticket and will pay more for it than the restricted ticket. You don't know with 100% certainty that you will be able to attend the event. You might change your plans, or someone who values attendance more than you do might subsequently want to buy your ticket. That's reflected in the "time value" of the option. Part of that option value gets transferred ultimately to the performers in their fees. That's one of the reasons (apart from the sheer headache of identity checks) that organisers don't favour a real-name system.

Furthermore, a lesser-known fact about ticket agencies such as GetMeIn, Viagogo, Seatwave and Stubhub is that organisers and promoters of events often hold back some tickets and release them over time via these secondary market platforms, at market prices. Prices on these platforms may be lower or higher than face value, depending on an event's popularity, but the organisers have a legitimate interest in maximising the overall proceeds of ticket sales, and so do the performers who usually get a percentage. This is what airlines and hotels call "yield management" - they release some seats and rooms for early booking at lower prices, then hope to sell other tickets to less price-sensitive travellers nearer the date, and if all else fails, they will often release final tickets at bucket-shop prices (or points redemption) to clear the inventory and maximise the overall return.

The secondary market for event tickets also means that professional traders in the primary market are willing to take inventory risk and underwrite the event months before it occurs. They take risk that the event may turn out to be less popular, or even that the organiser will lay on extra dates for the show, increasing supply and devaluing their inventory. Meanwhile the organiser gets to lock in the sales and finance the event.

There was much outcry in the UK in 2012 when the practice of organisers gradually releasing concert tickets via the secondary market was revealed in a TV documentary which put undercover reporters into two of the agencies, but it should not have been surprising. Some of the marketing practices of those agencies may have been deceptive, but the fact remains that customers were and are willing to pay the secondary market price to attend the event. Nobody forces them to do so. If the Government bans reselling, then it will simply go underground, resulting in more fraud and fake tickets, and the Government will also not collect any profits tax from agencies and traders.

Sponsors of events often get allocated blocks of free, discounted or priority bookings in return for underwriting part of the event costs, and those tickets often make their way into the secondary market. The sponsor may not always directly benefit, but if they give tickets to employees, customers or suppliers who then resell or use them, then they get goodwill (and nobody pays tax on that). That makes sponsors more willing to sponsor events in the first place, again helping to finance the events.

To create excitement about an event, an organiser might well put a relatively low face value on an event that it expects to be popular, and release more of them via the secondary market once a market price has been established. The organiser might allocate a quota of tickets to those who are willing to physically queue up overnight, because it creates media coverage and a stronger impression of demand and scarcity for the secondary market, or for "extra" performance dates which are later released. People may perceive a "premium" in the secondary market, but that is the flipside of a discount in the primary market, relative to what some fans are willing to pay.

Randomised, real-name ballots

Ticket sales and secondary markets often trigger very primitive human emotions, with complaints that "genuine fans" of a sports team or singer are excluded in favour of those who are willing and able to pay up. Media love to focus on the highest asking price for tickets on secondary platforms, because it makes a more sensational story than the lowest asking price, which is closer to what people are paying to see the event. The media can also always find loyal but impoverished fans who have been priced out of the market. But unlike adequate food, water, shelter, education and healthcare, it cannot be said that tickets to a pop concert or a rugby match are a human right. We checked the UN Universal Declaration of Human Rights. It ain't there.

Organisers can choose not to maximise proceeds by instead releasing some or all of their tickets by random ballot and to real-names, preventing ballot winners from reselling and thereby deterring people from entering the ballot unless they actually wish to attend. That makes it possible for people with lower budgets to get into an event at below market price, in effect allocating the discount by random draw. That should be a choice that organisers are free to make, not one forced upon them by law. Organisers and artists adopting this sales method will be reducing ticket proceeds, but they may have other considerations, such as nurturing younger fans who may stay with them and be able to pay more as they (and the performers) age. On the other hand, if organisers simply open an internet booking platform with a first-come-first served sale of under-priced tickets then they can fully expect the platform to be overwhelmed and people to write computer programs (or "bots") or simply employ an army of others to scoop up the tickets.

Say no to intervention and central planning

The Government should let the free market function by repealing section 6 of the POPE Ordinance, not respond to misguided sentiments by expanding its scope. The restriction on reselling harms the events industry and performers by reducing funding, reduces consumer choice and is against the public interest. Stepping up penalties and adding jail time might also give a defendant sufficient motivation to challenge the restriction on his Basic Law right of disposal by judicial review.

Let organisers and their performers choose the conditions of sale. Stay out of the free market. It is ironic that after throwing tens of billions of taxpayer dollars into performing arts venues in the West Kowloon Cultural Desert and the forthcoming HK$32bn+ Kai Tak Sports Park, the Government is now considering reducing the amount that performers and organisers can raise from ticket sales and sponsorship by restricting their economic freedom.

If the Government thinks it is OK to cap ticket resales at their original issue price, or ban their resale altogether, then what about other forms of entertainment. Would it be right, for example, to prohibit anyone who buys bottles of this year's wine from a winery from reselling it for a profit? Should the wine have your name on it, and the enjoyment be non-transferable? Should we require wineries to sell directly to end-users, and not allow restaurants, wine merchants and retailers to make a profit? How would that help the wineries?

What about IPOs? Should we prohibit people from selling shares they have purchased in an IPO (or were allocated in a selective placement) at above the issue price, or at all? After all, that would certainly reduce demand from "scalpers". Off with their heads! Yes, it would eliminate the secondary market. But let's not worry about secondary markets. Who needs them when the Government can centrally plan everything?

©, 2018

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