Tick-tock on the clock
But the party don’t stop
TiK ToK by Kesha
The drumbeat is getting louder. More and more traffic is coming through my channels. “Vivid is buying StubHub,” “The deal is very close.” If this were to happen, there would really only be two major players in the ticket resale game: Vivid Seats and Live Nation.
Is it true? I don’t know. None of us will really truly know until we know. But, let’s talk about what such a combination might mean. Isn’t that how forecasting works? Take a potential scenario and game out what it means now and into the future, then try to find a path through.
First, my Twitter feed shows something new. Sukhinder Singh Cassidy, the rarely seen president of StubHub has been strangely visible of late. She joined StubHub in April, 2018. There are two significant ticket industry conferences in Las Vegas each July. Normally, the president of StubHub presents there to the industry. Cassidy spoke at neither conference.
Recently though, Cassidy has been personally more present on Twitter, celebrating sports victories, and offering free tickets courtesy of StubHub to potentially viral recipients: a young disabled couple, police who dress in costume to brighten Halloween for patients at a children’s hospital. These are generous actions, but the timing suggests a secondary motive. Perhaps, as a sale draws near, it’s time for some personal brand building. Likely, given StubHub’s negative growth in the past year, Cassidy recognizes she goes when the company sells.
Second, I’ve heard absolutely nothing negative about StubHub from Vivid. Radio silence. Usually there’s quite a bit of chatter. I really like the team at Vivid. They’re perhaps the best organized tech based group in the ticket resale business. They became a major player in part because of how they gamed out the last big move made by StubHub.
In 2013, then StubHub president Chris Tsakalakis changed their pricing model from fees added to the checkout price on the very last page of the process to “all-in” pricing which clearly showed consumers how much the tickets would cost. It was absolutely the most ethical step the resale ticketing market had ever seen. If the rest of the industry followed, then consumers could compare prices and choose what to buy and where using complete information. But, of course, predictably, when StubHub zigged, others zagged.
Vivid’s growth exploded. Their pricing displays actually artificially suppressed the prices of tickets. If a ticket was listed by a broker for $100 on StubHub, which then displayed it at $125 with all-in fees, Vivid would show the same ticket for $90. Consumers were comparing the same ticket which showed up as $125 on StubHub to Vivid’s $90. Just like in Vivid’s home town where engineers were able to reverse the flow of the Chicago river, traffic ran from StubHub to Vivid, never minding the fact that at the final checkout page Vivid’s ticket with fees wound up costing about the same as StubHub’s.
By 2015 Tsakalakis was out at StubHub, replaced by Scott Cutler who quickly stopped all-in pricing and soon thereafter allowed StubHub to also use artificial price reductions so they too could display a $100 pre-fee ticket for $90 before raising it at check-out to $125 by the addition of fees. Still, the damage had been done.
Vivid had been given a clear lane for two years, and they ran in it hard and fast. Vivid was now venture capital backed. Its founders Jerry Bednyak and Eric Vassilatos were not just “golden millionaires”, they were centi-millionaires. Vivid was the number three resale market by volume with sales approaching $2 billion annually. And, with its new scale and laser focus on the software which powered their business Vivid Seats was the now most lethal gunslinger in the game. As a result, when eBay decided (was forced by dissident activist shareholders) to put StubHub up for sale, all eyes looked to Chicago.
Here’s the single most important unanswered question. If Vivid were to make a deal to buy StubHub, would it pass anti-trust review? StubHub is by far the largest of the ticket sellers, with annual sales revenues in excess of $5 billion. My best guess is that Live Nation’s resale division is second with sales close to $2.5 billion. And, I believe Vivid is third at approximately $2 billion in annual sales.
Often, the number two and three companies combine in order to have the scale to take on the dominant player. If Vivid and Live Nation resale combined, their resale volume would be close to that of StubHub. But, if Vivid and StubHub would combine, in a rare number one plus number three deal, they would have approximately 65% of the market, allowing for my estimates of the volume for the remaining players: SeatGeek, Ticket Network, TickPick and GameTime.
The last merger in the ticket world which went through between such substantial players was when Live Nation acquired Ticketmaster, something which is still the subject of controversy almost ten years later. I’d expect a Vivid/StubHub deal to have an extensive review and potentially be the subject of some private attempts to the block any such deal. And, no doubt, the National Association of Ticket Brokers would write a very stern letter in opposition.
Meet the new boss
Same as the old boss
Won’t Get Fooled Again by The Who
Assuming, for the minute, that a deal between Vivid and StubHub goes through, here is what I would expect to happen:
First, almost the entire executive team of StubHub would be updating their LinkedIn profiles immediately. They’re gone. This company will be run from Chicago.
Second, the impact on large scale ticket brokers and consolidators would be fast and savage. Currently, there are three sources of tickets listed on resale markets: tickets bought by brokers who are in the business of using their own capital to buy and resell tickets speculatively much like stock market day traders, tickets sent directly to resale markets by the rights holders themselves (teams, bands and artists), and tickets which the market itself buys through either block deals or ticket by ticket just like the brokers.
Because supply of tickets is the lifeblood of resale, markets compete to have complete portfolios of tickets listed for every conceivable event. Therefore, their “sell fee”, the fee they charge the actual owner of the ticket to sell it is negotiable. If you are selling the tickets you bought for Taylor Swift on StubHub because your girlfriend left you, and there’s no chance you’re going to that show with your buddy, you’re going to pay a 15% fee. Alternately, if you employ 25 ticket buyers and sell $1 million a month you may be able to negotiate a sell fee as low as 3%. That 12% spread makes a big difference. Looking back at the original example used earlier of a ticket listed for $100 — paying a 15% sell fee nets you $85. If your competition, with similar seats, has a 3% sell fee, they net $97. As a result, they can price their tickets at a lower price than yours, sell them first, and still make more money.
Out of that logic sprung ticket consolidators. These groups: StageFront, DTI, Dynasty, Eventellect and others either aggregate smaller ticket sellers in order to negotiate sell fee discounts, or use their scale to make bulk purchases of tickets at favorable terms.
If Vivid controls StubHub, traditional consolidation dies immediately. Vivid’s second step after brooming the StubHub executive team will be to kill off sell fee discounts as fast as they can. Should this happen, and hold, the entire ticket supply infrastructure is in for immediate and painful change.
So what happens now?
You’ll get by you always have before.
Where am I going to?
Another Suitcase in Another Hall by Andrew Lloyd Webber
Ticket brokers are scrappy. They’ve survived centuries of attempts to kill them off. They provide a service which consumers want. And, much like we’ve seen with Uber, and other transformative business models like medical marijuana, ultimately consumer demand forces regulatory change. Resale ticket markets have changed the model of ticket buyer behavior from “buy it well in advance” to “never sold out”. People like the idea that they can get a ticket for a show next week in a place they never expected to be. The old alternative was to buy that ticket six months in advance, if you even knew you were going, or to take your chance outside the venue with a guy who may or may not be selling you a ticket which would get you in the door.
If Vivid buys StubHub, I would look to the airline industry to predict next steps for the ticket brokers. Once the airline industry deregulated, it promptly consolidated. We really only have three legacy carriers left: American, United and Delta. So, opportunity beckoned. Consistently the most profitable carrier in the United States is Southwest, an airline which breaks all the rules. Southwest flies short hops, doesn’t have hubs, only has one kind of plane, allows you to change your ticket for no fee, their checked baggage is free, they have no meal service and its cabin crew is encouraged to be fun. What will become the Southwest of the new ticket resale world?
I predict that if Vivid and StubHub were to merge, we would see a complete upending of the way inventory is made available. Currently, using computerized point of sale systems, tickets are distributed in real time to all marketplaces, with monitoring software employed to remove tickets the instant they sell to prevent double sales. In a post-merger world, the path to success will be unique inventory. And here’s where it gets fun. If the major consolidators were to create a cooperative, and invite in a few of the mega-brokers, those top twenty firms which themselves hold collectively around $500 million of inventory, they could have control of supply. Add a couple of the ticket resale markets which are about to be made inconsequential, and you instantly have a formidable competitor.
Right now all the resale markets compete on price. But, if you change the metric so that one market has a big chunk of unique supply then you have something completely different. Currently, fans compare tickets for any particular event looking only for the better price. What if, instead, they looked for the better seats? And, what if that better seat was also less expensive than the alternative?
Could this model ever possibly work? Is there a template out there which proves out the theory? Yes, and we’ve already discussed it. Southwest Airlines. Here are a couple of other things about Southwest: all the other major airlines allow their tickets to be sold through a variety of third party distributors in addition to their own websites. You can buy AA or UA tickets on Expedia, Orbitz, Travelocity and others. All Southwest tickets are sold by Southwest exclusively. And, this model seems to have proven it works. Check out its stock market performance (NYSE: LUV) Southwest is currently worth a little more than $30 billion.
My phone is ringing with questions and requests for help. The markets are on edge. Let me know what you think.
This post was originally published at Medium. It is republished here with the author’s permission.
About the Author
Eric Fuller is an $895/hour consultant advising leading companies in the live event space. If you are an investor, artist, promoter, team, producer, venue operator, primary or secondary market of ticketed events or have comments on this article, please don’t hesitate to contact me: email@example.com