"offering greatly reduced festival tickets to them. "

that seems like a perfectly reasonable compromise. It's what we've had to do with Morris sides - either offer a free limited festival ticket, which doesn't allow access to the mainstage events, or a reduced-price full festival ticket.

When you think about it, the morris sides aren't earning any money from being there, yet provide something which is as vital to the festival buzz as the traders, IMHO. And when you have a festival with limited capacity, it's hard to compensate them all for their contribution.