finding great seats
to a popular concert, sporting event or Broadway
show can be exasperating. Go to a ticket broker and
you’ll end up paying top dollar. Online marketplaces
such as eBay and craigslist may offer cheaper tickets,
but their sellers are anonymous and the websites provide
no guarantees. And then there’s the old-fashioned
approach: take a pocketful of cash and trudge down to
the venue itself, where announcing “I need tickets”
will surely attract attention, and perhaps a police
officer.
Eric Baker faced these choices in the spring of 1999.
His girlfriend longed to see The Lion King, but
the Broadway show was sold out. Baker spent hundreds
of dollars with a ticket broker: “It was not a
pleasant or easy process,” he recalls. There had
to be a better way.
Enter StubHub.com.
Co-founded by former Graduate School of Business students
Baker and Jeff Fluhr, StubHub.com is an online “stock
market” where tickets are bought and sold like
equities. Unlike the stadium parking lot, StubHub’s
marketplace is a regulated
exchange where every transaction is guaranteed. “Think
of us as the Nasdaq for tickets,” says Baker,
MBA ’01. “If you want to trade stock, you’re
not going to go down to the street corner and give me
a Coke certificate; you’ll trade over an exchange.”
The process is straightforward. Anyone can browse StubHub’s
listings, but buyers and sellers must use a credit card
to register with the site. Sellers post ticket descriptions
and a price, then raise or lower that price as the market
warrants—higher if comparable seats are scarce,
for example, or lower to be sure their tickets can compete
with similar offerings. While most StubHub sellers use
this approach, an auction method and a declining price
option—in which StubHub’s software drops
the price incrementally as time passes—are also
available.
More than half of all tickets listed on StubHub are
traded successfully. When a match is made, StubHub contacts
the seller to coordinate shipping and cofirms payment
with the buyer. StubHub’s service is integrated
with FedEx and tracks the tickets to guarantee arrival
before the event. Once ticket delivery is cofirmed,
the seller gets paid. If the tickets are different than
advertised or fail to arrive, StubHub will find comparable
tickets and charge the seller’s credit card for
the difference.
From the Canadian Football League to Fleetwood Mac,
The Tonight Show to rodeo, StubHub’s
offerings are varied. Prices also run the gamut. To
see the Baltimore Ravens visit the Super Bowl champion
New England Patriots for their November 28 showdown,
you can plunk down $97 for standing-room-only tickets—or
$1,252 for club-level seats. (StubHub’s largest
single sale to date was $24,000 for four first-rate
seats to the 2002 Super Bowl.)
StubHub, which has 45 employees and offices in San Francisco
and Los Angeles, takes a 15 percent cut of the purchase
price from the seller and 10 percent from the buyer.
The site averages $265 per transaction and handles thousands
of trades a day.
While some StubHub sellers are professional ticket brokers
who use StubHub as their online storefront, many are
season ticket holders who want to recoup some of their
investment or cash in on a high-demand event. Anyone
can buy tickets, giving Joe SportsFan access to premier
seats that were once the sole province of Jane SeasonTicketHolder
and her friends.
“The problem is, if you want to go to a sporting
event in this country and sit in a good seat, you’ve
got to be a season ticket holder or go to the secondary
market,” Baker, 31, explains. The primary market—buying
tickets directly from the team, venue or through outlets
like Ticketmaster—seldom has the best seats available.
Fluhr, 30, estimates that the U.S. secondary ticket
market—comprised of more than 1,000 brokers, auction
sites like eBay, and your friendly neighborhood scalper—is
a $10 billion to $12 billion industry. It’s also
highly disorganized, prone to fraud and inefficient.
Two fans sitting adjacent at the World Series may have
paid vastly different prices for their seats. Another
fan might be stuck outside the stadium after falling
victim to, as Fluhr puts it, “some guy in a trench
coat who steals their money and runs away.” StubHub
tries to provide some method to the aftermarket madness.
Phillip Leslie, assistant professor of strategic management
at Stanford, who is researching rock concert ticket
sales in the secondary market, says the quality of StubHub’s
web design has been key to its success. “StubHub
has done a better job of tailoring its site for the
purpose of ticket sales. [Its main on-line competitor]
eBay tries to use the same format for selling all items.
But for tickets, it is very helpful to have easily accessed
seating charts, among other nice features that StubHub
offers. Stubhub makes it very easy for brokers to upload
information on multiple tickets they have for sale,
while eBay requires the information on each ticket to
be entered one by one.”
 |
|
"I'm probably the one
person from Stanford's business school who decided
to take his MBA and become a ticket scalper."
- Eric Baker, MBA ’01 |
Baker, a Harvard alum, and Fluhr, a graduate of the
University of Pennsylvania, met during their first year
at GSB and swapped stories of off-putting encounters
with ticket brokers. After researching the secondary
ticket market, the pair entered a business-plan competition
with the idea for a company called needaticket.com.
When the plan made the finals, they pulled it from the
competition so as not to attract too much attention.
Fluhr dropped out of school to focus on the business
full time. “This was not an academic exercise
for us,” Baker says. “Our goal was to start
a great business.”
Baker and Fluhr worked out of the GSB computer lab and
classrooms, co-founding Liquid Seats in March 2000.
(The company’s name referred to a “liquid
market,” where buyers and sellers move about unconstrained.)
The tech bubble had just burst, and raising money was
no easy task. They relied on former co-workers—Baker
had worked at McKinsey & Co. and Bain Capital, while
Fluhr had been at Thomas Weisel Partners and The Blackstone
Group—for much of the half-million-dollar seed
round. The second round of funding, which closed right
after 9/11, raised a couple million dollars and included
former 49ers quarterback Steve Young among its investors.
As luck would have it, the third round came as the United
States prepared for war with Iraq.
The challenging investment climate “forced us
to run a very disciplined ship, to focus on making money
and building a good service,” Baker says. “If
we hadn’t, under all these conditions we wouldn’t
have been able to raise money.” In all, they garnered
more than $10 million.
Initially, StubHub partnered with specific teams to
spread the word about their business. Sports franchises
traditionally have been wary of secondary ticket sales
and their shady reputation. But Baker and Fluhr argued
that teams that told their fans about StubHub would
boost attendance. The Arizona Diamondbacks, New York
Jets and the Stanford and Cal athletic departments jumped
at a way to put more fans in the stands—and more
money in their coffers from additional concession sales.
To build further awareness of StubHub, the company has
begun to offer charity auctions of concert tickets.
Musicians such as Christina Aguilera, Seal and Jewel
donate front-row concert tickets to StubHub, which auctions
them and sends the proceeds to the artists’ preferred
charities.
Baker laughs when friends assume his ticket business
job allows him to snag freebies. “That’s
like saying, ‘Gee, Eric, you work at the Nasdaq.
Can’t you just grab a couple Coke shares?’
It doesn’t work that way!” His parents,
on the other hand, take pleasure in explaining to their
friends that their son is “an online ticket scalper.”
“I’m probably the one person from Stanford’s
business school who decided to take his MBA and become
a ticket scalper,” he says. “But sports
and entertainment is a space I’ve always been
extremely passionate about. It beats the heck out of
selling shower tile.” |
