May 21, 2015
With the Western Conference Finals Win, the Golden State Warriors are looking to capture their first NBA title since the days of Rick Berry’s underhanded free throws. While the title that Vegas favors would be the franchises fourth, it would their first be the first as a defendant—not of the title that still technically belongs to the Spurs, but of a lawsuit. The lawsuit, which was filed by StubHub in March, alleges that the team threatened fans with loss of season ticket privileges if they sold tickets on any platform other than the Ticketmaster-powered official team secondary Ticket Exchange. In addition to the Ticket Exchange, Ticketmaster also powers the Warriors primary sales, and for StubHub that’s a bleak reality. According to StubHub, Ticketmaster and the Warriors efforts have led to ‘an 80 percent drop in the number of Warriors tickets put on’ StubHub. While the suit won’t impact how far the Warriors go on their 2015 run, the market dynamics that created it will have a major impact on how and where consumers buy tickets over the next decade.
Selling tickets is big business, with combined gross revenue between the primary and secondary markets worth around $15 billion annually, depending on whose numbers you believe. With their run in the 2015 NBA playoffs, Warriors tickets have become some of the most valuable in all of sports. According to TicketIQ, at a $185 average, the Warriors had the fourth-most expensive average price in the NBA, behind only Cavaliers tickets, Knicks tickets and Bulls tickets. As recently as 2012-13, the average price for Warriors tickets was barely in the three digits at $100.35. Behind Steph Curry, however, that’s all changed. For the 2014-15 season, an average of 1,500 seats went on sale for each game at Oracle Arena, the Warriors home court. That’s roughly $130,000 of additional gross revenue being created for each game compared to 2012-13 prices. Across a 41-game regular season schedule, that’s $5 million of incremental revenue, and a total season sales of over $10 million. It’s no surprise, then, to see StubHub resorting to the off-court courts. At a commission rate of 20%, if StubHub got back that 80% of market share lost, they’d be netting over $2 million in very high margin revenue. A deep playoff run would likely be worth as much as the entire regular season.
For StubHub, though, it’s more than a lawsuit about $2 million. The suit is about their ability to compete in the industry that they helped to create 15 years ago. During StubHub’s reign, the ticket industry has seen lots of lawsuits, many of them against Ticketmaster, but also one big one that involved StubHub and that sounds remarkably similar to the current suit. That suit was filed in 2006, by the New England Patriots, and alleged that StubHub was encouraging it’s season ticket holders to resell their tickets in violation of team policy and Massachusetts anti-scalping law. While the roles in 2006 were reversed with the team as plaintiff and StubHub as defendant, both lawsuits are about who gets paid for secondary market sales. These suits are battles between big organizations, waged in the name of shareholder value. By contrast, the set of lawsuits that Ticketmaster has been involved in almost always involve consumers, and have an objective of consumer protection.
While the battle between the teams and StubHub has gotten a lot more attention as a result of this lawsuit, the current shift in control toward the team started as far back as 2010 (Pats excluded) when the San Francisco Giants adopted dynamic pricing. Powered by vendors like Stratbridge and QCue, Dynamic pricing allows teams to set prices based on market-demand and on the fly. Despite the fact that airlines had been doing the same kind of optimization on mainframes for years, price optimization for teams was a dream (or nightmare) 15 years ago when StubHub launched. Today, the average fan likely carries more computational power in their pocket than Pan Am and TWA had combined and it’s that very pocket where much of the battle will take place for the ticket market in the days and years to come. Case in point: for the last round of the NBA playoffs, half of the teams had a phone scan option. As the phone gradually becomes the default last mile for getting into an event, any kind of closed looped system could wreak havoc on 3rd-party sellers like StubHub. As a result, Ticketmaster needs to make sure they don’t limit options on either the buying or selling side. If that happens, there would surely be more lawsuits, of all shapes and sizes, to come.
While StubHub would like the current suit to portray their challenge as one of access, it’s really about the shifting economics and realities of the ticket market. Long gone are the days when secondary exchanges could take 30% of a transaction in exchange for only the promise of security. With the exception of big events like the Super Bowl where there’s an opportunity for the market to blow up like it did this year, neither Stubhub or any other ticket resale marketplace is worth 30%. Today, consumers have many more options at their disposal than they did 10 years ago. Ticketmaster’s TM+ platform has had a lot of success recently, as have tools like TicketIQ’s own no-low fee SellerDirect platform. Direct-to-broker exchanges like SeatSmart also seem to be betting that StubHub is no longer a necessary part of the ecoystem. Amidst all the competition, it’s hard to imagine how a company that relies so heavily on fees can thrive, let alone survive.
In addition to all the competition, there’s also less to sell. Baseball teams—for which Stubhub is paying a lot of money to be their secondary exchange— in particular are managing inventory in ways that limit secondary market supply, which can make the primary market the source of better deals. In one analysis we did across 10 Indians games in May, StubHub had the best deal in less than 20% of prices categories. The price competition is also showing up for high-demand games like game 5 in the Warriors-Grizzlies series. For that game, we collected the cheapest ticket for 60 non-floor sections on both StubHub and NBAtickets.com. Of those tickets, StubHub had the cheapest ticket in only 15 sections. Ticketmaster-powered NBAtickets.com had the cheapest ticket in 40 sections while the Warriors box office had the cheapest ticket in five sections. For Game One of the Western Conference finals, the numbers were even worse, with StubHub having four sections with the best deals, compared to 54 on NBAtickets.com and two on Ticketmaster via the primary market.
In the battle for the ticket market that is playing out in the Golden State, in addition to more sophisticated pricing strategies, teams are also resorting to good old-fashioned marketing. The most public example of this may be the Warriors ‘keep it real’ video. It features a scalper trying to resell airline tickets in an airport and represents a new level of effort in the team’s battle against ‘unverified’ secondary market sellers. While teams have long touted terms like ‘verification’ and ‘certified’ on their sites, viral web video is nothing short of brand building for Warriors.com. Given the event ticket markets furious efforts to emulate the airline industry, it’s also a perfect backdrop.
Wizards v/s Warriors 03/02/11
Beyond the PR battle that is being waged on both sides of the fight, the biggest concern for StubHub should be that tickets are becoming just part of the economic conversation that teams are having with their fans. For teams, a ticket to the game is just the first in many revenue streams, like concessions and merchandise. In theory, a team could look at tickets as a loss leader to bring fans through the doors. As in-stadium beacons become more sophisticated, teams may be able to optimize their in-stadium traffic in ways that are hard to imagine today and, in the long run, it’s hard to see how teams lose this game. In the short term, despite the nascent promotion efforts of teams like the Warriors, consumers are largely unaware of the change that’s taking place. Until they do, StubHub is charging higher fees hidden behind ‘all-in’ pricing, and hoping consumers are slow on the take.
As for StubHub’s next move, despite all the challenges, it appears that they’re intent on innovating in the ticket space…just not for live events. Based on recent news, movie tickets may be the company’s future, or at least part of it. For years, people have asked why movie tickets don’t adjust dynamically based on demand. While the company’s exact plan for movie tickets is undefined, there are several similarities to the event ticket market of early 2000 that make them a good fit to drive meaningful innovation. One, movie tickets have a lot of natural demand variability that is hard to predict ahead of time. Things like reviews, competition and even weather play an important role in driving demand up and down. Two, much like teams in the Year 2000, movie operators are either ill equipped or adverse to the idea of market-based pricing. As the event ticket market has shown us over the last 15 years, tackling that problem from the outside in can be the successful path. With millions of customers built up over the first era of ticket buying on the Internet, there may be no better company to drive that change than one of the most disruptive start-ups of 2000.
