Scalpers Earned $25M Gaming Online Ticket Sellers

SeattleGameboy writes "An indictment has been issued for online ticket brokers known as 'Wiseguy Tickets and Seats of San Francisco.' From 2002 to 2009, they used bots, server farms, and CAPTCHA hacking to buy vast number of premium tickets (Springsteen, Miley Cyrus, NFL, MLB playoffs, etc.) and made $25 million in profits. 'They wrote a script that impersonated users trying to access Facebook, and downloaded hundreds of thousands of possible CAPTCHA challenges from reCAPTCHA. They identified the file ID of each CAPTCHA challenge and created a database of CAPTCHA "answers" to correspond to each ID. The bot would then identify the file ID of a challenge at Ticketmaster and feed back the corresponding answer. The bot also mimicked human behavior by occasionally making mistakes in typing the answer, the authorities said.' I guess you can break any system like CAPTCHA if you want it badly enough."

Comments

What a lot of work.

[dtmos]

Wouldn't it have been easier just to make the money legitimately?

Re:What a lot of work.

[Anonymous Coward]

Yes, 25 million USD is easy to make legitimately, that's why everyone is doing it!

Re:What a lot of work.

[dtmos]

The indictment actually states that, ". . .Wiseguys and its owners made more than $20 million in profits. . ." (p. 2 of the indictment), so let's start with the $20 million number.

Keep in mind that:

(a) The $20 million was made over an eight-year period, 2002-2009, so the average was $2.5 million/year;

(b) The profit of the enterprise was split among the two principals (the CFO received $165,000 and the programmer received $150,000, natch...), so that brings it down to an average of $1.25 million/year for the two principals (I think we can agree that the salaried guys did not do well in their risk/reward ratio calculations); and

(c) The "profit" figure used in indictments is nearly always what a legitimate businessperson would call "gross profit," meaning, to quote Wikipedia, "the difference between revenue and the cost of making a product or providing a service, before deducting overhead, payroll, taxation, and interest payments." As a criminal enterprise, these guys didn't have to worry about taxation (at least, the correct amount of taxation), but they did have to pay the salaries of the other 10-15 people working for Wiseguys Tickets, Inc., and all the other expenses associated with running the enterprise (computers ... ). All of that would have to come out that $1.25 million/year/indictable person. A quick look through the indictment shows the several persons on staff in the US being paid from $55k to $142k/year each, and the ones in Bulgaria being paid from $1 to $1.5k/month each, so you do the math.

The point being, the retirement plan associated with these types of schemes is typically poor, as it's usually at a federally-funded establishment. These guys ran a small tech company with overseas offices, and could have done the same legitimately at a salary of probably $150k/year which, once benefits were included, would be equivalent to $250k/year in cash (to make a direct comparison to their criminal enterprise). In a legitimate business, the CEO also would have had significant stock options and other perks given to him by the company's board to motivate him to grow the company. With even moderate growth over that period, the CEO could be very well-off. As I say, it's easier to make money legitimately.

And you sleep better.

Re:What a lot of work.

[erroneus]

Nice work. You forgot one thing when discussing what "easier" means -- entry into market.

Let's use porn as an example. Legitimate media is extremely competitive. Want to start a TV station? A Newspaper? Put out a movie? Music? Those things are dominated by incumbent players who do not like new competition. On the other hand, porn is forced into a low profile, so even though there are big players in the industry, brand names and other matters of high public notice barely even exist. So nearly anyone can make porn.

And since we are talking about event tickets, we are also talking about a pretty well limited and controlled market. It would be unthinkable for someone to just appear out of thin air and start making that kind of money legitimately. Scalpers, on the other hand, are delivering the premium goods with no need of marketing, reputation or other complications required for legitimate business.

So when you are talking about "easy" there are other aspects to consider.

Re:What a lot of work.

[PopeRatzo]

Wouldn't it have been easier just to make the money legitimately?

I'm still trying to figure out how what these guys did was wrong.

The real criminals are the monopolists at Live Nation and Ticketmaster, whose merger will create an entity that controls over eighty percent of the live concert promotions business, and who already demand a $12.50 "service" charge for the privilege of being able to buy a ticket online and another $2.50 just so you can print the ticket out on your own printer. (I guess that last fee is just a penalty they make you pay because you are saving them the cost of having to print and ship a ticket. No good deed goes unpunished, you know.)

The question now, is "just how high can ticket prices go?".

There used to be mom-and-pop music promoters in just about every town in America, putting on live music in bars, parks, gymnasiums and VFW halls. They've created musical venues that allow musicians of all types to ply their wares and make a living. That's going to end now that Live Nation/Ticketmaster are going to create a $4.4 billion behemoth that's going to put the small promoters out of business and control nearly every single live venue.

You know what? These scalpers aren't the problem here. When a system sucks this bad, why shouldn't scalpers game it? You want a "free market" system? Welcome to life.

Personally, I stopped going to the "big" concerts some years ago specifically because of the Ticketmasters and Live Nations (now one entity), and I go to see music in much smaller venues as often as I can, hoping to support the music and not put money in a monopoly. Now, that's going to be harder because at some level almost every dollar spent on live music will be going to these bastards. Maybe I'll just start putting all my entertainment dollars into the hats and guitar cases of the many excellent buskers that inhabit the streets of my city (at least once winter ends).

Re:What a lot of work.

[cayenne8]

While I'm not a fan by ANY stretch of the imagination of scalpers...I'm a bit puzzled as to exactly what laws were broken here?

It did mention they may have hacked into Ticketmasters systems, and if they did break in, ok, I can see that.

However, using scripts/applications to log into a site and buy tickets, I don't see how that is illegal? They are just using a program to mimic what human could do on a website that only reacts to input and doesn't care itself if a human or a scripts is behind the computer connection being made.

Is it against the law to study and make a database of captcha's?

Like I said..I hate scalpers, they grab all the best tickets for places that allow scalping, and even in states where you can't scalp, they grab the tickets and sell to people outside the state keeping locals from getting tix (since they can't by law pay more than face value).

But, I have a hard time viewing the mere fact that someone devised and used a program to auto-purchase tickets as being something illegal? What if an enterprising person that really loved going to shows did the same type thing to ensure that he could buy the best seats for a show that went on sale for himself and his friends? Same principal? In the old days when you had to call in for tix, would they have arrested people for having speed dial (new at the time) and using it to an advantage over people dialing by hand? Hmmm....

Why is it illegal?

[Taco Cowboy]

They didn't rob the bank.

They didn't print fake dollar bill.

Every single dollar that they paid good money for purchasing the tickets are REAL money.

What's illegal about what they have done??

Re:Why is it illegal?

[AmonTheMetalhead]

Impersonating a person, resale of tickets where (commercial) resale is illegal, fraud, illegal use of computer resources (botnets) and pissed of alot of people who actually wanted to buy tickets but were unable to.
When AC/DC toured last year these asses their botnets overloaded the official ticketsale sites preventing any real customer to even access them, in Belgium the sites were unreachable 2 days before the sale even started.
If i had my way, ticket scalpers would be scalped for real.

Re:Why is it illegal?

[HungryHobo]

Copyright?
Where the hell does copyright come into this?
They're not printing extra tickets.

So if 20.000 tickets are sold for $50 each, thats $1M, of which half goes to the artist. Simple math. BUT, if 1000 of those tickets are sold for say, $100, by the terms of the contract, the artist is supposed to get half of 19.000x$50 + 1000x$100 and who pays the extra ?

Nobody.
and that's how it should be.
If the artist wanted $50 per ticket rather than $25 per ticket then they should have sold them for more in the first place.

If I make a game, print 20,000 disks and sell for $50 each, thats $1M and if I've got a particularly lucrative contract as the developer I get half. Simple math.
BUT, if 1000 of those tickets are bough by someone, I get my 250K cut and then they sell those games second hand to someone else for $100 each and make a profit then that's their buisness.
I've already got my cut.
I have no right to a cut of their second hand sales.

If I wanted more then I should have charged more in the first place.

Re:Why is it illegal?

[Chris Mattern]

OK, Mr. "libertarian," just who you do you propose stops this scalping? The government?

Your question presupposes that it is necessary, desirable or even possible to stop it. Attempts to stop tickets from selling at a price people are willing to pay for them is like trying to stop the tide from coming in. The only question is whether the price will be charged by the original ticket seller or a scalper.

Re:Why is it illegal?

[EastCoastSurfer]

You're assuming there is something wrong with scalping in the first place. These evens are all optional to attend. If someone pays more for a ticket than face value why is that a problem? The scarcity of the ticket drove the price up and the person who paid did their own personal value calculation for the ticket.

If you're for banning scalping do you also want to ban people who sell tickets below face value? I routinely wait till a couple days before an event and pay less than face value for tickets (if you're willing to go to a weekday sporting even for example). Should that also be stopped?

Re:Why is it illegal?

[Maniacal]

I would start up a tire company, make the tires, and sell them for $400. I would undercut the tire "scalpers" and make the other guy feel stupid for selling something for $25 when it was clearly worth $400-$500.

Re:Why is it illegal?

[twidarkling]

You missed the point. The scalper did you a service by even giving you the chance to see the concert. If there were no scalpers and every ticket sold was legit then there would be no tickets on ebay and your action of missing the ticket sale means you have zero options to attend.

Logical fallacy present. You're assuming tickets would have sold at the same rate whether scalpers were present or not. This is pretty laughable (appeal to ridicule *points and laughs* ). If there wasn't monetary interests being indulged, you'd have much slower movement of tickets by people with legitimate interests involved. This is patently obvious simply because there's fewer people involved. Scalpers create *artificial* demand. They are the antithesis of free market. After all, they don't care if they sell ALL their tickets, just that they make a profit, so the more they buy, the higher they can set *their* per ticket price, and the fewer overall they'd have to sell. Scalpers don't provide a service, they break the system.

Re:Why is it illegal?

[Dr. Evil]

Scalpers create the scarcity.

Venues compete on price, location and other stuff. This brings prices down. When scalpers step in, the venue has already been locked in. There is no more competition.

If the band or the label were to scalp, it would create a lot of bad blood. If the venue were to scalp, nobody would play there. The practice is so negative, that venues who actively discourage scalping get better acts.

I'm not a big believer in passing more laws, but it should be easy to create laws saying that advertising a ticket for more than 150% of the list price is "Scalping". Enforcement is hard, but having the laws on the books can at least discourage it from being done openly. Venues often spend a lot on having doormen looking for scalpers, offering tickets at the door and other tricks to stop these guys.

As for why it shouldn't be illegal to charge less? it's a fictional problem. You don't have people bidding down the prices of tickets before an event.

Re:Why is it illegal?

[shutdown -p now]

A broker looking to make an arbitrage profit is not the antithesis of the free market. They've found a pricing discrepancy in the supply/demand chain, and it's so far out of whack that they can still profit without moving 100% of their goods. That is precisely the free market.

The only system being broken is the one where the venue sets a "fair price". That fair price is turning out to be much lower than the price the consumer is considering worthwhile. The venues are doing a terrible job pricing supply/demand for the more popular concerts. That's great for the consumer, so great that a marketplace has grown up around exploiting the arbitrage.

You know, I find it really sad that the term "fair price", as offered by the seller himself, is denigrated that way. Not just in your post, but in countless posts in this discussion.

Apparently not jacking up prices as high as you can - even if the markup is 500% and beyond - and screw everyone not able to afford it - is bad because it's a "market inefficiency". And scalpers are the good guys because they "fix" this "inefficiency", and as we all know, the only goal worth pursuing is an "efficient market" - it's a thing by itself, to be reached much like nirvana. If some people just want to be nice to other people - well, too bad, 'cause that's "inefficient".

Yet, when we look at this while taking the actual utility or harm done to the society, scalpers are clearly harmful. They don't produce any useful product. They don't offer any useful service (to remind, we're talking about the kind that buys 100% of tickets in the first few minutes after they go on sale, not low-scale resale). The only ultimate effect of adding a scalper to the picture is that customers end up paying more for exact same thing.

All in all, this story, and the comments to it, show a good example of why I consider unconstrained free market worship a form of sociopathy.

Well done.

[aerthling]

$25m seems an entirely adequate reward for circumventing reCAPTCHA.

Anti scalpers scheme that works...

[BartholomewBernsteyn]

In his Glitter and Doom tour, Tom Waits pioneered an effective anti scalpers scheme.

Tickets for Waits' summer shows were limited to two per person but, in an effort to beat ticket touts, a valid I.D. (passport or driving licence) matching the name on the ticket was required to gain entry. Any concert-goer who did not have a valid I.D. or was found to be in possession of a ticket that had been resold – electronic scanners were employed – was not allowed in and did not get a refund.

From http://en.wikipedia.org/wiki/Glitter_and_Doom_Tour#Tickets

Dutch Auction

[Dr_Barnowl]

How about a dutch auction?

Start the price offensively high, and drop it as the concert date approaches. The organiser gets paid the price the market will bear, the scalpers are out of the loop - because by definition, anyone willing to pay a stupid price for a guaranteed ticket will already have paid it.

You still get the same effective problem - that rich fans are prioritised over poor fans, but more money goes to the artist and the organiser, so they could throw a few benefit concerts or something to sweeten the deal.

Re:Dutch Auction

[Registered Coward v2]

How about a dutch auction?

Start the price offensively high, and drop it as the concert date approaches. The organiser gets paid the price the market will bear, the scalpers are out of the loop - because by definition, anyone willing to pay a stupid price for a guaranteed ticket will already have paid it.

You still get the same effective problem - that rich fans are prioritised over poor fans, but more money goes to the artist and the organiser, so they could throw a few benefit concerts or something to sweeten the deal.

The problem is promoters and talent want two things - sold out venues and maximum price per ticket. Scalpers act as a hedge against lost sales and inaccurate demand / pricing - they take the risk of getting stuck with tickets or losing money; something promoters don't want to accept themselves. Dutch auctions would probably condition people to wait because they learn prices will fill - which causes prices to fall - and promoters have no idea how much money they make nad when. They hate scalpers because, in their mind, they are taking "their" money; and convenientlyignore the risk mitigation role.

Laws barring reselling of tickets, IMHO, merely serve to restrict the market and raise ticket prices overall so promoters can make more money. There is no rational reason to bar ticket reselling anymore than to bar reselling of any other good.

What is the ethical difference?

[wheelema]

Between WiseGuy's and Goldman Sachs? Both use computers to game their respective markets.

This is pretty ridiculous...

[chaboud]

It's not illegal to resell tickets above face value in most states (check out stub hub for TicketMaster's very own foray into person-to-person ticket sales), and business can be conducted in alternate states with more lax restrictions on ticket resale.

Beyond that, smoking a CAPTCHA system with a bit of cleverness is not hacking or unauthorized access in any reasonable way. This is just a ridiculous attempt to criminalize scuzzy, crappy, opportunistic behavior on the part of one party (scalpers) at the expense of another scuzzy, crappy, opportunistic party (TicketMaster). This strikes me as another case of people trying to misuse the law to remedy the unexpected (only by idiots) defeat of a faulty system. If one reads the article, it seems like Wiseguys (seriously? That's your name?) made purchases on behalf of ticket brokers (ticket-broker is to scalper as escort is to hooker) with detection-avoiding measures in place to keep TicketMaster from blocking the regulars.

It's an attempt by TicketMaster to wipe the egg off of their face, a face that most of America hates with a passion. Perhaps they should find a better way (reverse auction, anyone?) to find the natural market price instead of using time-release scarcity to spur impulse-buys that inevitably result in person-to-person ticket resale later on stub hub where they get to come back for a second skim off the top...

Oh.. right...

Are you telling me...

[cvtan]

that Stubhub is owned by Ticketmaster? I can't believe this. The last two times I tried to get into concerts at the Rochester Auditorium Theater and the War Memorial (Blue Cross Arena), it was difficult. Somehow all the good seats vanished almost immediately. But no, there are seats that magically appear on Stubhub. All you have to do is pay $300 for a $75 seat. Infuriated, I refused (obviously, I've been out of the loop for a while). So for one concert I bought tickets from someone on eBay (double the face value!) and for the other I just got cheap tickets in a poor location. Apparently this kind of poor service has no effect since the venues are sold out anyway. This makes me not want to go to events like this and just buy the DVD! Maybe you have to be a teenager to put up with this BS. I still have the antiquated belief that ticket resellers should not make more money than the artists or promoters. You don't see Wallstreet brokers doing this. Oh, wait...

Re:there's a small town in the mountains

[somersault]

understand the illegality yet?

Nope.. if the townspeople simply refuse to buy the flour at that price (either doing without flour for the week or buying from a different location), the asshole is down $40. If people know that most of what they're paying is pure profit and yet still pay the price, they're simply idiots. This is exactly how a free market is supposed to work.

Original Live Aid and the Scalpers Scalped!

[AGMW]

I was lucky enough to get a couple of tickets to the original Live Aid gig in Wembley and the word went out that there were tickets still for sale at the box office and to not buy from the scalpers. After an hour or so the scalpers realised they were never going to sell any tickets, even at reduced prices (because everyone was so intent on helping the 'cause' and the scalpers had already bought their tickets!) that they gave up and handed in all the tickets to the box office where they were re-sold by the event to raise yet-more cash!

But isn't it similar to the success spammers have with spamming? If no one answered the spam emails they'd go out of business, and it's the same with the scalpers ... if you simply don't buy off them they will also go out of business!

That said, I don't see what's wrong with it and how you can make general scalping illegal and yet still permit Joe Schmo to sell a couple of spare gig tickets if some of his mates can't make it on the day?