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Secondary Ticketing

October 2005 Secondary Ticketing


Secondary Ticketing
 

“Jerry just turned all red and became very upset. He hated the whole notion of it,” said Happel, who has studied secondary ticketing extensively. “Jerry thought all those guys were absolute scum.”

Much has changed in professional sports ticketing in a few short years. Not only have more than four dozen teams in the four major leagues come to peace with “those guys,” they have become them, operating their own sanctioned, official secondary ticketing marketplaces parallel to their primary sales efforts.

Working with ticketing companies such as Ticketmaster, StubHub and RazorGator, the clubs are active participants in a fast-growing secondary ticketing industry estimated at anywhere between $10 billion and $25 billion in aggregate size. At the club level, the secondary market is worth as much as several million dollars per year.

Among those clubs now in the secondary ticket market are those same Phoenix Suns, who are one of 25 major clients of Ticketmaster’s TeamExchange program for secondary ticket sales.

“We’re big believers in this,” said Rick Welts, the Suns’ president. “To not be in this business now, we think, is a huge mistake. The No. 1 impediment to season-ticket renewals is unused tickets, which this directly addresses. And I think we all know how important season-ticket retention is in this business.

“We also felt like we needed to be participants in this space, working directly with our fans and giving them a safe, controlled environment to resell tickets they can’t use, rather than simply be bystanders. We expect this to only grow and become more accepted.”

There is little debate within the sports industry on that point. The key question going forward, however, is precisely how that growth will occur. For many teams and millions of fans, the secondary ticketing issue is not a simple application of free-market capitalism, and is instead a very delicate and touchy subject.

One opposing view is that teams with secondary marketplaces are delivering a contradictory message with their simultaneous discouragement of scalping and ticket sales on Internet sites such as eBay and craigslist.com.

The Tribune Co., owner of the Chicago Cubs, found itself the subject of a class-action lawsuit and significant fan ire two years ago when it established Wrigley Field Premium Ticket Services to resell Cubs tickets. Tribune ultimately won the suit, but scars and hurt feelings remain among the team’s legendary throng of fans.

More broadly, several teams contacted by SportsBusiness Journal for this article, including some with active secondary ticket marketplaces, either declined to comment or chose their words carefully for fear of inciting negative fan reaction in their home markets.

“We believe that this is an important issue for our business and that we still require considerably more information to enable us to make a fully informed decision,” said John Thomas, Sacramento Kings president. The Kings do not operate a secondary ticket marketplace.

But once getting over the “if” question of secondary ticketing, teams still face a dizzying and confusing choice of “where.”

Ticketmaster operates its TeamExchange program on a revenue-sharing model, in which the company and its partner teams share a commission reaped on secondary ticket sales.

In the case of Ticketmaster’s baseball deals, MLB Advanced Media also shares part of the commissions from online secondary ticket sales, and sets the commission rate between Ticketmaster and individual clubs.

Tickets.com, owned by MLBAM, helps run secondary markets for six MLB clubs, also on a revenue-sharing model. And Paciolan, which has more of a foothold in the college sports market, holds secondary ticketing accounts with four MLB teams and one NHL club, similarly using revenue sharing.

StubHub, which holds deals with seven NFL teams and one NHL team, and RazorGator, with five NFL clubs, conversely work off a sponsorship model, offering clubs guaranteed money but no cut of the upside from individual ticket sales.

“This is a very hot topic, and we’re still in a place where opinion is rather varied,” Welts said.

Wide-open market

The secondary ticket market has evolved considerably since its early days of shifty-looking scalpers standing outside concert halls and stadiums in the 1970s. In their place are hundreds of licensed ticket brokers, operating professional offices and belonging to local business and civic groups. Operating parallel to the brokers, and often in conjunction with them, are national, online players such as StubHub and RazorGator, also coming to the public with polished Web sites and big-budget ad campaigns.

But if the secondary market has cleaned up its look, there is still little organization. None of the major sports leagues has a defined, blanket policy governing secondary ticketing, leaving teams the choice to make their own deals or simply do nothing.

And even as the foremost players in secondary ticketing — Ticketmaster, StubHub and RazorGator — continue to sign more deals with teams and expand their businesses by double- and triple-digit percentages each year, more competitors of widely varying size and type continue to enter the industry.

“It just blows my mind how many different players there are now, how fragmented it all is,” Happel said. “I go to the ticket broker conventions, and there are now wholesalers who do nothing but buy tickets up on eBay and resell them to brokers, who may turn around and put them on StubHub.”

Ticketmaster, the unquestioned behemoth of the ticketing industry, sells a TeamExchange ticketing system that looks much like its standard Web sitefor primary ticketing sales. The prices on the secondary market, however, are set by the ticket holder, with a commission shared between the club and Ticketmaster.

Goldberg, Ticketmaster executive vice president, said the system is still “in an early phase of adoption.” But with 26 major league clubs in hand, the company has more than 20 percent of the market among the big four leagues, and dwarfs StubHub and RazorGator in terms of team deals.

More than 250,000 tickets have been sold using the TeamExchange system since its 2002 launch, a small chunk of the entire secondary ticket market but a number that is rising quickly. The key selling points of the Ticketmaster system are control, seamless integration with the primary ticketing interface and the ability for consumers to e-mail ticket bar codes rather than having to sell a paper ticket. That all adds up to convenience as well as security.

“If we’re doing the primary ticketing for a team or facility, we’re the only ones who can guarantee the ticket is 100 percent legitimate,” Goldberg said. “Security is a big issue in the secondary ticketing space, and we think that gives us a big leg up.”

StubHub and RazorGator, predictably, challenge that view. Their ticket listings are similarly guaranteed — sellers must provide a credit card number that gets charged if a ticket comes up as fraudulent.

“Our approach versus Ticketmaster is very, very different,” said David Lord, RazorGator chief executive. The company projects more than $50 million in revenue this year and recently expanded its reach in corporate travel to sports events.

“Ticketmaster is basically selling a software system that is a reformulated version of what they do on the primary side. What we have is a fan-to-fan exchange. And all we do is the secondary marketplace,” Lord said.

RazorGator and StubHub also offer a vastly different revenue option for teams selling tickets on the secondary market compared with Ticketmaster. Rather than take a percentage of the secondary ticket sale, StubHub and RazorGator buy standard sponsorships to sports teams, making a mid-six-figure or higher annual cash investment to become their official secondary ticket service providers. The core piece of inventory they pick up is a link on the club Web site that goes directly to a listing of tickets for the team on sale at either RazorGator or StubHub.

“We treat this very much as regular sponsorship in the same manner as our car deal, our telecom deal or any of the others,” said Jim Smith, vice president of marketing for the Atlanta Falcons, which is aligned with StubHub.

Executives at some clubs said the ticket Web sites are offering more dollars than Ticketmaster. But many clubs prefer to work with Ticketmaster because of their familiarity with the company and the tighter control it allows them to place on the secondary marketplace.

In that vein, the choice for some teams more reluctantly entering the secondary marketing becomes one of working with the devil they know versus the one they don’t. Other times, considerations are more practical, involving system functionality and the ease of ticket flow.

“Our deal is not as lucrative as some others who are doing this,” the Suns’ Welts said. “We heard from some other companies who offered us significant dollars. But they couldn’t provide all the same benefits and the convenience, such as being able to shift around those bar codes, that we’re getting from Ticketmaster.”

Other clubs find Ticketmaster or Paciolan a good avenue to putting additional controls on their secondary market sales. The Los Angeles Dodgers, for example, limit access to their secondary marketplace to their full-season ticket holders, and even then, markup is limited to five times face value.

“We’re doing this very much as an added-value benefit to our full-season ticket holders,” said Marty Greenspun, Dodgers executive vice president. The club is aligned with Ticketmaster for its secondary market. “The core idea was really to serve that group of fans.”

StubHub and RazorGator, being more wide-open marketplaces, in effect place season-ticket holders in direct competition with licensed ticket brokers who in fast-growing numbers are moving their voluminous ticket inventories off their own Web sites. The same goes for TicketsNow.com, another aggregator of secondary market ticket sales.

“People like us are a lot of the traffic on StubHub and RazorGator,” said Randy Cohen, chief executive of TicketCity.com, an Austin, Texas, brokerage. “They’re going out there with a big media campaign and have a lot of name recognition. That’s definitely helpful to us.”

EBay, meanwhile, does massive amounts of business in the secondary ticket markets, drawing more than 2 million visitors per day to its myriad ticket auctions. The company says it moves more than 100,000 tickets per week across all categories including sports. EBay does not have any formal secondary ticketing relationships with teams.

Will it all blow up?

As the number of secondary ticket outlets mushrooms and the comfort level among teams and fans toward secondary markets increases, plenty of industry watchers are wondering if the boom will ultimately turn to bust.

In the concert industry, many big-name acts are now eschewing larger arenas and stadiums and playing smaller venues with higher ticket prices, often in triple digits. The gross receipts to the performers and promoters remain about the same, but when the face value for a big-name concert ticket is $200 or $300, there is less room for markup by a secondary agent.

In sports, a similar trend is quickly evolving as courtside, home-plate and field-level seating is arriving in many facilities with premium-level prices that reflect much of what a secondary market would bear. The St. Louis Cardinals’ forthcoming stadium, for example, will have field-level club seats with a price of $150 to $170 per game. Team president Mark Lamping said the five rows of high-priced seats directly behind home plate are as important to the Cardinals as the rest of the 5,000-seat battery of club seats in the new stadium.

“You’re definitely seeing that in some sports where you have a defined and limited amount of those type of exclusive areas,” the Falcons’ Smith said. “In football, I think it’s more difficult because you have so many seats, going to very high price points for face value simply alienates your fan base. But it is happening in other areas.”

Furthermore, concerns are growing that some players in the secondary ticket market will simply spend themselves to oblivion in a race to differentiate themselves from the competition.

“I don’t know if StubHub is going to make it for the long haul,” Cohen said. “They’re great, but they’re spending an awful lot of money on ads.”

The San Francisco-based company, predictably, dismisses such pessimism, particularly as it has cleared the due diligence of the eight pro teams with which it holds deals. Though StubHub, as a private outfit, does not release specific financials, chief executive Jeff Fluhr said the company is profitable, with revenue reaching nine figures.

“The marketing is changing rapidly and is continuing to change,” Fluhr said. “But what’s stayed constant is buying and selling. That’s just not going to go away, and though we’re not going to dry up eBay and craigslist, we do think there will ultimately be a dominant player in this space. Teams being more involved in the secondary markets is great, it’s a logical extension. But it’s not a prerequisite for our business.”

Read More New Articles


Sports Business Journal
October 31, 2005 by Eric Fisher

Steve Happel, an economist at Arizona State University, remembers the conversation well. About four years ago, having lunch with then-Phoenix Suns owner Jerry Colangelo, Happel brought up the subject of secondary ticketing and ticket brokers, arguing in favor of their existence and role in the movement of sports tickets.
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11/24/2014 4:22:08 AM on TCWEB2