Golden Ticket: How NFTs Can Help Artists Profit From Ticket Resales

Nicolas Torres – N.F.T. Three letters that, until this Spring, would have been met with confused silence in all but the most tech-savvy circles. Over the last four months, a surge in investor interest has brought non-fungible tokens (NFTs) into the limelight. NFTs entitle the holder of a token to ownership of a digital asset like an image file. While the headline grabbing NFT sales have been in the digital art and digital collectible card spaces, a premium ticket NFT offered earlier this year by rock band Kings of Leon shows that live-event ticketing is a promising and viable use-case for NFTs. More importantly, because NFTs rely on smart contracts hosted on the blockchain these tokens offer the best opportunity yet for musicians to profit from ticket resales.

Unlike cryptocurrencies, NFTs are tied to a unique digital asset. While one Bitcoin is worth exactly as much as another Bitcoin, NFTs are attached to a file or digital object that is either one-of-a-kind or, in the case of concert tickets, in limited supply. The token is hosted on the blockchain which secures the token from would-be thieves, authenticates the token, and creates a record of ownership. Because the token is hosted on blockchain, NFTs are held in a smart contract.

Although the technology is cutting-edge, smart contracts only differ in form from their non-blockchain counterparts. Where a conventional contract is written in prose,

Visual artists have led the way on resale royalties since the 1970s. The scarcity and uniqueness of an art object along with the large sums involved in each transaction both make it feasible to monitor a resale and enforce a resale royalty provision economic for the artist. Tickets, on the other hand, are often fungible (for example, a general admission only show) or only nominally distinct (Row 3 vs. Row 4 tickets) and the high number of resale transactions and the relatively small amounts involved in each transaction have made the implementation of a ticket resale royalty both impossible and too expensive.

Earlier this year, Kings of Leon became the first band to offer an NFT ticket package. The package, which the band dubbed Golden Tickets, entitle the token holder to four front-row seats at any stop of a King’s tour in perpetuity. Four of the six tokens were sold with an average sale price of about $93,675.

While the most-common NFT contract does not include resale royalties by default, coders and researchers have already proposed resale royalty extensions that can be added to a token. OpenSea, the marketplace that hosted the Kings of Leon sale, and Zora allow developers to attach a custom resale royalty provision to NFTs sold through their marketplaces.

The advantage of the smart contract is that, if the token is resold via a blockchain enabled marketplace, the royalty payment will be automatically paid without requiring any further action from the artist, seller, or the buyer. Moreover, because the token can only be transferred on the blockchain, verifiable ledger entries will record the resale, ensuring that the sale data can be audited by the artist at any time.

While smart contracts offer the best way yet for artists to collect resale royalties, the automated resale royalty distributions can be thwarted by transactions that take place off the blockchain. For example, a seller can transfer the token for little to no consideration on the blockchain and instead collect her payment off the chain in cash or through a peer-to-peer transfer. In that case, because the token was transferred for no consideration, there will be no royalty payment to collect. Moreover, some NFT marketplaces can only payout the resale royalty if the subsequent sale is made through the same marketplace. Because the standard NFT token does not include a royalty provision by default, marketplaces like OpenSea and Zora have adopted their own royalty provision standards to attract token creators. However, a proposal for a new token standard published last year shows that researchers and engineers are well on their way to addressing these shortfalls by integrating a universal resale royalty provision into the token itself.  Developing a universal, cross-platform royalty will undoubtedly encourage more artists to offer NFT tickets.

From an artist’s perspective, NFT tickets are a win-win proposition. If the ticket’s market price exceeds its sale price, the ticket holder can choose to resell the token and the artist will share in the profit. If the initial buyer doesn’t resell the ticket, the artist still collects her usual portion of the face value. While the Kings of Leon offered life-time premium ticket packages, NFTs can just as easily be used to sell single-use tickets and VIP packages. While a cross-platform royalty provision still needs to be adopted to fully unlock the value of NFTs for artists, NFTs offer the best way yet for artists to capture a share of a ticket’s true fair market value.

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