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With A Month To Go, Tensions Rise In Olympic Ticketing Game

With the Olympic Games less than a month away, a major ticket dispute between a ticket broker, the London Organizing Committee of the Olympic Games and the official credit card of the games, Visa, is taking place.

A detailed view of the prototype design of the new golden Olympic torch during its unveiling at St Pancras Station on June 8, 2011 in London, England. 8,000 torchbearers will carry the Olympic Flame around the UK during the 70-day relay, which starts at Land's End in Cornwall on May 19, 2012.
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A detailed view of the prototype design of the new golden Olympic torch during its unveiling at St Pancras Station on June 8, 2011 in London, England. 8,000 torchbearers will carry the Olympic Flame around the UK during the 70-day relay, which starts at Land's End in Cornwall on May 19, 2012.

Texas-based ticket firm Golden Tickets is accusing the London Organizing Committee (LOCOG) of trying to enforce rules it cannot legally enforce, Visa of wielding its sponsorship power to cut off what it says is legitimate reselling of Olympic tickets and a payment processor called iPayment of fining the company without legal grounds.

After selling Olympic tickets, Golden Tickets president Steve Parry was informed by his comptroller that $25,000 was taken out of the company’s bank account without warning.

Parry said that when he contacted iPayment Holdings, a payment processor that helps find the best rates with member banks, he was only told that that he was fined because he was not authorized to resell Olympic tickets. The fine could only go away, he said he was told, if he agreed not to market, promote or sell any Olympic tickets.

“I felt so violated,” Parry said. “I mean, they are going into our account and literally stealing from us.”

As part of its agreement, iPayment actually has the right to fine a merchant for certain activity, but the terms say that the company has to notify the client. Golden Tickets said it was never notified. iPayment did not respond to emails and phone calls from CNBC seeking comment.

After Parry saw that his company was listed on the London Olympic Committee’s Web site as an unauthorized web site “claiming to offer London 2012 tickets,” he enlisted Gary Adler, a lawyer who has served as the general counsel for the National Association of Ticket Brokers since 1994.

In a letter obtained by CNBC, Adler wrote to an executive in Visa’s North American risk operations division that the ticketing statutes within the London Olympic Games and Paralympic Games Act of 2006 (LOGA), which prohibit Olympic ticket resales from those brokers who have not been granted official status, don’t apply to anyone conducting business on U.S. soil.

In fact, the LOGA makes it clear that unauthorized person who sells an Olympic ticket could be fined up to $7,800, but there is no claim that the law would apply outside the United Kingdom. Despite this, London’s Metropolitan Police, which is running Operation Podium dedicated to respond to organized crime surrounding the Olympics, believes their scope is more wide ranging.

“The legislation makes (selling unauthorized tickets) an offense worldwide and Podium works with LOCOG, payment providers and International law enforcement agencies to take appropriate action against anyone breaching this,” a spokesman for the Metropolitan Police e-mailed to CNBC, in a statement.

The local organizing committee says it’s more about protecting the consumer than protecting its own business interests.

“We want to urge caution to consumers who are considering buying from a non-authorized source,” said Jackie Brock-Doyle, director of communications for London 2012. “We don’t want people spending good money for tickets and which may not be delivered.”

While CoSport is the only authorized Olympic ticket reseller in the United States, and Olympic tickets themselves are said to be non-transferable, there’s no precedent for determining exactly how enforceable that is. The only tickets in the UK where authorities prosecute people for reselling their tickets are for the Olympic games and soccer matches.

Adler asserts that tickets are commodities and can be transferred at will from one hand to another without penalty in the United States. That means his client can legally buy tickets from an official seller and be able sell them at will.

“We believe there is no legal basis for the position being taken,” Adler told CNBC. “This makes absolutely no sense in that it empirically hurts consumers instead of helping them. By telling people where they have to buy, we’re going back to the days when the business had to be done in the back alleys. Golden Tickets was providing a service and a good experience to people and LOCOG and Visa are stopping them so that they can funnel the ticket sales into their own vehicle.”

Visa says that it initiated action with the processor in accordance with its standard operating conditions.

“Participants in the Visa system agree to take appropriate measures to prevent the Visa system from being used or associated with illegal activities,” said Martin Elliott, head of Visa’s system security and acceptance risk, in a statement, to CNBC. “When online merchant activity is identified as potentially illegal, Visa notifies the acquiring financial institutions to conduct due diligence and take the appropriate action toward their merchant client, including termination of its card acceptance privileges if warranted.”

In this case, Visa said it was alerted to Golden Tickets conducting “potentially illegal activity selling Olympic tickets in violation of the London Olympic and Paralympic Games Act of 2006.” Visa notified the acquirer, in this case the bank Wells Fargo , to conduct an investigation and take action, if needed. Wells Fargo could then alert iPayment of its findings.

Visa did warn banks about Olympic ticket sales earlier this month by sending a letter saying that “unauthorized” or “counterfeit” sales of Olympic tickets would fall under rules of Visa’s Global Brand Protection Program, meant to protect the credit card brand from “illegal or brand damaging transactions.” Initial fines under this program are $25,000. Tickets for the Olympic Trials and the Olympic Games can only be purchased by using a Visa, which has been an official Olympic sponsor since 1986.

“Who are they to say what events I can or cannot sell?” Parry asked. “Visa and LOCOG (London Organizing Committee) might not like the secondary market, but we’re not breaking the law.”

Parry said that he is worried that if he does give in here, that there will be a dangerous precedent set for the future.

“If we bow down to this, what’s to say that the NFL and Mastercard won’t soon be doing this with the Super Bowl or another property and American Express ?” he said.

While Golden Tickets chose to challenge the jurisdiction of the Olympic rules put in place, many of the larger ticket firms have not. Sites like StubHub and TicketsNow have decided not to take the risk.

The crackdown, even in the United States, is wide-ranging.

"SEVERLY DAMAGED" BUSINESS

Bob Bernstein, who runs ticket resale site eSeats, didn’t see money come out of his bank account, but he says his business has been severely damaged as a result of actions taken for his selling of Olympic tickets.

Bernstein told CNBC hisGoogle Adwords account, which he says he spends $2.5 million a year on, was cut off in February. He was informed it was because he was advertising using Olympic tickets keywords.

“I’ve been advertising with Google Adwords for years and they tell me they are taking my account offline because of some London Olympic and Paralympic Act of 2006,” Bernstein said. “I explained to them that I was only advertising and selling tickets in the US and that we don’t need permission from any event to resell tickets legally.”

A Google spokesperson said it was company policy not to comment on specific advertisers or accounts, but did elaborate on its general rules.

“We have a set of policies that govern ads which we do and do not allow on Google,” a Google spokesperson said. “They are designed to protect users and advertisers from inappropriate and unlawful activity. If we discover an advertiser is breaking our policies, we take appropriate action and alert the advertiser to the policy violation. If an advertiser feels their account has been disabled in error, we have an appeals process to re-review and reinstate the account on a case-by-case basis.”

Bernstein said his case went to the review board and, to move things along, he agreed to delete his London ticket campaign. It didn’t work. He said Google denied his review and his business has been crippled. He says 80 percent of the roughly 4,500 tickets he sells each month come from his Google ad account.

“They’ve made me out to be some vigilante who is illegally trying to buy and sell Olympic tickets,” Bernstein said. “The funny thing is, all my campaigns, including my Olympic ticket campaigns, were done in conjunction with a group of people on the Google AdWords team, helping me to come up with the right phrasing to optimize clicks.”

Bernstein laughs at the notion that he could have been selling counterfeit or fraudulent tickets.

“The tickets I bought were purchased from CoSport, the official ticket seller of the games,” Bernstein said.

Is the London Organizing Committee and the local police authorities overstepping its bounds? Is Visa and the payment processors acting in good faith? Are ticket brokers taking a huge risk by bypassing those with official status confident that the law provides them protection?

What is guaranteed is that these issues will continue to shake out over the next month and tensions will only rise as it gets closer to the Opening Ceremony.

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