The spectacular collapse of the FTX digital currency exchange will have long lasting implications for crypto and the financial services industry, but lessons from this catastrophic situation are transferrable to many industries . . . like ticketing.
You can’t stop someone from selling something they don’t have
In the world of finance, this is fancifully referred to as “leverage.” Overleverage (e.g. lending out more value than one actually has on hand) was at the core of the Lehman Brothers collapse in 2008 (which triggered a broader financial crisis). The FTX collapse was driven by the exact same dynamics.
In ticketing, the term is “spec sale.” When you go to Vivid Seats and see a ticket with “Zone Seating” in the listing, that is a spec sale where brokers are attempting to sell a ticket they don’t actually have. They are betting that a buyer will buy from them at an inflated price and upon that sale coming through, they’ll race to buy a ticket somewhere else at a lower price to make a profit on the margin. Classic rent seeking behavior.
For the most part, there is actually little anyone can actually do stop this type of activity from happening. I recall a conversation I had with a major US sports league executive about wanting to explore a crypto currency-based solution because they could be sure of what tickets were bought and sold for. When I posed the simple idea of what happens if the parties do a side transaction on Venmo; they paused and said you’re right, it doesn’t stop that behavior.
The key learning here for ticketing is not how do you stop this activity, but how do you make it manageable.
There is no such thing as perfect security
I have a 100% foolproof way to ensure your car can’t be stolen. Don’t own a car.
All kidding aside: when engaging in any sort of business endeavor, we are taking on some level of risk. When we see egregious violations from the exploitation of substandard technology (as we do in ticketing), it’s easy to think technology can immediately solve these problems.
In 2017 it was Blockchain. In 2022, it has evolved into NFTs. And for some, facial recognition is the technology that will save the day. For FTX, it was the idea that crypto isn’t subject to the same risks as past financial malfeasance. Technology isn’t a silver bullet, and as you dig into any of the technology-focused solutions, you will find very challenging problems. Tickets are not tokens — having all transactions on a public chain is not palatable for most patrons or ticket issuers, and facial recognition has serious PII issues that will preclude 100% adoption in western countries like the US. For FTX, apparently there was no diligence done by many of the gold star investment firms who should have been the first line of security.
The key learning here for ticketing is not to focus on achieving 100% security, but on achieving a realistic level of security that you can act on.
What is the optimal level of friction necessary to accomplish your goals
When we look at the collapse of FTX (Theranos and WeWork can be added to this list), a major factor enabling these collapses was a lack of friction due to investor FOMO (fear of missing out). Investors, many of them “Smart Money” investors, glossed over typical due diligence for fear of missing out on a hot deal.
In ticketing, the prevalence of issues related to secondary markets seems to drive a potential overaction by technology enthusiasts that may create unnecessary friction that could result in solutions not being adopted. Tying a ticket to a person’s biometrics, a phone’s UUID, even an email or name could cause more operational issues for organizations and outweigh the ROI for the problems for which they solve. For example, if tickets were tied to identity of any kind, what if there is an error or an issue associated with the attribution. If I share a ticket with a friend via email and I either mistype or send to an email they don’t use, that could result in significant problems for what should be a relatively straightforward process — giving a friend a ticket.
The key learning here for ticketing is to not create unnecessary friction in the ticketing process, but to implement the right level of friction that works for your organization’s operational processes.
Secure ticketing isn’t all or nothing
At True Tickets, while we have delivered hundreds of thousands of tickets leveraging blockchain technology, the technology doesn’t make those tickets perfectly secure. What makes the solution effective is how it is integrated into the various other microservices as well as client ticketing systems to maintain high levels of convenience while also offering enhanced security. Rules-based ticket sharing empowers event organizers to create a chain of custody and enforce the terms and conditions of each ticket without requiring patrons to jump through hoops to share tickets with friends or fellow eventgoers.
Having zero safeguards in place results in problems in the form of high prices, lack of identity, and lack of accountability. Too many safeguards will cause the system to be abandoned. With just the right amount of friction, a balance is possible — one that is beneficial to all parties from the time a ticket is purchased to the moment the curtain goes up.