Yoonew - A continuous options market on tickets Wednesday, February 27, 2008
Similar to Sean Park, I've long maintained that the arcane ticketing industry is ripe for capital market models and techniques to be applied. The growth of online secondary markets has been spectacular and has even been embraced by traditionalists like Ticketmaster who recently acquired Getmein in the UK.
The next wave of market evolution is building, which will be very familiar to anyone in capital markets, namely an options market. Several examples now exist in the USA, with Yoonew, being one of the latest. It offers a continuous market on US sports events, most notably the Superbowl.
In Yoonew's case the market actually culminates in physical delivery of the tickets to the event, rather than a cash payout. Hence, if you buy an option for a Superbowl ticket for a specific team then that contract will either result in you forfeiting your "single premium" if the team you select fail to reach the final or actually receiving tickets if they do. As a consequence of this structure, people selling options on teams have to be able to guarantee delivery of the event tickets by buying event tickets contracts in the Yoonew market which provide a ticket regardless of which teams reach the final.
For example, if you wanted to short Fantasy Seats for the New England Patriots in Super Bowl XLII in seating category B, you would first need to buy Super Bowl Tickets in seating category B. Purchasing tickets give you the ability to short contracts in one or both conferences. If you purchased 10 tickets, you could sell 5 contracts for every NFC team and 5 contracts for every AFC. Or you could short 10 contracts for every team in a given conference. With our Ticket Margin system you can short sell Team Fantasy Seats as long as you own enough tickets to cover the maximum number of short positions.
Operating a physical delivery constrains the number of contracts that the market can sustain - ultimately the size of the stadium is the limiter and so the market operator will set a threshold of underlying tickets it thinks it can supply to the market. This will dictate the maximum number buy orders for any given team.
There are a number of fascinating about this including
- the ability of sports fan to buy a futures contract on a Superbowl ticket that pays out if their team reaches the final
- the opportunity to hedge your position or arbitrage in other sports betting markets eg betfair may offer better odds of a team reaching the final
- the reliance on the central operator to deliver on the contracts, since if it went bust or failed to get tickets the punters would have little or no recourse
- the lack of a cash equivalent market whereby the end outcome is the price of a ticket, rather than a ticket itself