The venue's business model

Overview

The most straightforward business model for a venue which doesn't produce its own content is to make their space available to third-party event organisers. This will usually involve a venue hire agreement being reached including a hirage fee for the date and time of the event, with provision for access to the venue to set up beforehand and clear up afterward.

In addition to basic venue hire fees many venues will provide and charge for other services needed by events. These could include catering, staging, lighting and sound equipment and management, security personnel and assets such as barriers, sporting equipment, and anything else regularly needed by organisers using the venue for their events. Some of these services may be provided by assets owned by the venue (e.g. staging or sound and lighting) and others are provided by the venue engaging third-party service providers (e.g. catering, security, or venue ticketing).

Exclusivity

Frequently these third-party service providers are engaged by the venue on an exclusive basis; so a hirer who needs catering services for example is required to use the catering company chosen by the venue. This allows the venue to build a long-term relationship with the service provider, ensures the company providing the services knows the venue well and understands their requirements, and allows the venue to maintain their reputation with both event organisers and attendees by ensuring their standards are met for services delivered at the venue.

Traditionally one of the most important third-party relationships a venue has is with a ticketing company. This is because in addition to the reasons above, the venue's relationship with their ticketing company frequently forms a key pillar of their business model, and can be one of (if not their largest) driver of revenue.

It's worth noting not all venues have an exclusive relationship with a ticketing company. Many have no formal ticketing relationships at all, and some venues have non-exclusive relationships with multiple ticketing companies. Multi-use facilities may even have relationships with different ticketing firms for the different types of events held at the venue. But in general larger venues tend to form exclusive relationships for the commercial reasons detailed below.

Ticketing revenue

A venue's hirage fee and additional charges for staging, lights, etc, combined with revenue generated from food & beverage sales, may not be sufficient to cover the costs associated with keeping the facility running. The venue would then look to the ticketing company to provide additional revenue either directly or indirectly funded through the fees on tickets sold to the events at the venue.

Whilst this additional revenue is entirely funded by ticketing fees, it's not always clear to all parties in what way this is happening. Sometimes this revenue is funded directly from fees in a transparent way, such as with a venue levy charged for every ticket sold. More often it's funded directly by fees but without transparency, such as when rebates are paid by the ticketing company for each ticket sold. And sometimes it's indirectly funded by fees such as an upfront key money payment to the venue which the ticketing company recovers by charging fees on subsequent tickets sold.

Key money

Key money (sometimes called a license fee) is an annual payment from the ticketing company to the venue to secure their exclusive right to sell tickets at the venue. Depending on the volume of tickets sold at the venue this can range from thousands to hundreds of thousands of dollars per year.

Key money can be structured in several different ways. It's often an upfront payment due at the beginning of the year and based on historical sales volumes at the time the exclusive contract is agreed. Sometimes it will be contingent on a guarantee by the venue that ticketing volumes won't drop materially, and so may contain a clawback provision to take effect at the end of the year or term. Another structure is for the key money to be payable at the end of each year of the term, and for the amount payable to be based on the volume reached.

When the key money due is based on the volume of tickets sold, this is often calaculated on tiers. The simplest version is all or nothing where a set key money payment is due only if the venue reaches a fixed threshold of ticket sales, and if the threshold isn't reached no payment is due. More complex key money arrangements can involve multiple thresholds and may accelerate the amount due progressively rather than following a linear relationship with volume.

The ticketing company will structure its fees such that these key money payments are recovered with margin through the course of the exclusive term.

Rebates

Rebates on ticketing fees are a common aspect of exclusive ticketing agreements. If you've ever wondered why a ticketing company's fees a different from one venue to another on tickets of the same price, the different rebate requirements at each venue are usually the reason.

Whilst the value of rebates are the result of the exclusive agreement negotiation, in reality they're predominantly set by the venue. The ticketing company will have a certain level of revenue they require to provide the services at the venue (including staffing, equipment, etc) and beyond that the total level of fees will be largely determined by the venue's rebates.

As a proportion of total ticketing fees charged (with the exception of payment processing) rebates will often represent anywhere from 40% to 60%. So whilst event organisers and ticket purchasers may have concerns about the level of fees charged by a ticketing company, what's not well understood is that in many cases more than half of those total fees are making their way back to the venue.

By having the ticketing company act as a third-party agent in between the venue, hirer, and attendees, venues are able to maximise their revenue between both hire fees and per-ticket rebates.

In some cases venues are also able to receive rebates on payment processing fees (where the percentage charged for payment processing is increased by the amount of the rebate) and/or rebates on transaction fees.

Levies

Venues may also require that all tickets sold to their venue (or specific events) have a fixed levy added to the sale.

These may be facility maintenance or building restoration fund levies, parking levies, land levies for leasehold properties, technology levies earmarked for upgrade projects, waste levies to fund sustainability initiatives, even food and beverage levies for events requiring extraordinary bar or catering infrastructure and services. In some cases multiple venue levies may be charged on a single transaction.

These levies are often agreed and set upfront in an exclusive ticketing agreement, or the agreement might simply make provision for levies to be subsequently set by the venue (and implemented by the ticketing company) as and when needed.