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January 10, 2007

eBay’s Place in the Dirty World of Ticket Scalping

Michael Arrington

26 comments »

Update: eBay’s acquisition of StubHub has just been announced.

The secondary market for event tickets is a dirty but lucrative place to be. I have first hand knowledge from my time as COO of RazorGator, a Kleiner-backed ticket marketplace based in Los Angeles. There’s a food chain, starting with the guys that hang out at stadiums before games and concerts scalping tickets, up through ticket brokers that actually have a place of business, finally ending with the ticket marketplaces offered by companies like eBay and StubHub.

The entire food chain is closely connected, and the ticket brokers in the aggregate control most of the market. They have elaborate computer systems for trying to obtain the hot concert tickets from Ticketmaster the second they go on sale. Theater is covered with insiders at the box office who hold the best tickets for hot shows for brokers, and receive a cash kickback for their trouble. Brokers also own season tickets for the hottest sports teams, and develop long term relationships with fans who control good season tickets and don’t want to give them up, but rarely attend games. It’s a relationship, mostly cash business, and the best ticket brokers make millions a year. Little of that revenue actually gets reported to the IRS.

Most people would be surprised at how few people control most of the tickets for the really big events like the SuperBowl and March Madness.

Brokers sell tickets any way they can. They hire scalpers to hang out at events, telling them not to hold too many tickets or cash at any one time in the likely event they are arrested or shaken down by the police. They have their own websites. And they list their tickets on marketplaces like eBay, RazorGator and StubHub. Usually they list the same tickets in multiple places, and if they are sold multiple times they try to find comparable replacement tickets, or just bail on the customer.

eBay keeps their hands fairly clean, although they move a lot of event tickets. They never own the tickets directly which keeps them above the ticket scalping laws, and they try to enforce the complicated and varied state laws regulating secondary ticket sales. The many brokers who sell tickets on eBay tend to treat eBay customers pretty well, mostly out of fear that eBay will ban them if they don’t.

Will eBay Acquire StubHub?

StubHub is another ticket marketplace that has done extremely well in the last few years. Rumors suggest they moved more than $400 million in tickets last year, earning $10 million or so in profit. There have been rumors for some time now that eBay is in the process of acquiring StubHub for $300 million or so. Bambi Francisco first reported this last October. The Wall Street Journal (subscription required) is repeating the rumor today, saying a deal may come as early as this week.

Our sources at ebay denied the October rumor, but they are strangely silent today.

  • Sphere It

This entry was posted on Wednesday, January 10th, 2007 at 3:02 pm and is filed under Company & Product Profiles. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

Trackbacks/Pings (Trackback URL)

  1. It’s Official - eBay is Buying StubHub For $310 million

    January 10th, 2007 at 4:10 pm

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    January 10th, 2007 at 4:39 pm

  3. Ryan Egan.com » Ebay Extortion

    September 24th, 2007 at 8:07 am

  4. Super Bowl Tickets At A Fraction Of The Price: Super Deal Or Super Swindle?

    January 17th, 2008 at 9:20 am

  5. TicketMaster Buys Online Scalper TicketsNow For $265 Million

    May 17th, 2008 at 12:46 am

Comments

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  1. Robert Dewey

    January 10th, 2007 at 3:07 pm

    In all honesty, I think it would be a better acquisition than Skype. I’m not saying Skype is bad (quite the opposite, actually), but I just don’t see how they brought value to eBay.

  2. Anton

    January 10th, 2007 at 3:26 pm

    I am not sure how this would bring value to ebay either. Unless I am missing something, “$400 million in tickets last year, earning $10 million in profit” would be more of a hassle considering the size of ebay.

  3. Robert Dewey

    January 10th, 2007 at 3:30 pm

    I say it’s a better acquisition than Skype given the fact that StubHub is a marketplace, versus Skype which is primarily a communication platform. However, I’m not saying StubHub is a better business ;-)

    In fact, Skype would have probably done better by themselves - perhaps even making it to the IPO stage.

  4. Josh

    January 10th, 2007 at 3:32 pm

    There was an article in WIRED last month (December issue) about the ticket brokering industry that was a fascinating read: http://www.wired.com/wired/arc.....er_pr.html

  5. tomorrow

    January 10th, 2007 at 3:44 pm

    they move $400 million in tickets and only generate $10M in profits!??? I agree w/ Anton, ebay is buying a big headache.

  6. Mike Jr.

    January 10th, 2007 at 3:48 pm

    Stubhubs revenue is all margin, so another 100 million in ticket sales generates another 10m in profits. Not hard to see how they can get to 100 milllion in profits and then ebay pay 3 times earnings. I think a smart move.

    The bigger question is how is RazorGator doing? How did Stubhub beat them?

  7. LL

    January 10th, 2007 at 4:01 pm

    This is a done deal.

  8. Michael Arrington

    January 10th, 2007 at 4:04 pm

    Josh - thanks for the pointer to the Wired article. Interesting read.

  9. Pud

    January 10th, 2007 at 4:10 pm

    Dunno much about the ticket business, other than being a StubHub customer. But once you’ve seen Motley Crue from the 5th row, there’s no going back.

    Thank you StubHub! If this rumor is true, congrats.

    - pud

  10. Matt

    January 10th, 2007 at 4:22 pm

    Couple of comments as a baseball season ticket holder that sells about 75% of my tickets on eBay or StubHub:

    I am SHOCKED that StubHub only makes $10M on $400M in ticket sales. They are getting 25% of every transaction (15% from seller and 10% from buyer -or- maybe vice versa). The cut that they take seemed absolutely outrageous as a seller so I normally stuck with eBay.

    I wonder what impact eBay’s ownership will have on the profitability of tickets. eBay actually attempts to enforce state laws on purchase price depending on the residency of the ticket seller, location of event and residency of the ticket buyer (luckily I live in an unregulated state!). Either they have to abandon the practice of trying to comply with state legislation in this area or they will hurt the financial results of StubHub by enforcing these policies. I always wondered how StubHub didn’t have to comply…maybe there is some workaround or something…

  11. Rocky Agrawal

    January 10th, 2007 at 4:32 pm

    To the seller, it doesn’t matter so much the cut that StubHub takes, only what he nets.

    I had Redskins tickets to sell. The potential fees for various outlets:
    craigslist - free
    eBay - $28.71
    StubHub - $225

    I posted them on all three sites. The winner? StubHub. At the end of the day, I ended up with the most money in my pocket because StubHub made the best market for the tickets.

    For more:
    http://redesign.wordpress.com/.....r-the-job/

  12. stwf

    January 10th, 2007 at 4:32 pm

    An interesting note I remember Yankee fans who were selling their playoff tickets on StubHub had their season tickets revoked. It seems to be against the service contract.
    Not to mention it’s illegal, at least in NY and most states you are not allowed to sell tickets above face value. I’ve always wondered how they got away with this.

  13. Duncan

    January 10th, 2007 at 5:09 pm

    To be honest I’m not sure what point you are trying to make here other than share the rumor (now confirmed) on the eBay acquisition…why exactly is scalping “dirty”? Sure, it’s not something I’ve been involved with personally, but the whole scalping is bad meme that has spread across the better part of the Western World in the past 10-20 years has always had me beat. It’s a free market, we buy and sell, even second hand or middle man sales are par for the corse. Do we condemn people who buy houses then resell them to others for a profit? And if a subsidiary market is created due to a lack of supply and too much demand, why are the scalpers the bad guys? surely the distortion of supply side economics by the event promoters themselves, complicated further by marketing that creates excessive demand is where the buck should stop if anyone is “dirty” or wrong in this business.

  14. dave

    January 10th, 2007 at 7:05 pm

    I tried all and a better one TicketLiquidator.com the fees are less than Stubhub.com and they are almost as big. At the end of the day I think eBay sold because TicketLiquidator.com charges much lower prices and StubHub was worried that their margin was erroding.

  15. Dave Barnes

    January 10th, 2007 at 8:07 pm

    I agree with Duncan.
    Why is scalping dirty? Buy low, sell high.
    Me, I never pay more than list price. It is easy NOT to attend an event.
    I mean, how is this different than parking lots raising their rates when a big event occurs nearby?
    Supply and demand. Economics 101.
    Hate scalping? Don’t buy. So simple.

  16. Dave

    January 11th, 2007 at 6:18 am

    I echo want the post above says. The way Tech Crunch words it’s headlines smells of disinformation.

  17. Humphrey Bogus

    January 11th, 2007 at 10:26 am

    I think peopel are confusing gross and net revenues. The face value of ticket sales by StubHub is ~$400M, but the net amount of revenue they report is a fraction of that (maybe $100M or less, depending upon the fee schedule). Nothing to sneeze at, by any means. By the same measure, the total amount of merchandise sold by eBay is in tens if not hundreds of billions of dollars, but they only really “keep” a fraction of that.

  18. fthead9

    January 12th, 2007 at 12:33 am

    It boggles my mind that this market is semi-legal at best. Anyone remember Econ 101 and the ideal of perfect competition that this country supposedly adopted as its economic platform? The problem is just as Michael states, a surprisingly few own this market and therefore set artificial pricing structures.

    As a life long music junkie I can say I’ve spent every penny I had outside of my rent while in college to get pit seats at Nine Inch Nails concerts to spending a few dollars on lawn tickets at the Bridge series even though in relative terms the cost for the front row was a pittance compared to my college days.

    It all comes down to what the event is worth to the individual buyer. If I was the concert promoter or the artist I’d be frustrated as hell that I couldn’t legally set up a marketplace for tickets that actually reflected demand. I sincerely hope that eBay has enough market clout that it can leverage the Stubhub ticket buying system into something more closely resembling perfect competition. It can only be an improvement over the current system.

  19. Jimbo Colburt

    January 24th, 2007 at 9:49 am

    The fact that scalping is ILLEGAL in many states, would make it dirty. eBay not only helps its sellers get around state laws by not checking the actual face value of the tickets being sold, BUT it now is buying into a bigger operation of scalpers.

    I do not hold the scalpers at fault here. I hold the teams that let scalpers profit of the backs and the bills of THEIR fans. Most NFL teams have a written rule against selling any ticket above face value PERIOD. I would love to see teams yank these tickets from the scum who only use them to make a profit. Sell them to local fans you want to actually use them. New England and Washington have documented cases where they revoked season tickets of holders who scalped them. I think that should be the rule for every team, every ticket.

    Give the tickets back to the people who want to use them.

  20. Tim R

    February 25th, 2007 at 6:48 pm

    There are quite a few ebay sellers not reporting their profit to the IRS. Get them Uncle Same :)

  21. Mike

    March 3rd, 2007 at 10:34 pm

    I just received my Braves season tickets…..right behind homeplate. Anybody interested at buying them at only double the face value?

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