It can be boring to read stories about the problems created by Wall Street professionals who don’t want to own anything, but merely make money by moving money around. Once in a while, these traders — rightly called, derisively, speculators — get a little more attention, such as the gasoline price surge of 2008. Back then, folks toying with the market made us all pay nearly $4 a gallon, and tried to blame it on traditional supply and demand. We all know better now. The speculation game was also part of the problem that caused the housing bubble, and the tech bubble before it, and…well, many of our troubles.
Millionaires, and even billionaires, having fun with the market regularly hurt regular people just trying to get to work, but the pain is often invisible. When people buy and sell things they never want to own, problems are inevitable.
This week brings us a fantastic, tangible example of how speculation can go wrong and ruin the party for everyone. Try to buy a Super Bowl ticket right now on StubHub or other ticket sites, and you’re going to see prices well into the 5 digits. It’s nearly impossible to get into the game now for under $10,000. In addition to being an insane waste of money — really, the view on your TV will be better — it’s even worse than that. Some folks “selling” the $10,000 tickets may not even have them to sell.
Welcome to the world of short sales.
Professional traders have a way to make money even if a stock price sinks. How? Instead of buying a share today to sell it tomorrow, they reverse the process. They “sell” it today and buy it tomorrow. On Wall Street, there’s a complicated mechanism to (sort of) regulate this. With Super Bowl tickets, not so much. Here’s how it works in real life : brokers take buyers’s money on Jan. 18 for tickets they haven’t yet purchased, with plans to actually buy them on Jan. 28. It’s all grand if prices go down. But if prices go up? Well, as traders like to say, the losses on a short sale can be infinite.
For years, Super Bowl tickets have followed a familiar pattern. Euphoric fans who watch their team qualify for the big game by winning the NFC or AFC championship two weeks before the Super Bowl happily overspend for a trip to the game. As time passes, the euphoria dies down, and prices drop. Folks playing the Super Bowl short game have made good money for years “selling” tickets 14 days before the game and buying them 5 or 6 days before the game.
Not this year.
Word on the easy money got out, and more short sellers piled in. That leads to what’s known as a “short squeeze.” With so many “sellers” desperate to buy tickets and fill their orders, prices never went down this year. Instead, the squeeze is on. Prices have climbed each day this week. StubHub.com has actually publicly complained.
“A consolidation of supply this year has led to a handful of sellers being able to manipulate the market and make it nearly impossible for last-minute fans to go to the game,” StubHub spokesman Glenn Lehrman said to ESPN.
Some short sellers will be ruined by this. Some may not be able to fill their orders because they’d lose too much money, or….the market for tickets to buy will completely vanish. That means some fans who think they have a ticket might not get one. (It wouldn’t be the first time). For everyone else, it means sky-high prices that don’t make any sense. In other words, everyone loses. Except some trader who managed to time the game exactly right.
Just like on Wall Street.
As I am fond of saying, a free-for-all market is not a free market. This is why games needs rules. I wonder how many Wall Street speculators are crying foul right now because they can’t get into the Super Bowl?