StubHub sets ticket prices free
How eBay's ticket marketplace is helping overturn a century's worth of jurisprudence, and driving down prices.
(Fortune) -- In March of 1898 a group of old-time Willy Lomans met at a New York City hotel and agreed to hire David B. Hill, the former senator, New York governor and renowned constitutional lawyer, to fight legislation banning the resale of rail tickets.
Their mission lives on through the lobbyists and lawyers for eBay (Charts, Fortune 500). As a result, decades-old state laws that prohibit a free market for tickets to concerts and theater and sporting events are crumbling.
This week lawmakers in New York state - the largest market in the U.S. for event tickets - agreed to remove limits on how much can be charged for a ticket to say, a ballgame or a concert, on the secondary market and letting market forces take hold.
Score one for eBay and consumers. Removing government interference in the marketplace will lower prices in many cases and open up access to events. And put one in the minus column for the mighty New York Yankees, who have objected to the New York law in principle and in practice have fought sites like StubHub by penalizing season ticket holders who offer their tickets for resale on the Internet.
The Internet has finally proven as fact what many free marketeers have argued for years: that anti-scalping laws don't work, and that by eliminating them consumers will benefit. StubHub, which eBay acquired earlier this year for $310 million, has itself been a fascinating laboratory for unfettered markets and the driving force, through its lobbying efforts, in eliminating state anti-scalping laws.
In recent years the legislatures in Illinois, Florida, South Carolina and Minnesota have passed laws that eliminated barriers to the resale of tickets. "We've been strongly active in all these states," said Sean Pate, the spokesman for StubHub. "They now have an open and free market." And StubHub's lobbyists were active in Albany on the New York law, which is expected to be signed in to law by Governor Eliot Spitzer.
Before the Internet, the secondary market for event tickets operated on two extremes: on one side were high-end brokers that catered mainly to executive clientele, who sought the best seats in the house and tended to be less price sensitive.
On the other side were the risky street corner transactions outside venues that could be made under the watchful eye of undercover cops. (Full disclosure: during the 2000 playoffs between the Yankees and Oakland Athletics I found myself with an extra ticket, which I unwisely sold to a plainclothes officer wearing a grungy New York Jets hat. While sitting handcuffed in a makeshift jail I had plenty of time to ponder the intricacies of the free market.)
But StubHub - which posted a staggering 3,000 percent growth rate from 2002 to 2005 and last year was named by Inc. magazine as the fastest growing private retail company - has upended the secondary ticket market and changed the minds of consumers, lawmakers and even some team owners, about scalping.
Originally, scalping laws were intended to protect consumers, on the belief that allowing the reselling of tickets would limit access to events only to the super wealthy. Much of the economics literature over the years has described the folly of anti-scalping laws. A study last year by Craig Depken, an economist at the University of Texas at Arlington, found that such laws actually result in higher prices at the box office - an average of $2 extra for a baseball ticket and $10 extra for a football ticket.
But by creating a transparent and efficient market, StubHub has created the opposite situation.
Consider this: for an upcoming New York Yankees game against the Arizona Diamondbacks, on June 12, there are about 4,000 tickets available on StubHub, for prices as low as $3. (The face value of tickets at Yankee Stadium range from $12 for Bleacher seats to $400 for field level box seats.)
And a ticket for arguably the biggest rivalry in sports, Yankees versus Red Sox in August, can be had for $22, a modest premium. The reason for the availability of cheap seats is that StubHub has opened the marketplace to participants that normally wouldn't have been present: season ticket holders, who absent StubHub would often eat their unused tickets, now have an easy and legal way to recoup some of their losses.
The upshot is that going to games is more affordable for families. And that's good for sports franchises, often the recipient of barbed attacks from the media and fans for ever escalating ticket prices.
Sen. John Kerry, for one, lambasted Major League Baseball earlier this year over the average cost of attending a game for a family of four - which according to one widely cited figure is about $180. "For too many families and people living on fixed incomes, the cost of attending a game is getting out of reach," he said.
But thanks to StubHub, it is now possible to go to a Yankees game for less than the price of a grande latte at Starbucks (Charts, Fortune 500) - or less, even, than the cost of a hot dog at the stadium.
Of course not everyone gets it. Some liberal interest groups, such as the Public Interest Research Group in New York, have opposed a free market for tickets. And some teams, like the Yankees and the New England Patriots, the only team to file a lawsuit against StubHub, are against the idea of a robust secondary market.