A buying group deal gone wrong

One of the many ways to increase credit card spend and get most of it back is through buying groups. We’ve written a number of posts about them — Tim has a post with information about many popular clubs (See: Using buying groups to increase credit card spend). A long time ago, I published a post wondering aloud “Is a buyers club right for you?“, where I discussed some of the potential risks. Recently, a popular buying group deal went south pretty quickly. In the end, I think things have turned out better than I feared they might, but nonetheless the situation has been a good reminder that buyers club deals come with inherent risk — and this deal taught me some things to avoid.

A deal gone wrong

PFS Buyers Club has been around for years. I’ve mostly been aware of them offering deals to purchase coins from the U.S. Mint for a small profit. I’ve had a lot of positive experience with them paying out as expected and on schedule for years. While plenty of other buying groups have cropped up, I’ve stuck with PFS even when others have offered more commission simply because I’ve come to trust that they will pay out as expected.

They recently ran a deal to buy and sell to them concert tickets that has not gone well for either side (and many readers have weighed in with their own experiences in comments on my old buyers club post). I’ll delve into more detail, but the short of the story is this:

1. PFS offered the chance to buy a specific artist’s concert tickets when they went on sale to the general public for a commission of $25 per ticket, expected to be paid out 7 days after the tickets went on sale.
2. This deal was notably less organized than previous PFS deals, with no specific opt-in, no maximum quantity, less specific instructions, etc. There were also a number of miscommunications over which tickets to buy or not buy.
3. Group members ended up getting a LOT of tickets and due to numerous factors the market for the tickets tanked quickly.
4. PFS didn’t pay out on the scheduled 1-week timeline
5. Ultimately, some people were offered the chance to be paid their ticket cost, but no commissions. Others had the opportunity to wait until the tickets sold in order to earn promised commissions. Others yet are facing loses for different reasons. The outcomes were certainly unexpected.

I was personally in on this deal for thousands of dollars in tickets (surely more than some and far less than some others).

I have no doubt that this turned out to be an awful deal for PFS, and I am pretty sympathetic to the difficulties of reselling, but this experience had several points that stood out:

1. Initial disorganization should have been a red flag
2. The risks of reselling run a few levels deep.
3. Getting paid matters.

More thoughts on each of those to follow.

Initial disorganization should have been a red flag

For years, PFS Buyers club mostly focused on coin deals from the U.S. Mint. They really seem to have mastered their approach on those deals, which have usually featured capped opt-ins (where you had to opt in for the specific quantity you would buy and reminded that you should only opt in if you were serious about buying so that you wouldn’t prevent others from opting in since opt-ins were limited). There were often detailed instructions about how to prepare for the sale and increase your odds of purchasing successfully.

This deal was notably less organized and followed this approximate outline / timeline:

1. Guidance given in the initial announcement (the day before tickets went on sale) was to buy any ticket with a face value of $250 or less before fees and that the ticket site limit would be 8 tickets per show. It was noted that it might be possible to buy tickets to multiple shows (it was).
2. The morning tickets went on sale, an email was sent out noting that members could buy tickets up to a face value of $300 per ticket before fees. This $300 cap was also mentioned on the PFS website (I thought they were just anticipating higher demand).
3. The first rounds of tickets went on sale at 9am and 10am Eastern time and many people were able to score tickets.
4. Not long before noon Eastern, PFS sent out an email “reminding” members not to buy tickets with a face value of more than $250 per ticket and “reminding” members not to buy Platinum or VIP tickets or tickets marked as “reseller” tickets (i.e. somebody else bought and re-listed the tickets). It was implied that this also applied to tickets costing less than $250, but I put “reminding” in quotes because this was the first time I had heard anything about not buying Platinum tickets or resale tickets — previous messages had noted any seats under $250 (or $300 according to the morning email).
5. After purchasing, members were instructed to forward email confirmations to PFS and stand by for instructions about how to transfer the tickets to PFS.

All of the above probably should have hit me as a cause for concern as the deal unfolded.

First, the total absence of a need to opt in for a specific quantity should have been a huge red flag.

I can see now in hindsight that this created an effectively infinite liability for PFS (not really infinite, but the point is that they would have no idea in advance how much capital they would need to cover the deal). That’s not how buyers clubs deals ordinarily work, and I don’t really need to wonder why: any reseller can only buy so much product. In this case, PFS was essentially committing to buy some undefined number of tickets at $25 over the purchase price per ticket, committing them to significant cash outlay. Ticket resellers know that unless the artist is Taylor Swift, your best chance to make the most profit is close to the show. With the model PFS ran, they were committing to pay out a lot of money up front and would likely need to wait until close to showtime to recoup and make their profit. Unfortunately, a lot of things can happen in the interim….like the artist adding a dozen new shows and/or demand being softer than expected (both of which happened here).

In fairness, the possibility of this sort of thing working out can make this type of deal attractive for a buyer. I saw the Savannah Bananas play their last baseball game of the season last month. Our tickets had cost $25 each, but the week before the game they were selling for almost $250 all-in on ticket resale sites. I read a couple of old articles about the team and one of the stories was about how someone had approached the team owner about placing a million dollar ticket order, paying double face value for $500K worth of tickets, the entire idea being that it would guarantee the team double the profit while enabling the reseller to control a significant chunk of the resale market. The team owner didn’t agree in that case, but you can see why someone might make that offer. So I could see how this sort of thing could work out.

But in this case, it fell very flat.

Demand for the tickets when the shows went on sale hadn’t been crazy to begin with and continued to soften as more shows were added.

Unsurprisingly, this lead to a problem: PFS ended up with far more members buying far more tickets than they had probably anticipated and the market to resell those tickets immediately tanked. I’m sure that this meant a commitment in the millions of dollars for them and what will probably turn into a significant loss.

But a lot of that harkens back to the initial disorganization and the red flag it should have raised in my mind: if they had no limit as to how many tickets people would buy, how would they know whether they could afford to pay everyone out right away? Surely they don’t have an infinite amount of money on hand, so I should have been more concerned about the lack of a buying limit. I didn’t know the demand for the artist in question, but surely it wasn’t Taylor Swift-level demand (because who is right now?).

And at least in my case, I fault myself for being too greedy to see that from the get-go. That probably means that ticket resale isn’t for me, but by the time I realized that I was already thousands of dollars into what felt like a mistake.

Things evolved from kind of disorganized to pretty far from expectations right from the first day and in the days that followed:

1. Later the same evening the tickets went on sale, members received an email with a link to fill out a Google form with the email address and password for the Ticketmaster account used to purchase tickets. The need for PFS to get login credentials to your Ticketmaster account was not mentioned in any communications prior to this. I was not at all happy about this and I never would have participated in the deal if I had any indication in advance that they would need this.
2. After forwarding email confirmations and granting them full login credentials for Ticketmaster accounts, PFS sent another email asking members to indicate if they had any “obstructed view” type tickets, saying that this could only be seen in the Ticketmaster app….but without direction as to where to find that. I found this cumbersome as I don’t typically buy and resell tickets and hadn’t been told in advance to avoid any specific areas of the venues.
3. After supplying log in information, amounts were reconciled in terms of costs and members were informed that the first priority was going to be paying back everyone’s costs before commissions. It was noted that the process would take a bit longer than expected since it was taking time to verify, record, and inventory all of the tickets.
4. Two weeks after the on-sale (a week after everyone was supposed to have been paid cost + commission), PFS sent out an email to many members who purchased essentially indicating that the deal hadn’t turned out well, apologizing for the slow communication, and offering members the choice to either be paid for their cost “right away” (within another week thereafter) and forgo commission or wait to be paid until the tickets sold (likely during the week before the show) if they wanted to earn the promised commission.
5. Other members received slightly different offers, with some set to incur a loss or to choose between an up-front payment of their ticket cost or the chance to wait and only earn a commission on tickets that sold for a profit.

There were some additional problem cases beyond the above: some people purchased tickets with a higher face value than expected (since there was conflicting information about a $250 or $300 face value cap), some people had purchased Platinum/VIP/resale tickets before PFS specified that they wouldn’t buy those, and some had unspecified “irregularities”. I fell into that last crowd (I have no idea why). As a member of that crowd, my options were either to forgo commission and get paid my costs in full right away (under the explanation of them considering whatever I had done wrong in their eyes as an honest mistake) or to wait in hopes of earning the promised commission with the caveat that I would only earn the $25 commission per ticket if they sold my tickets for a profit (if they were sold for a loss, I would only be paid the original cost, not the promised commission). Frankly, I didn’t need a disincentive to wait and hope for a commission (I preferred being paid in a timely fashion over hoping to earn a few hundred bucks), but as far as I know I did everything exactly as they asked. They did offer to research why an individual was marked as having irregularities, but said that it would take time and to only request it if you really needed to know.

In my case, it wouldn’t have made a difference to know what had caused a problem since I wouldn’t have chosen to float several thousand dollars worth of tickets for a profit of $25 a ticket. Neither would knowing what the problem was made me likely to get in on another ticket deal with PFS. I opted to get paid my cost and be done with the deal. PFS sent my eCheck a few days later and I deposited it without issue.

Obviously all of the above has combined to leave some people pretty unhappy with the experience.

I should add on here that my interactions with PFS, both prior to and throughout this deal were positive. Email responses have always been short, but to the point and cordial enough for me. However, I’ve seen some interactions others had over this deal that wouldn’t have made me feel like a respected customer. I was lucky not to have purchased any of the mentioned “Platinum” or “VIP” or resale tickets, but I think many who did buy those are facing loses and a less helpful response to discussion about it. That’s disappointing because I very nearly bought some of those tickets since the deal instructions clearly said any ticket up to $250 and PFS has always been thorough with instructions. I wouldn’t have assumed more parameters than those provided.

I should add that I am relatively sympathetic to the difficulties of resale business as someone who did a fair amount of resale for years. I can imagine that PFS was facing a big loss on this one and that flat-out stinks as the buying club model only works if both sides are benefiting. That’s not to offer any excuses, just to say that I’m never rooting for partners to lose money as that is usually bad for both sides. But I think a lot of the initial problems can be traced back to poorer organization.

The risks of reselling are many

The other salient lesson out of this one is that the risks of reselling run deeper than a surface scan of the landscape.

There are tons of inherent risks with reselling, but specifically with regard to buying groups you obviously have the risk of not getting paid for your stuff. I think most people probably think of the root cause of that risk being someone’s dishonesty — we imagine the risk to be that someone may scam us and run off to a tropical beach with the stuff or the money from the stuff or both and that will cause us not to get paid.

But this deal reminded me that the risk of not getting paid for your stuff isn’t limited to being the victim of dishonesty. In this case, PFS clearly wasn’t pocketing some huge profit and looking to disappear, rather their ability to sell the product evaporated.

This deal reminded me that not getting paid might not be because someone doesn’t want to pay you but because they can’t pay you. At the end of the day, PFS was counting on strong demand making it possible for them to turn over the money quickly. I don’t know their inner workings, but my suspicion is that they didn’t expect to have to sit on the tickets forever, they probably thought they could turn at least a lot of them over quickly enough and for enough profit to pay out the commissions and pocket something extra for themselves.

But when their market disappeared overnight, they were stuck: they had to pay out members and they had no way of immediately recouping the costs. I can’t imagine that was a pleasant spot. At a base level, it probably required a very significant amount of cash on hand. I wasn’t surprised about the initial delay because I assumed it might take longer than expected to secure that capital, especially after the ticket market tanked.

While I guess that PFS may have bought similar dollar quantities before in Mint coins, it is a lot different buying a coin made of a precious metal that will likely always hold some value versus concert tickets that could literally drop to nearly worthless if the performer doesn’t live up to their hype in early reviews.

And then there was the risk of the artist releasing more concerts and the risk that maybe the artist does something dumb that causes backlash against their shows, etc. There are a lot of unknowns that can influence ticket sales that have nothing to do with the initial buyer or buying group and thinking about those risks now makes me realize that ticket sales likely won’t be my thing moving forward.

Getting paid matters

Obviously as time marched on, many people became concerned about being paid. Most people participating in a buying group are doing so to earn credit card rewards and as one week turned into two, some were nervous about their ability to pay their credit card bills absent payment from PFS.

Personally, I wasn’t worried about not making my payments — I learned long ago (and have often preached) not to get in over one’s head in resale.  I wasn’t excited about the prospect of floating my purchases indefinitely, but neither would it have been impossible for me to do. On the other hand, I had spent enough that I’d have been very unhappy if it turned into a total loss, and as the second week passed, I began to worry about that possibility.

I was therefore relieved when someone shared a copy of the email from PFS offering payment in full of costs in exchange for forgoing commissions. Obviously that solution ultimately wasn’t fair in the sense that PFS promised a commission and those of us who opted to do the deal did so under the fair expectation of that commission. I know that I did what I was instructed to do and I didn’t end up with the deal I was initially promised.

At the same time, if faced with a choice between earning a commission and losing thousands of dollars, I had a strong preference for getting my money back over holding PFS’s feet to the fire to sustain maximum loss on this one. In other words, sure, they promised a commission, but I was satisfied to get my ticket cost back and the rewards earned from that spend and give up on the profits (I know that you can’t bleed a stone). At the end of the day, if PFS paid me what I had spent, that would matter a great deal more to me than the commissions. I did indeed get paid for my full costs and while I certainly wouldn’t be eagerly waiting for the next PFS deal, getting my money back would have likely been enough for me to be satisfied enough to consider a future deal of some sort.

However, not everyone was so lucky. I know people who lost money on this deal, in some cases due to what I would perceive as no fault of their own given the deal instructions (or lack thereof). Sure, I got paid, but not everybody did (or at least not everything they were owed). That really stinks, and I’m disappointed to say that even though I had initially been satisfied enough to get my money back, the way this deal has turned out overall makes me reluctant to get into another PFS deal in the future.

That’s a shame. Clearly, this deal was a major misstep. We all make mistakes and I believe that most will learn from mistakes and improve, but this one left a pretty sour taste for many. Getting paid for one’s costs is paramount and the bottom line is that some people weren’t made whole.

Bottom line

We’ve written about buying groups and I have specifically noted in the past my positive dealings with PFS Buyers Club. Unfortunately, a recent concert ticket deal they offered did not go smoothly. In the end, I got my money back and ended up whole enough (I didn’t earn the promised commission, but given the massive loss PFS probably faced I certainly won’t complain about that small loss). Unfortunately, some people are facing loses. Ultimately, I think I learned that the level of organization really matters when dealing with a buying group. PFS has been excellent about that in the past, but they weren’t on this one and the outcome shows why that matters.

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