Vivid Seats (SEAT) May Be Controversial But It's No Villain

Although ticket exchange and resale company Vivid Seats (SEAT) may have avoided the brunt of controversy surrounding the Taylor Swift concert tour presale fiasco that casted a negative light on Live Nation Entertainment (LYV), SEAT stock isn’t completely clean. After all, the enterprise still focuses on the secondary ticket market, an arena that courted substantial criticism. Nevertheless, neither Vivid Seats nor the secondary exchange represent villains in this story.

One pain point for Taylor Swift fans – and fans of other popular acts and events – centers on scalpers. Gone are the days when scalpers would hire people down on their luck to stand in line for tickets to the latest popular event. Instead, these shadowy figures have gone digital, utilizing CAPTCHA-beating bots to secure hoards of tickets (at face value) in the primary market, only to turn around and sell them at ridiculous markups.

Of course, part of the Live Nation-owned Ticketmaster controversy at the heart of the Taylor Swift ticketing scandal is that true fans – the so-called Swifties – were unable to acquire face-value tickets. Instead, the scalpers own large swathes of inventory and they’re not looking to merely break even. Therefore, even if Vivid Seats isn’t directly implicated in the mess, it’s still a secondary exchange. And that may negatively impact SEAT stock from association.

Still, while scalping may not be a wholesome business, it’s nevertheless a business. And success here isn’t guaranteed – one element that many critics fail to consider before blasting SEAT stock. For instance, take a look at Vivid’s most recent fourth-quarter earnings report.

True, SEAT stock jumped double digits on Tuesday. However, its results weren’t holistically impressive. While Vivid beat analysts’ consensus estimates for the top and bottom lines – thus driving the enthusiasm – it left many things to be desired. A notable example is marketplace gross order value, which at $846 million in Q4 represented a 3% decline from one year ago.

Put another way, scalpers take risks – and they sometimes get burned. Also, criticizing the practice may actually be unfair.

Scalpers Perform a Necessary Function

On surface level, some folks might feel that SEAT stock “deserves” its recent unusual stock options volume activity, which has bearish implications. Specifically, volume reached 6,082 contracts against an open interest reading of 7,071. The delta between the Tuesday session volume and the trailing one-month volume came out to nearly 940%.

Moreover, the put/call volume ratio favored the bears, at least on paper. Call volume came out to 1,296 contracts but put volume soared to 4,786, leading to a ratio of 3.69. Notably, the Barchart Technical Opinion rating for SEAT stock pings as a 56% sell.

However, disdain for scalping arguably does not symbolize a viable or rational justification for dumping SEAT stock. In reality, scalpers help adjust face-value tickets to reach their true market value. For example, if face value sat at $50 but people are willing to pay $500, then the original admission price was grossly undervalued.

More importantly, scalpers practice free market capitalism in its purest form. If somebody really wants to go to a Taylor Swift concert, scalpers enable such people to put their money where their mouth is. And quite frankly, that’s the only mechanism that’s fair, just and expedient.

Sure, I suppose it’s possible to introduce a system that takes into account true loyalty to the act or event. However, how would this system quantify loyalty? Moreover, adjudicating who’s a true fan and who isn’t introduces subjectivity, not to mention the time imposition necessary for the determination process.

The person that pays the most money for the ticket? That’s the easiest mechanism available. And thus, like it or not, scalpers will continue to exercise their capitalistic endeavors.

SEAT Stock Provides Cover

Finally, it’s time to discuss a dirty little secret: Vivid Seat and the entire secondary market provide cover for the underlying entertainment acts and events. Yes, I understand that musical acts in particular often wax poetic about fairness and equity. However, even if society magically disappeared all scalpers, the narrative would come full circle.

The people willing to pay the most money should get the tickets.

It’s not an absolute rule. Certainly, musical acts can directly facilitate admission to deserving fans. But at scale? It’s probably impossible to feed intense demand for limited quantity goods without upwardly adjusting the price.

Indeed, enterprises in other industries will raise prices to prevent unnecessary supply chain clogs. This way, those that really want the underlying goods can get them and those that don’t can redirect their funds for other desired purposes. In this life, it’s about as win-win as you can get.

Therefore, the idea that musical acts would do something different regarding ticketing problems are being disingenuous. There is no other way, which means Vivid Seat and its ilk provide cover for a harsh but necessary evil.

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