By: Harry DeMott
We have heard the drumbeats for the past few days now:
Sporting events being played in front of empty stadiums and arenas
No concerts until 2021
No cash refunds as StubHub and other leading players all change policies
If you are a participant in the ticketing ecosystem (primary or secondary) these are indeed the worst of times. At Ticket Evolution, where I am acting as interim CEO, revenues went from a record pace to roughly $0 — and did so in a week. We quickly laid off 50% of our staff in a bid to stay alive — and stay alive we will. Despite some early rumblings on that move, others have followed, laying off even larger percentages of their staffs — and almost everyone changing their refund policies.
Most have focused on what is happening now (individually cancelled events, no revenue, etc…) but we have not seen a lot of analysis about what is to come.
Let’s Talk About The Great Unwind
At Ticket Evolution we have about 175,000 forward transactions — tickets that have been sold to events that have yet to happen, or yet be cancelled. We are a smallish player in the industry, meaning that the total number of transactions that will need to be unwound is definitely well north of 1M — and maybe closer to 4M or 5M.
When a consumer buys a ticket to opening day on StubHub, that consumer pays with a credit card. StubHub charges the price of the ticket, plus a service fee. As of now opening day has already passed, but the teams and leagues have not announced a rescheduling or cancellation of that game. Assuming that they cancel the event, the whole chain of transactions will need to be unwound. Normally, StubHub would credit the consumers card, but these are not normal times. Now, StubHub is offering credit to the consumer to be used on future events.
StubHub then turns to the broker who listed the ticket in the first place and asks for a refund. However, that broker has taken whatever money they had and immediately bought more tickets — because that is what ticket brokers do. They recycle money in and through the event space, looking for opportunities. So now the broker is being asked for cash, and what he or she has is more inventory — for which there is currently no buyer, not even a bid.
If MLB cancels opening day for all teams, then the broker can go back to the team looking to be refunded the face value of the ticket (assuming the broker bought it directly from the team — and not through the credit card of a friend — but this adds a layer of complications we don’t need to go into). However, the teams are not likely to part with cash — and so will want to credit the broker’s account so that the broker can buy more tickets in the future.
So let’s recap. In an ordinary world, a broker buys a baseball ticket for opening day for $100 from the team. They list it on StubHub at $200. A fan pays $250 all in. The game gets canceled and the consumer gets his or her $250 back from StubHub, who is out their $50 profit. The broker coughs up $200 to StubHub and they are out their $100 profit and the team reimburses the broker $100. No principal is lost — but all profits on the transactions disappear, as the game was never played, and therefore, profits on the game become impossible to create.
However, this is not an ordinary world, so that same fan is now offered $250 in StubHub credit, the broker is offered $100 in team credit, and the broker offers StubHub what exactly? An IOU? Some broker credit? Some tickets that they believe are equally valuable, but equally illiquid?
Now multiply this by a few hundred regular season basketball games, a few hundred hockey games, a few hundred baseball games, hundreds of concert dates etc… and you can see that restarting the ticketing business will be potentially harder than restarting the economy as a whole. It’s likely north of $1B — and maybe as much as $2B worth of tickets sold for events that may or may not happen. None of the players involved want to give up any liquidity — there needs to be a solution.
So here’s how to restore liquidity to the ticketing market.
There Needs To Be An Active Market In Tradable Team Credits.
I’ll take myself as an example. I am a proud NY Rangers season ticket holder. I bleed blue. (I’ll pause here for the abusive comments. Come on, bring it on…) Due to the coronavirus pandemic, the Rangers have allowed me to defer my current payments for season tickets til June. When the NHL finally cancels their season (and I believe they will out of necessity) I will be owed about $4,000. I seriously doubt I will be getting a check, but I do expect to get credit for my season tickets for next year. Now I am a fan, and will attend the games, so the credits are fine for me — they reduce the cost of my season next year, and whether they simply credit my account $4K and take the remainder and apply it over my remaining payments is irrelevant to me. As a fan I am committed to spending the money to watch the games.
However, if I am a broker, those credits don’t do me any good. I have credit card bills to pay, and office staff to maintain, and until next season is on sale, those credits are unspendable. So what to do?
In an ideal world, the leagues would come together with the teams, the concert promoters would get together with the artists — and all of them would get together with the primary ticketing companies (Ticketmaster and AXS in the main) and have those primary ticketing companies issue the credits like tickets. With barcodes and QR codes. And then make them transferable.
Using our current example, at Ticket Evolution, we would be more than happy to make a market (a real market with a bid and an ask) in NY Rangers credits from Madison Square Garden. Or maybe we repackage them ala Groupon — get $100 of NY Rangers credits for $75. End users — fans like me — would be all over that market in an attempt to buy credits at less than face value — as I would apply it to my season ticket subscription and drive down the cost of my seats. But it’s not only relevant to fans. There are brokers out there with an interest in local markets who might also find these credits interesting.
Brokers who originally bought the seats might have to take a haircut, but if they needed to sell, there would all of a sudden be liquidity in the markets. This could unstick the markets and allow them to return to normal — whatever normal looks like at that point in time.
What about a fan market in StubHub credits? I’m sure that a portion of the $1B plus in credits they are currently issuing would find a home if there was a liquid market. Add in Vividseats, SeatGeek, etc… and you have a very liquid market for an asset that will always have a value to an end user.
Rescheduled Not Cancelled
There’s another way to look at adding liquidity to the market. If and when the NBA, NHL, MLB decide to put this years season on hold, teams could agree to reschedule games as opposed to cancel them. If I hold a ticket to the NY Rangers vs. Washington Capitals for March 28th, 2020 — why not call the game rescheduled and not cancelled. It would be rescheduled for the first Rangers Capitals game next year. No cancellation, no liabilities, no cash needs to move around. Fans get exactly what they bargained for — just on a different day.
Coronavirus has wrought and will continue to bring dramatic changes to the ticketing marketplace. Chances are that consumers will have pent up demand, but not as much money — so pricing is likely to be lower. Desire to sit with 20,000 of your fellow fans might be diminished unless some sort of health passport system is in place further lowering demand. But teams need revenue and will be selling tickets, perhaps even more so in the secondary market as primary and secondary marketplaces start to blend together. Teams and promoters need brokers as much as they like to vilify them in the press. And brokers need teams and primary ticketing systems, as much as they love to complain about their policies.
By making team credits divisible, and tradeable (I could sell off my $4,000 credit $100 at a time) the secondary market will be back in business as soon as the teams are. Right now, that is a long way from certain.
If anyone wants to talk through this — or implement it, I’ll wait for Gary Bettman or Jim Dolan’s call at 475–222–7261. Or drop me an e-mail at email@example.com.
This post was originally published at Medium. It is republished here with the author’s permission.