Exploring the Other – Part II – Greed in Goodness

(Please read Part I first)

Burner culture clashes with the clutches of the fat catsLet’s look at a few scenarios where, if you had control of the Burning Man ticket lottery, and wanted to do something naughty to make a couple of bucks on the side…

How would you do it?

It seems to me that there are a few main ways to game the system. One argument is that scalpers got a lot of tickets, by entering the lottery like everyone else.

Another, is that a large block of tickets went to insiders – who will sell them later via scalpers.

A third argument is that a large number of speculators enrolled in the lottery, because the cost of entry is near-zero, and the potential upside in excess of 100% Return on Investment.

We will take a look at all three arguments.

Insider – database query

If you had access to the Burning Man database – for example, if you were the person who wrote the algorithm, that determined who won the lottery and who didn’t – then you would be in a position to pull off an almost perfect crime.

  • Work out how many tickets you want to steal. Say, 10,000 – 25%.
  • Run your query as normal. Get the list of winners.
  • Run your stealth query. Eliminate every 4th winner. This is the new list.
  • Add some extra names, addresses, and credit cards to the list. These are the cheap tickets that are going to you, the thief. You will then sell these to scalpers, or online on the secondary market. You can even launder them through STEP!
  • This list is then sent to the credit card batch processing algorithm. It reads the list, charges the cards, puts the money in the bank.

You could add one single large transaction to this, no-one would be the wiser, but the banks might wonder (and your credit card would need to be able to handle a $2,400,000 charge!). Or, you could add a number of transactions where the same credit cards were getting charged multiple times. As long as the total amount of money that hits Burning Man’s bank is what it should be, no-one would be the wiser. To trace back if this had happened, you would need to get the batch processing file from the bank and go through it – all 40,000 transactions of it! There would be an audit trail, but it would be very hard to get hold of it, you’d have to be pretty determined to find it. And, quite likely, the database administrator also looks after the system log files.

Insider – corruption

This is much simpler – no hack required. They simply didn’t send out 40,000 tickets to punters. They sent out 30,000 – and sold the rest in one block to scalpers. How would anyone know? Are they going to count a list of 120,000 names? They probably don’t even have a printout of the whole list.

In this scenario, the potential profit at Tier 3 price is 10,000 x $390 = $3,900,000. Assuming scalpers would pay full price – they might get a discount, for a dodgy black market deal like this. If you were in a position to do something like this, you could make $3-4 million. Cold, hard, virtually untraceable cash.

Insider – fucking with the Tiers

Or, they didn’t really send out 25,000 lower tier tickets. People who bid on the higher tier, had a higher percent conversion (I know it wasn’t 100%, because I did this and didn’t get tickets). The existing BM community, particularly big camps trying to get a lot of tickets, probably all bid on lower price tickets, thinking they’d be able to get them like in the past. Instead, they sold 30,000 full price, 5,000 Tier 1, 5,000 Tier 2. The remaining 10,000 will be Tier 3+.

The difference in revenue to Burning Man in this scenario would be:

Tier 1 – 5000, $1.2m

Tier 2- 5000, $1.6m

Tier 3 – 40,000 $15.6m

= $18,400,000

Verus the official scenario which yields:

Tier 1, 10,000, $2.4m

Tier 2, 15,000, $4.8m

Tier 3, 25,000, $9.75m

= $16,950,000

$1, 450,000 reasons to rip off the community…

Insider – artificial scarcity

Maybe they only awarded 10,000 tickets, just to see what happens. Just to see what the reaction of the community would be. Now, they can release the remaining “only 10,000″ tickets at a higher price – $420, or more. And there’s actually 30,000 of them. They have created artificial scarcity, near panic, which then enables them to slip the rest through. Everyone will be so pleased they got a ticket, they won’t care that they paid more. Using the numbers from the previous example, there would still be 10,000 people around San Francisco with Tier 1 and 2 tickets, to cover up the scam.

Scalpers

OK, now let’s look at the other side of the argument. “Scalpers did it”. Scalpers would have had to enter different names and addresses, and credit card numbers, with a maximum of 2 tickets per transaction.

Just sticking to the missing 10,000 (from Part I ), in order for those to have gone to scalpers under this theory, the scalpers would have had to make 30,000 database entries. Although Burners only got 25% of tickets they applied for, on average the rate was 1/3 or better – 40,000 got tickets out of nearly 120,000 applications.

Assuming each online purchase takes 2 minutes, it would have taken one person 1000 hours to do this (30 transactions an hour). That’s 42 days (1000/24) – the lottery applications were only open for 2 weeks. So, they would need to have at least 9 people, working off lists of names and addresses that were different, assuming that each person worked an 8 hour shift.  (30 * 8 = 240 transactions a shift; x 14 = 3360 transactions per person in 2 weeks. 30,000/3360 = about 9 people).

The scalpers could have had automated bots, that went to the web site and filled the details out. You would definitely be able to reduce the overall time of filling in name, address, and credit card details with a bot. Maybe transaction time could get down to less than a minute. But, ultimately, the limit on transaction time is defined by Burningman.com’s ticketing server, verifying credit card details and then committing the transaction – not the bots. More bots does not change this, if anything it would just exacerbate the problem. If the server is overloaded it will be slower, if it crashes the whole plan crashes too.

With or without bots, in this scenario, scalpers had to have at least 30,000 different credit cards and addresses to use. And, they needed to know that if they wanted 10,000 tickets, they would need to actually apply to buy 30,000. This is not immediately obvious from anything that happened in the past, and is a huge cashflow risk for the scalpers – if all those transactions went through, those 30,000 credit cards would be charged about $10 million. As it was, in this scenario the scalpers put $3 million on 10,000 of their 30,000 credit cards. I know scalpers make a lot of money, but in this economy, do they really have a spare $7 million in working capital lying around for a bet like this? If their prediction on the conversion rate was wrong, they could end up holding 30,000 of the 40,000 tickets available. At that point, they’re better off being the promoter!

Speculators

The problem for the speculators is the same as for the scalpers – basically, speculators are amateur scalpers. This theory goes that the speculator had a low risk way to make a fast return. Attracted by the arbitrage opportunity between the lowest and highest prices, they signed up in droves. It costs nothing to enter the lottery, and if you win, you have no limit on the amount of profit you can earn reselling your ticket.

The problem with this is, that a quarter of the entire number of applicants would need to be speculators. Assume they are non-Burners, so they have a better chance of getting tickets. 1/3, compared to 1/4 for Burners. 10,000 tickets not in the hands of Virgins or Burners, = 30,000 applications. This means that 1 out of every 4 applications was a speculator, not a Virgin who legitimately wanted the tickets, not a Burner, and not a scalper (because there were only a few hundred of them, according to Jackrabbit).

The speculators face the same working capital issues as the scalpers. But, they don’t have the same visibility into the pricing in the secondary market. They can safely assume that a ticket they buy for $260, can be sold for $390 – if the lottery sells out. They might even be able to get $500+ for it. They are wildly speculating if they think they can get $1000+ for it, without any knowledge of if the event will sell out or not.

To me, the low profits from this trade, do not make it that attractive that 30,000 people who didn’t even want to go to Burning Man, would try it.

Which scenario sounds more likely to you? Please comment.

next part – is it all a figment of our imagination? Or a ritual sacrifice?

25 comments on “Exploring the Other – Part II – Greed in Goodness

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