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Where Does All That Money Go?
An Overview of Concert Ticket Pricing

By Rodney S. Strickland, CPA, O'Neil Hagaman, PLLC, 6/1/2005

Temperatures are on the rise, flowers are in full bloom and the starlings have returned. It can only mean one thing: the summer concert touring season is just around the corner. As artists prepare and plan for this busy time of year, one of the issues to be addressed is ticket pricing—how to strike the right balance between filling seats and filling the coffers, so as to maximize touring profits.

First, an introductory comment or two: The consumer’s total outlay for a concert is made up of a base ticket price plus a variety of “add on” costs such as parking and facility fees charged by the concert venue, convenience charges paid to the ticket-selling agency, and taxes, which together can easily add $10 to the total ticket cost. But because these add-ons vary from venue to venue, and because the artist rarely participates in these proceeds, we will limit our discussion to the base price and how it is distributed.

The revenue generated by the base ticket price is shared between the promoter and the artist based upon a guarantee arrangement, a percentage agreement or a hybrid of the two.

Under a guarantee arrangement, the artist assumes no risk for the show’s profitability, and instead receives a flat guaranteed payment. Under the percentage agreement, the show’s costs are deducted from its ticket sales proceeds and any resulting profit is split between the artist and promoter based on percentages agreed upon between the parties. A hybrid arrangement combines these concepts by compensating the artist based on a guarantee plus a percent of gross proceeds in excess of a fixed amount.

With that introduction, let’s take a look at the numbers using the following assumptions:

• The base ticket price is $30.00.
• 5,000 tickets are sold for the show
• Total compensation to the artist is a $40,000 guarantee

Of the $150,000 ($30 x 5,000 tickets) available to be shared between the promoter and artist, $40,000 (or $8 per ticket) is paid to the artist “off the top” under the guarantee arrangement, and the balance, $110,000 ($22 / ticket), is retained by the promoter.

From these gross revenues, both parties have a number of costs to be paid. The typical expenses for each, along with their profits, are presented in Table I and Table II.

Although the promoter’s share of the pie might seem unreasonably larger compared to that of the artist, it should be kept in mind that in addition to the costs listed above which relate directly to the concert, there are other ongoing business expenses—office rent, salaries, insurance, taxes, etc.—which make actual net profit on a per-show basis considerably less than the $7.15 shown.

As touring costs continue to rise (one example—take a look at fuel prices this year versus last) and the consumer’s demand for greater entertainment value increases (“bigger and better” doesn’t come cheap) it’s inevitable that higher ticket prices will follow. This is certain to make the job of filling seats this summer, while still generating profits for artist and promoter, ever more challenging.