Hot Ticket

By Sean Gregory

For sports fans who invest as much as $150,000 for prime season tickets, leaving unused ducats on the dresser is like dropping $100 bills in a taxicab. If you can't get to the game, the only real choices are to give them to friends, haggle with rapacious brokers, join the scalpers out in front of the arena or put the seats on eBay, where you could still get hung out to dry. It's the same raw deal for those hoping to buy seats to sold-out events--find a seller by happenstance or overpay the brokers and scalpers. And the teams never get a share of the increased value of a $100 play-off ticket that zooms to $500 on the street.

By all measures, the $10 billion secondary market for live events is a model of inefficiency. "There's a great deal of time and energy wasted," says Princeton University economist Alan Krueger, who has studied ticket prices. But an upstart business, StubHub.com which was launched near the end of the Internet boom, may yet succeed in changing this landscape. The site is a NASDAQ for tickets, and unlike eBay, StubHub guarantees the transaction and thus a seat. Its home page directs you to concerts, sports or theater events, and after its program crunches the credit-card numbers and finalizes a trade, the ticket seller receives an air bill with the buyer's address. StubHub tracks the package, and once it is delivered, the company either wires funds or mails a check to the seller. If the tickets don't arrive, StubHub will buy comparable seats for the buyer and charge the seller.

Teams benefit because StubHub gives them a cut of its 25% commission. On average, the eight professional teams with StubHub deals get about 10% of a ticket's resale price. More important, the teams fill some empty seats and lock up the ancillary revenues (from, say, parking, a set of ThunderStix, a couple of beers). StubHub benefits because the team markets the website to its most loyal customers, validating the operation.

StubHub's start was a classic entrepreneurial moment. One night a few years back, Eric Baker, a Harvard grad, was stumped in trying to score tickets to take his girlfriend to The Lion King. Frustration led to innovation after Baker figured out the math of the secondary market and turned it into a business. StubHub moved an estimated $60 million worth of tickets in 2003 and also turned its first profit. "StubHub's concept centralizes a big, fragmented market," says David Kirsch, a University of Maryland business professor who studies both the suckers and the survivors of the dotcom era. "It's a company I'd take a bet on."

StubHub's success has attracted a hungry giant--Ticketmaster, a company that dominates the primary ticket business and is owned by Barry Diller's InterActiveCorp. After StubHub inked deals with the Arizona Diamondbacks, the Seattle Mariners and the L.A. Clippers, several Ticketmaster clients asked Diller's company to launch a secondary platform for their season-ticket holders. The game was on.

While the big gun has signed up more teams than StubHub has, the upstart sells more tickets because anyone, not just Ticketmaster clients' season-ticket holders, can use the site. But don't expect StubHub to return serve and make a play in the primary market. "We've got a huge stand-alone opportunity," says Baker, who runs the company with colleague Jeff Fluhr, a Stanford Business School classmate. His immediate goals include signing more teams and finalizing a Web advertising deal with a major online distributor. "Sure, you can call us Ivy League scalpers," says Baker. "But this is a very attractive business, and the more that teams embrace it, the more legitimate online trading becomes." That doesn't mean prices won't skyrocket for big games. But it does mean you no longer have to deal with a sketchy guy outside the stadium, whispering "Who needs two?"