Secondary ticket market a booming industry
By Rob Biertempfel
Published: Sunday, Sept. 24, 2006
Greg Myford, associate athletic director for marketing at Penn State, walks around Beaver Stadium on game days and sees people waving tickets in the air. It's a not-so-secret code for scalping.
But, increasingly, Myford also sees tickets changing hands on the Internet -- in a way that is legal, efficient and profitable for Penn State.
Since late August, season ticket holders have been able to resell tickets they can't use via the Nittany Lion Ticket Exchange, which is run by Ticketmaster. Penn State gets a cut of the 15 percent convenience fee on every sale.
Nationwide, the secondary ticket market -- fans and brokers reselling tickets -- is exploding. A growing number of pro and college teams are cashing in by teaming with a primary ticket outlet (Ticketmaster) or secondary ticket marketplaces, such as eBay, StubHub, TicketsNow, TicketLiquidator and RazorGator.
"The secondary market used to be the guy in a trenchcoat standing on the corner," Myford said. "Now, you can buy virtually any ticket for any event, anywhere. And you can do it on your own time from the privacy of your home, office or wherever your computer is."
Penn State is the first NCAA school to sign a secondary ticket deal with Ticketmaster. StubHub is the official ticket exchange for 15 colleges, including West Virginia, USC, Alabama and Purdue. Pitt is not aligned with any secondary online ticket service.
"A lot of our season ticket holders are already reselling our tickets on these sites," said Brad Howe, West Virginia assistant athletic director for marketing and sales. "So, if it's already out there, we might as well get on board."
More than 60 pro teams have contracts with secondary ticket services, nearly double the number from just a year ago.
This year, the Pirates began a sponsorship agreement with RazorGator. However, the team's official reseller is Tickets.com, which gives full-season ticket holders resale ability through the "Replay Window" on the team's official Web site.
Next season, the Pirates will allow both full- and partial-season ticket holders to resell their tickets.
"We think it's a win-win (situation)," said Tim Schuldt, Pirates vice president of marketing, sales and broadcasting. "It will help us retain customers, and it will increase the satisfaction of our current customer base."
The Steelers have been approached by secondary ticket services, but so far, they have not signed any deals.
The Penguins and the NHL didn't respond to repeated queries from the Tribune-Review about secondary ticket providers.
Susan Cohig, the NHL's group vice president for club services, recently told the Wall Street Journal that the league was talking with StubHub and Ticketmaster, among others.
"You are seeing a change in how tickets are bought and sold," said David Goldberg, executive vice president of sales and marketing for Ticketmaster. "And I think it will continue to change over the next few years until we settle into this new paradigm."
What's at stake• Industry insiders say the annual revenue potential from secondary tickets is more than $2 billion.
Don't say 'scalper'
There is a misconception that online secondary ticket providers directly buy and sell tickets. They don't. Instead, they connect buyers and sellers.
"We don't hold any inventory," said Colin Evans, StubHub's vice president for sales and business development. "We don't own any of the tickets you see on the Web site."
Call them forums, enablers or marketplaces ... just don't call them scalpers.
"That's a banned word in our company," RazorGator CEO David Lord said, only half-jokingly.
StubHub and eBay permit fans to sell to other fans. Most sites, however, use licensed ticket brokers as their source of tickets.
"I buy things from eBay, but one thing I'll never buy from eBay is a ticket," said Kenneth Dotson, chief marketing officer for TicketsNow. "The problem with the fan-to-fan model is that you've got consumers providing customer service, and that's not always their top priority."
Ticket brokers list their inventory on the online sites, which then market the tickets either at fixed prices or by auction. It's up to the broker to ensure delivery and ticket authenticity, although most of the market sites have money-back guarantees.
Tickets on the secondary market usually do not sell for face value. Brokers frequently alter their list price, which fluctuates with demand.
"The prices start out high, and in most cases they go down," said Don Vacarro, CEO of TicketLiquidator. "Sometimes, on a fan-to-fan exchange, the prices will stay very high because a fan will say, 'If I sell it, I sell it. If not, I'll go to the game.' With brokers, the prices come down a lot quicker."
Sharing the wealth
Ticketmaster began its fan-to-fan ticket exchange service four years ago. It resold 329,000 tickets in 2005 and is on pace to swap nearly 400,000 this year.
Those are impressive figures, but they pale when compared to other online marketplaces.
For example, StubHub moves about 300,000 tickets a month. The company, formed six years ago as a class project by two Stanford Business School students, was rated by Inc. Magazine as the eighth-fastest growing private firm in America.
West Virginia chose StubHub over three other big-name secondary outlets that also offered deals.
In exchange for paying a sponsorship fee in a five-year contract, StubHub gets advertising, signs inside Mountaineer Field and ads on WVU's Web site.
Under their agreement with the Pirates, RazorGator bought season tickets in premium seat locations -- the Home Plate Club and Monte Cristo Club -- for use in corporate packages. The sponsorship fee also bought the company a ton of ad time during Pirates radio broadcasts.
In many sponsorship deals, an exchange of information can be just as valuable as money. Teams crave demographic data about online ticket buyers. The secondary markets are eager for exposure to a team's season ticket holders, who are potential customers.
There was a time when the markets and teams preferred to split the revenue -- either resale prices or fees, or both -- from secondary ticket sales. Now, however, most deals are sponsorship agreements.
"I think the teams like to be able to predict their revenue, so they seem to be more interested in the fixed-fee model," Dotson said.
Dotson added that, by accepting sponsorship fees instead of a slice of the revenue, teams can dispel the notion that they are using the secondary market to double-dip.
"It's a cleaner deal for the franchises," Dotson said.
That's not always the case. In 2002, the Tribune Co., which owns the Chicago Cubs, formed Wrigley Field Premium Ticket Services. Two fans sued, arguing the team violates anti-scalping laws because WFPTS gets its high-priced inventory directly from the Cubs.
Two months ago, an Appellate Court ruled in favor of the Cubs. WFPTS is still in business, selling tickets for as much as $1,400 over face value.
It is not unusual for tickets to be listed at well above face value. But what about anti-scalping laws?
"A lot of states that have those laws really don't enforce them anymore," Dotson said.
Florida and Louisiana recently repealed their anti-scalping laws. Illinois relaxed many of its rules. West Virginia is a so-called "free market state," meaning it has no laws against scalping.
Twenty states still have some form of anti-scalping laws. In Pennsylvania, tickets can't be resold for more than 25 percent of face value or $5, whichever is greater.
The online secondary ticket sites get around the law by being based in either a free market state or one that permits scalping to out-of-state events.
Penn State has decided to play it safe. When it signed the deal with Ticketmaster, the university mandated a face-value ceiling on prices for the ticket exchange.
"That's why we went with Ticketmaster," Myford said, "so we could better control the rates of our tickets."
A crowded market
Seeking a competitive edge, the major players in the secondary ticket marketplace are carving out their own niches.
StubHub is primarily a fan-to-fan market. Ticketmaster has an old-school image and avoids sponsorship deals. TicketLiquidator, the world's second-largest market site, tries to keep purchase fees low. RazorGator specializes in corporate package deals -- game tickets, transportation, lodging and pregame entertainment.
"Our mission is not just to be a ticket reseller," Lord said. "We're striving to be a one-stop business that can manage all of those services, whether it's just a regular-season game or the Super Bowl."
RazorGator, which is aligned with the Seattle Seahawks, sold 10 percent of the tickets for Super Bowl XL. Corporate customers accounted for more than half of the outlet's sales. The company also organized an "official" tailgate, where a few Seahawks players mingled with the fans.
The market is booming and still has room to grow. There are a handful of pro teams, such as the Steelers, without sponsorship deals, and the college market is only beginning to be tapped.
"The bigger thing is, this isn't about reselling tickets," Schuldt said. "This is about StubHub, RazorGator and these other companies getting their hands on hard-to-find tickets -- playoffs, World Series, Super Bowl -- and selling high-end hospitality packages."
For every StubHub or RazorGator, there are dozens of smaller secondary ticket sites, many of them mom-and-pop companies. The industry is not going to fade away.
"There's not going to be one winner in this," Vacarro said. "There's definitely going to be multiple winners. There's enough room in it for everyone to make money."
Complete coverageSecond chance
To test the secondary ticket market, the Tribune-Review purchased two club-level tickets to the Pirates' regular-season finale Oct. 1 against the Cincinnati Reds at PNC Park. The Trib chose TicketLiquidator, which had the lowest posted price at the time of the order. The tickets were ordered Sept. 13 and arrived five days later.
A comparison of the secondary ticket sale, and what similar seats would have cost through the Pirates.com site:
Ticket cost : $47 (face value) each x 2 = $94.00
Convenience fee : $3.50 each x 2 = $7.00
Processing fee : None (Will call pickup)
Total cost : $101.00
= There are no fees for tickets purchased at the PNC Park box office windows.
Ticket cost : $25 each x 2 = $50.00
Delivery fee : FedEx Express Saver, $20
Service fee : $7.50
Total cost : $77.50
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