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Will Paperless Change The Face Of The Ticket Industry?

E-tickets have long been integrated into the world of air travel. It was first done in 1996 as a more convenient way to do business. For the airlines, it also reduced printing costs.

But the move to electronic tickets didn't impose new terms on the consumer, which is not the case in the world of concert and sports tickets. Companies that have encouraged teams and artists to use their digital platforms have a further, more dangerous pitch from the fan's standpoint: With digital, you can better control the flow of who gets what ticket, what they can do with it and whether you can make money off the transfer.

For the third straight year, the NCAA is providing Final Four schools with about 800 tickets each to sell to its students.

The seats are priced at $25 each, obviously an extreme discount to the regular face value price.

The tickets are sent digitally to a student ID or a driver's license and they are non-transferable. While this might seem like a convenience and simply the price to pay for discounted tickets, some wonder whether it's a sign of things to come in the sports ticketing world.

The debate over who actually owns the right to a ticket sold has reached a fever pitch in the concert world, as artists like Justin Bieber and Miley Cyrus, hoping to attract real fans instead of opportunistic brokers, have made their tickets non-transferable through Ticketmaster. In 2010, paperless ticketing only accounted for roughly one-tenth of one percent of all tickets processed. Ticketmaster only sold 500,000 paperless tickets out of the nearly 400 million the company processed.


The problem with the "get the real fan a face value ticket" argument is that the secondary market has actually made it more accessible for real fans, no matter what the price, to buy seats to their favorite artist or team.

"Who is more of a real fan?" asks Jon Potter, president of the Fan Freedom Project, a fan ticket consumer advocacy group that claims to have 7,000 members and is based around the premise that fans own the right to do whatever they want with the tickets they buy. "The guy who buys the seats for $150 or the guy who buys the seats for $15,000? Who's the real fan? The person who can afford to buy face value tickets at 10 a.m. when tickets go on sale or the person who can afford them by paying more after they are sold out?

Ticketmaster seems to be arguing that the secondary market, like StubHub, is not where fans buy tickets. That's a pretty tough argument to make. Because of Ticketmaster's closed-loop system, which essentially means transfers cannot be made and buyers are locked in to their purchases, proposed legislation has sprung up in Connecticut, Minnesota and North Carolina to help ensure a free market.

In order to digitally process the student tickets, the NCAA hired Veritix, whose digital ticket marketed under the Flash Seats brand name is used by the Cleveland Cavaliers, the Denver Nuggets and Avalanche, the Utah Jazz and the Houston Rockets. For what it's worth, executives at Vertix have testified that they are for a free market.

"We believe in teams and artists providing a free and open marketplace for their fans to sell tickets," said CEO Samuel Gerace. "However, I do also support, as a marketer, an arena or an organization's right to do special promotions in which they impose restrictions on a class of tickets."

In other words, Veritix officials know that the digital dashboard that they offer to clients has greater value if the clients actually use it.

The platform that Veritix provides enables teams to tinker with how they want to modify the digital ticket. In the Cavs case, for example, season ticket holders can only resell their digital tickets on the Cavs interface, where the Cavs take a piece of each transaction. While they can sell their tickets for as much as they can get, they cannot sell them for lower than face value, which is an issue if you invested in Cavs season tickets this year. Dan Gilbert, the owner of the Cavaliers, just happens to be the majority owner of Veritix.

Gerace says that the NCAA hasn't used the tools Veritix has provided them to impose further restrictions on anything other than student tickets. But what happens if that one day does come? What happens if, in the name of the almighty dollar, the NCAA stipulates that its digital tickets can only be traded through its exchange so that they can take a piece of the secondary market? Or what happens if they choose to go the other way, in the name of amateurism, and choose to make a certain section of the arena non-transferable? Greg Shaheen, the NCAA's interim executive vice president of championships and alliances, didn't respond to inquiries about the future of ticketing for the men's basketball tournament.

Gerace says paperless tickets help fill crowds since less goes wasted. When the Cavaliers played in the Finals in 2007, Gerace said 89 percent of the seats owned by people who had paper tickets were filled compared to 94 percent of the seats owned by people who had gone paperless. Gerace suggests that the easy transferability of the paperless ticket leads to a higher appearance rate.

That makes sense. But fans aren't arguing about the convenience. They're starting to get mad about the additional constraints that is being added to the digital ticket. Constraints that companies like Veritix offer to their clients, including the most prevalently used option -- mandating that season ticket holders only sell their tickets through the team's marketplace.

"We are very concerned," said Potter, who previously ran the Digital Media Association, a consumer advocacy group supported by industry innovators like Netflix and YouTube that successfully challenged the old, stodgy incumbents. "We know that teams are motivated to control their inventory and to get a revenue share off the service fees from any transfer. I fully expect antitrust lawyers to get involved because this is clearly isn't pro-competition and it's definitely anti-consumer. Judges might rule that this is legally permissible, but I don't think state legislatures are going to tolerate this in the future."

Questions? Comments? SportsBiz@cnbc.com

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