Grateful Dead price spike shows how tickets are like asset bubbles

Cashing in on concerts: 5 tips
Cashing in on concerts: 5 tips   

Ask an investor to envision a 580 percent return, and he or she might picture Netflix shares rallying over the past two years. Ask a ticket scalper, however, and he'd probably be singing a song by The Grateful Dead.

That's because it's what some resellers returned (post-fees) after overwhelming demand crashed the Ticketmaster site once tickets went on sale for the band's "Fare Thee Well" concert tour. Some resale listings on sites like StubHub shot as high as $116,000 for tickets that cost less than $300.

Thanks to software innovations and the rise of online marketplaces, the lines are blurring between professional ticket brokers and entrepreneurial fans. Yet in the bigger scheme, it casts concert tickets in a similar light as an investment. As is the case with asset prices, there is much to consider before buying or selling.

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Not scalping but investing

Phil Lesh and Bob Weir will reunite with members of the Grateful Dead to perform this summer.
J. Shearer | WireImage | Getty Images
Phil Lesh and Bob Weir will reunite with members of the Grateful Dead to perform this summer.

When an inefficient market fails to match supply and demand, as it did in the case of the Grateful Dead, it leaves angry consumers in its wake. Andrew Dreskin, CEO of Ticketmaster competitor, Ticketfly, deals with it first-hand.

"You can't stop the free market," he said. "It's ironic because the primary market's poor pricing birthed the resale market."

Clearly not all concerts are big returners like Grateful Dead's farewell tour, but doubling your money in a couple weeks is a big temptation for some. Just like trading stocks, there are factors that make for smart and not-so-smart investing.

Bands often spike in popularity after their songs start climbing the charts. However, don't assume popularity is equally spread across locations, according to ticket broker Jason Barash, founder of Center Aisle Tickets.

"Certain locations work better for some bands than others," he said. "One act that's good in New York might not be good in Texas."

Location, location, location

However, perhaps the most important aspect to a ticket's true value isn't even the band that's playing the concert, but rather where the band is playing.

Fitting fans into Madison Square Garden with its near 20,000 fan seating capacity is a lot easier to do than in an intimate venue where demand might outnumber capacity. In fact, according to SeatGeek, all 25 of the top venues to focus on for targeting sold out shows have total capacities below 1,500.

Meanwhile, watch out for charges and fees. As any trader knows, commissions and fees can eat away at returns. The same holds true for resellers, according to TickPick co-founder Brett Goldberg. "StubHub can charge fees around 20 percent in total fees on average," he said. "You really can't call that efficient."

TickPick's average of 10 percent is comparatively reasonable, but still less favorable than transacting on someplace like Craigslist, where sales come without fees. However, that comes with its own set of problems—namely scams and logistical headaches that come with shipping and payment. The verified payment method of PayPal is a good bet, but transaction fees will be an added cost.

Read MoreProcrastination pays for cheap concert tickets

Tickets on the secondary market are prone to the same volatility that plagues options contracts. For tickets that aren't seeing large demand, the upside is limited. According to Will Flaherty, SeatGeek's director of growth and communications, prices fall about 40 percent on average leading up to the date of an event. Of course, there are exceptions to every rule, like the Super Bowl, or the popular Coachella concert.

There are factors in any investment that you just can't predict. Like a high flying stock, a sports ticket can plummet when a star is lost to injury, or a team doesn't play so well (read the New York Knicks, where ticket prices have cratered to $18). Bands can announce new concerts or lose popularity over time. As with stocks, it's never good to put all of your eggs in one basket.

However, ticket re-sellers have to be careful not to create their own bubble market, which can prompt them to take a dotcom-like bath.

"The downside is you can justify spending too much money on concerts you wouldn't have otherwise wanted to," says TickPick co-founder Brett Goldberg. "Keeping a detailed account of gains and losses on sales can help keep sellers honest."