Frequent flyers famously bought $1 coins from the U.S. Mint at face value (with free shipping) using rewards credit cards, deposited the coins in the bank, and paid off their cards. They were left with the rewards points.
I wrote about this back in 2008, it lasted in various forms for a couple of years, and was even covered in the Wall Street Journal where it inspired the idea of the U.S. government minting a trillion dollar coin and depositing it at the Federal Reserve to solve the debt ceiling crisis.
There have been several things that worked similar. Way back in 2002 I wrote about buying government savings bonds with a credit card and holding them to maturity. (This didn’t let you pay off the card during the same billing cycle, however.)
It turns out one of the reasons you can’t get your hands on concert tickets to the best shows when Ticketmaster releases them is because of… their value in earning frequent flyer miles. But many rewards points collectors are now getting burned.
- “Buyers clubs” look for limited-availability items, and ask people to buy the items. They reimburse the purchaser in full usually plus a commission.
- This can be for anything expected to be scarce, where you’re limited to buying a small quantity. Perhaps it’s a PS5 game console or limited-edition coin. Or it might be something where bots are stalking a site to make purchases quickly, and you might want thousands of human bots.
- Buyers clubs might sign people up to buy concert tickets. There’s even a contract promising to reimburse right away. You go buy a concert ticket, get paid back, and even earn a commission. You might be tempted to go see Taylor Swift yourself, if you bought the tickets, or re-sell them yourself since the price is going to pop. But you’ve signed a contract!
The problem here is that there is risk and several buyers clubs have fallen apart. They work well until they don’t, and a deal goes south. PFS Buyer Club is getting a lot of attention right now. It’s been public and let people sign up, while most have been private. And they… made commitments they aren’t able to keep.
- Travis Scott is popular and has a big tour. His tickets, which sold at a $61.50 starting price, sell out in major markets with smaller venues.
- But in small markets with huge venues, he doesn’t fill stadiums. And shortly after tickets were released and sold, he doubled the size of his tour. Some of those $61.50 tickets are selling for $15.
People went on a buying frenzy as soon as tickets were released, floating tens of thousands of dollars expecting the buying club to reimburse them and pay them a commission (and let them net the miles). However the buying club isn’t able to sell the tickets! They’re going to take a huge loss. They’re promising to still come through… eventually. And they complain that they can’t just borrow the money at current interest rates and carry the cost.
BoardingArea blog Out and Out saw what this buying club was doing with Travis Scott tickets and decided to go out on his own. Why take just a commission from them, when he could reap the profits from reselling Travis Scott tickets himself? He’s on the hook apparently for $17,000 in tickets that are now underwater in value.
It’s estimated that 40% – 50% of Travis Scott tickets were purchased by resellers, whose investments are underwater by 60% – 80%. Jason Koebler explains why Ticketmaster and artists allow this reselling, which blocks fans from purchasing the tickets they want: it guarantees sell outs, some shows are going to do that anyway but many won’t, so it helps ensure money in everyone’s pocket.
Not every tour and not every sports team is a winner, and brokers buy thousands of tickets that actual people don’t want every single day. Ticketmaster and the artists make their money from fees and the face price of these tickets that otherwise wouldn’t have sold or would have sold at face value prices that were much lower.
…Ticketmaster makes its money. Travis Scott makes his money. Fans can now go see the show if they want to for $10. The only people who lose here are ticket brokers, who are eating, collectively, millions of dollars of money on these shows.
Of course, Scott might end up playing to half-empty arenas in half of the country because brokers are ultimately going to end up eating a lot of these tickets and they’ll go completely unused. But situations like this are why we should not trust Ticketmaster when it says it wants to crack down on resellers.
Meanwhile brokers include buyers clubs, which are made up in part by people looking to earn frequent flyer miles at no net cash cost. The problem is that in every deal you have to evaluate your risk. Many of these have worked out very well! But some of them haven’t, and when they don’t they can leave participants floating big money and staring down big losses.