Sports Law Blog
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Friday, August 03, 2007
Major League Baseball Embraces StubHub
It used to be called ticket scalping. Now, it’s known as purchasing tickets from a secondary distributor.
Much like the evolution of Las Vegas from a gambling haven run in part by organized crime to a center of glitz and glamour, the ticket purchasing business has gone corporate and high-tech. Founded by two Stanford MBAs in 2000, StubHub became a lucrative venture that changed a culture. Gone are the shady characters who hawked tickets in front of venues, replaced by keystrokes, credit cards and eBay (which acquired StubHub earlier this year for a cool $310 million). Like Vegas, scalping has gone legit and StubHub has been at the forefront of the transformation.
I thought about this evolution while reading Major League Baseball’s announcement that it entered into a five-year revenue-sharing agreement with StubHub. The league, which until recently frowned on scalping, now will get revenue from every secondary ticket sale on the website. This could turn into a pretty penny, as the company charges a 25 percent markup on any ticket sold, in addition to whatever price the buyer wishes to pay. At this time, the amount that MLB will receive has not been reported.
Baseball joins a number of NFL, NHL and collegiate teams that have signed deals with the company. This agreement, with Major League Baseball Advanced Media, it's online division, is a coup for baseball, since about 75 million tickets are sold to Major League Baseball games, one third of which are bought online and an estimated $10 billion worth of baseball tickets are resold online and offline each year, according to Reuters.
The lack of standardization of resale laws among the states make utilization of the company a challenge in some locations. Thirty-eight states permit the reselling of event tickets, so long as the sale does not take place at the event site. The other 12 states have varying degrees of regulation, including registration requirements and maximum markups. The growing acceptance of StubHub and other such companies convinced New York to deregulate secondary ticket sales in June.
MLB’s embrace of StubHub comes less than a year after more than 100 Yankees’ season-tickets holders suspected of reselling their regular-season seats on StubHub received letters denying them the right to buy playoff tickets and barring them from buying season tickets for the following season. Others teams have discouraged the practice. As noted in a post by Chris Callanan, the New England Patriots sued StubHub and a season ticket holder for reselling tickets on line.
In a sense, StubHub combines capitalistic supply and demand and is another chapter in the growing fight for control for marketing and distribution between a sports league and its individual teams. The major leagues, especially Major League Baseball and the NHL, have drawn on new technologies to control on-line content, advertising and sales revenues from merchandised items. Control of secondary ticket sales poses problems for individual teams who have agreements with other secondary services, such as TicketMaster. One example is the litigation between the NBA’s Cleveland Cavaliers and TicketMaster. First, TicketMaster sued the team in a California federal district court, claiming that the team’s secondary service (named “Flash Seats”) violated the exclusivity clause of the agreement between the parties. At the end of July, the Cavs sued TicketMaster, alleging antitrust violations.
Those Stanford MBA students created an interesting case study for future classes to analyze.