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By David Arditi, University of Texas at Arlington 

The U.S. Justice Department, along with 29 states and the District of Columbia, have filed an antitrust lawsuit against Live Nation Entertainment, the parent company of Ticketmaster.

The lawsuit alleges that Live Nation “engaged in a variety of tactics to eliminate competition and monopolize markets,” which, according to U.S. Attorney General Merrick Garland, has allowed the entertainment giant to “suffocate the competition” through its control of ticket prices, venues and concert promotion.

In response, Live Nation said that the antitrust suit “ignores everything that is actually responsible for higher ticket prices, from increasing production costs to artist popularity, to 24/7 online ticket scalping that reveals the public’s willingness to pay far more than primary tickets cost.”

The Conversation U.S. asked David Arditi, a University of Texas at Arlington sociologist and former professional drummer who has researched the livelihoods of musicians, to explain what’s behind the government’s decision to intervene in the ticket-selling business.

What is the government accusing the company of doing?

The government alleges that Live Nation Entertainment’s sprawling business model is choking off competition and that the company is punishing venues that rely on other ticketing services.

Live Nation, the country’s largest concert promoter, and Ticketmaster, the nation’s biggest ticket seller, had long been major players in the music industry. After the Justice Department approved a merger in 2010 between the two enterprises, the new company, Live Nation Entertainment, became far more powerful.

Live Nation Entertainment now controls many of the functions associated with putting on a concert: It owns venues, promotes concerts, books acts, produces shows, manages artists, sells tickets, and more.

Why is the Biden administration doing this?

After winning the 2020 presidential election, President Joe Biden promised to use the Justice Department’s antitrust division to break up monopolies, and that’s exactly what the government is trying to do with Live Nation Entertainment.

The government has been investigating Live Nation Entertainment for decades. But after a botched Ticketmaster presale for Taylor Swift’s Eras Tour in late 2022 – which made it nearly impossible for fans to buy tickets at face value – government scrutiny intensified.

After that fiasco, fans started contacting their lawmakers, and the U.S. Senate even held a hearing on the issue. In May 2024, the governor of Minnesota, Tim Walz, signed a bill into law that will require all ticket sellers in the state to disclose their fees up front.

How did Ticketmaster change the ticket-buying experience?

For much of the 20th century, buying tickets to a show or sporting event required traveling to the venue’s box office.

In 1976, Albert Leffler, who worked at Arizona State University’s performing arts center, and Peter Gadwa, an IT staffer on the same campus, founded Ticketmaster with businessman Gordon Gunn III. The enterprise began to sell tickets a year later. As the company developed, it incorporated new technology to facilitate ticket sales at a growing list of locations outside of the venue where a show would be performed.

Ticketmaster ultimately acquired Ticketron, its predecessor and rival.

As a teen in the 1990s, I remember waiting in line at a local grocery store in Williamsburg, Virginia, to buy tickets to a Dave Matthews Band show at the Virginia Beach Amphitheater. I had to be at the grocery store at 9 a.m. to purchase the tickets, but because it was a local Ticketmaster vendor, it saved me an hourlong trip to the venue.

A couple of years later, Ticketmaster introduced the technology required to give concertgoers the opportunity to purchase tickets online. In 2008, the company permitted paperless entry.

However, that convenience comes with hidden fees. Suddenly, the cost of your US$25 ticket can balloon to $40, with that extra $15 relatively opaque until checkout. These fees used to be a matter of convenience; there wasn’t a fee when you went to the venue to buy a ticket.

Now, the fees are unavoidable and multiplying: There can be a service fee, an order processing charge, a facility charge and a delivery fee.

How has Live Nation affected artists’ ability to make a living?

In my research and my personal experience, I’ve observed a sea change in the roles that live music and recorded music are playing.

From the 1970s to the 1990s, recording artists with medium-sized and large fan bases toured to promote their albums. During that time, these musicians assumed that they would take a loss on their tours; the payoff would come from their ability to sell more albums. Less prominent musicians, meanwhile, have always relied on playing at small venues to earn any income at all.

With the advent of file-sharing services, which later gave way to streaming, recording artists began to rely more on touring revenue to supplement their income, as money earned from album sales fell.

With even the most popular musicians increasingly relying on income from touring, they count more on making sure they earn what is owed to them. Fans feel like they have a close relationship with their favorite musicians and are willing to support them financially.

But when Live Nation Entertainment adds fees or pressures musicians to take a smaller cut of concert revenue, it becomes apparent to fans that they and their favorite musicians are getting a raw deal.

What will happen moving forward?

The government will seek a jury trial to determine if Live Nation Entertainment is a monopoly. If the company is found to be violating the Sherman Anti-Trust Act, Live Nation Entertainment would be forced to restructure, or even split into two or more separate companies.

Of course, lawsuits take time to resolve, even if the parties settle before entering a courtroom. And any potential ruling could have to go through an appeals process. I believe it’s likely that this dispute won’t be resolved for several years.

Aside from the lawsuit, the Biden administration is working on banning so-called “junk fees.” Eliminating exorbitant or hidden fees on concert tickets would address some of these problems.

Unfortunately, no matter what happens to Live Nation Entertainment, the music industry as a whole – whether it’s the record labels, streaming services, music publishers or music venues – is trending toward more consolidation and monopolistic behavior.

About the Author:

David Arditi, Associate Professor of Sociology, University of Texas at Arlington

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Derek Lemoine, University of Arizona 

To understand how important weather and climate risks are to the economy, watch investors. New research shows that two long-range seasonal weather forecasts in particular can move the stock market in interesting ways.

We often think about forecasts as telling us what the weather will bring in coming days, but the National Oceanic and Atmospheric Administration also predicts weather conditions several months out. These seasonal climate outlooks tell us whether the hurricane season is likely to be active, whether the winter is likely to be snowy or cold, and whether an El Niño or La Niña climate pattern is likely to emerge with the potential to influence weather across the U.S.

I study the impacts of weather on economic activity as an economist. In a new paper, an atmospheric scientist at NOAA and I analyzed the influence of long-range forecasts by looking at the changing prices of stock options over 10 years and thousands of companies.

We found that investors are paying millions of dollars to hedge the risks of what NOAA’s seasonal outlooks might say. Their bets suggest that seasonal climate matters for the success of companies throughout the economy, even in sectors that might not seem especially exposed to weather.

Betting on seasonal forecasts in options markets

When you buy a stock, you buy a share of ownership in a company. The value of that stock is tied to the company’s expected future profits.

When you buy a stock option, you pay for the right to buy a particular stock at a particular price on some particular future date. Importantly, the option is just that: an option to buy, not a requirement to buy. You’ll pay a premium for this flexibility.

If the stock’s value falls, then you can just let the option expire and all you’ve lost is the premium. But if the stock price rises enough, you can exercise the option and buy the stock at the lower price built into the option. Another type of option, called a “put,” lets you sell stock you already own in a similar way.

The prices of these options tell us how uncertain investors are about the future economy.

Imagine that you know NOAA will be releasing its winter seasonal outlook in 10 days. You are considering whether to invest in a ski resort whose profits are directly tied to having a snowy, skiable winter. You expect the forecast to affect the price of the ski resort’s stock, but you don’t know which way it will go.

The more uncertain investors are about a stock’s future price, the greater their expected gains from holding the option: They get all the potential gain from big increases in the stock’s price and none of the downside risk of falling stock prices. And the greater their expected gains, the more they are willing to pay for the option and the higher the option’s price in the market. So, knowing the winter seasonal outlook is coming can make one willing to pay more for an option on the ski resort’s stock and raise the option’s price in the market.

While there are now many forecasts and available data to provide clues about the coming seasons, two forecasts tend to move the market.

Winter, El Niño outlooks affect many companies

We found that, from 2010 through 2019, the prices of options on companies throughout U.S. markets tended to fall once NOAA released its Winter Outlook, in October, and the most important of its El Niño outlooks, released in June.

In other words, before the reports came out, traders were willing to pay a higher price for options that hedge, or protect against, whatever news was going to be released. So, traders must believe that seasonal climate matters for companies’ profits and that forecasters might say something important about the coming season’s climate.

We did not detect similar effects on option prices when either NOAA or Colorado State University released their Hurricane Outlooks in May and April, or when the Farmers’ Almanac released its Winter Outlook in August. Traders seem to distinguish among outlooks based on their perceived quality and on the importance of what these reports are able to predict, rather than on media attention.

The seasonal climate also matters for more than just outdoor industries. We found the June El Niño Outlook affects options on construction, transportation and utilities – all industries that can be directly affected by weather. It also affects options on other sectors, such as manufacturing and education, possibly reflecting spillovers from elsewhere in the economy. NOAA’s Winter Outlook has similarly broad effects.

The only sector that the June El Niño Outlook does not clearly affect is agriculture, which may just reflect that El Niño’s and La Niña’s strongest effects are on winter weather, when most agriculture is less vulnerable.

Traders pay money to wait for El Niño Outlook

Traders’ interest in the June El Niño Outlook is especially interesting because NOAA releases an El Niño outlook every month. Most months, the outlook changes little from the previous month’s forecast. But in June, once spring is past, the ability to accurately forecast future El Niño events suddenly jumps.

We found that traders value that jump in quality.

The June Outlook corresponds with a US$12 million premium each year on average, showing traders are willing to put real money on the line just to know what NOAA will say in its June forecast before they commit to a stock. That’s about four times higher than we found with the average May outlook.

The traders’ hedging shows that having high-quality seasonal climate forecasts matters to investors, just as it does to communities, companies and emergency responders who rely on these analyses to prepare for severe weather seasons.

It also supports the argument that there is value in investing in the technology to improve these forecasts. And it shows the importance of keeping these outlooks confidential until their official release, similar to how the U.S. government closely guards important economic statistics prior to making them public.

About the Author:

Derek Lemoine, Professor of Economics, University of Arizona

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Alexander Kurov, West Virginia University 

The Dow Jones Industrial Average topped 40,000 for the first time on May 16, 2024. It spent the next few hours hovering around that mark, occasionally dipping under. But the breakthrough, even if fleeting, nonetheless marks another symbolic milestone in a monthslong bull market, coming three months after the S&P 500 index surpassed 5,000 for the first time.

The Conversation asked Alexander Kurov, a financial markets scholar, to explain what stock indexes are and to say whether these kinds of milestones are a big deal or not.

What are stock indexes?

Stock indexes measure the performance of a group of stocks. When prices rise or fall overall for the shares of those companies, so do stock indexes. The number of stocks in those baskets varies, as does the system for how this mix of shares gets updated.

The Dow Jones Industrial Average, also known as the Dow, includes shares in the 30 U.S. companies with the largest market capitalization – meaning the total value of all the stock belonging to shareholders. That list currently spans companies from Apple to Walt Disney Co.

The S&P 500 tracks shares in 500 of the largest U.S. publicly traded companies.

The Nasdaq composite tracks performance of more than 2,500 stocks listed on the Nasdaq stock exchange.

The DJIA, launched on May 26, 1896, is the oldest of these three popular indexes, and it was one of the first established.

Two enterprising journalists, Charles H. Dow and Edward Jones, had created a different index tied to the railroad industry a dozen years earlier. Most of the 12 stocks the DJIA originally included wouldn’t ring many bells today, such as Chicago Gas and National Lead. But one company that only got booted in 2018 had stayed on the list for 120 years: General Electric.

The S&P 500 index was introduced in 1957 because many investors wanted an option that was more representative of the overall U.S. stock market. The Nasdaq composite was launched in 1971.

You can buy shares in an index fund that mirrors a particular index. This approach can diversify your investments and make them less prone to big losses.

Index funds, which have existed only since Vanguard Group founder John Bogle launched the first one in 1976, now hold trillions of dollars.

Why are there so many?

There are hundreds of stock indexes in the world, but only about 50 major ones.

Most of them, including the Nasdaq composite and the S&P 500, are value-weighted. That means stocks with larger market values account for a larger share of the index’s performance.

In addition to these broad-based indexes, there are many less prominent ones. Many of those emphasize a niche by tracking stocks of companies in specific industries like energy or finance.

Do these milestones matter?

Stock prices move constantly in response to corporate, economic and political news, as well as changes in investor psychology. Because company profits will typically grow gradually over time, the market usually fluctuates in the short term while increasing in value over the long term.

The DJIA first reached 1,000 in November 1972, and it crossed the 10,000 mark on March 29, 1999. On Jan. 22, 2024, it surpassed 38,000 for the first time. Breaking through 40,000 on May 16 prompted a flurry of congratulatory news reports.

Because there’s a lot of randomness in financial markets, the significance of round-number milestones is mostly psychological. There is no evidence they portend any further gains.

For example, the Nasdaq composite first hit 5,000 on March 10, 2000, at the end of the dot-com bubble.

The index then plunged by almost 80% by October 2002. It took 15 years – until March 3, 2015 – for it to return to 5,000.

As 2024 has progressed, the Nasdaq composite has regularly closed at record highs.

Index milestones matter to the extent they pique investors’ attention and boost market sentiment.

Investors afflicted with a fear of missing out may then invest more in stocks, pushing stock prices to new highs. Chasing after stock trends may destabilize markets by moving prices away from their underlying values.

When a stock index passes a new milestone, investors become more aware of their growing portfolios. Feeling richer can lead them to spend more.

This is called the wealth effect. Many economists believe that the consumption boost that arises in response to a buoyant stock market can make the economy stronger.

Is there a best stock index to follow?

Not really. They all measure somewhat different things and have their own quirks.

For example, the S&P 500 tracks many different industries. However, because it is value-weighted, it’s heavily influenced by only seven stocks with very large market values.

Known as the “Magnificent Seven,” shares in Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia and Tesla now account for over one-fourth of the S&P 500’s value. Nearly all are in the tech sector, and they played a big role in pushing the S&P across the 5,000 mark.

This makes the index more concentrated on a single sector than it appears.

But if you check out several stock indexes rather than just one, you’ll get a good sense of how the market is doing. If they’re all rising quickly or breaking records, that’s a clear sign that the market as a whole is gaining.

Sometimes the smartest thing is to not pay too much attention to any of them.

For example, after hitting record highs on Feb. 19, 2020, the S&P 500 plunged by 34% in just 23 trading days because of concerns about what COVID-19 would do to the economy. But the market rebounded, with stock indexes hitting new milestones and notching new highs by the end of that year.

Panicking in response to short-term market swings would have made investors more likely to sell off their investments in too big a hurry – a move they might have later regretted. This is why I believe advice from the immensely successful investor and fan of stock index funds Warren Buffett is worth heeding.

Buffett, whose stock-selecting prowess has made him one of the world’s 10 richest people, likes to say, “Don’t watch the market closely.”

If you’re reading this because stock prices are falling and you’re wondering if you should be worried about that, consider something else Buffett has said: “The light can at any time go from green to red without pausing at yellow.”

And the opposite is true as well.

This article is an updated version of a story that was first published on Feb. 15, 2024.

About the Author:

Alexander Kurov, Professor of Finance and Fred T. Tattersall Excellence in Finance Research Chair, West Virginia University

This article is republished from The Conversation under a Creative Commons license. Read the original article.