Hot Tickets

EBay and other scrappy online outfits have created a legitimate $2 billion—plus secondary market for seats at concerts and sports events—and a risky new world for Ticketmaster.

Six years ago, Amy Stephens bought $100 tickets to see Nathan Lane and Matthew Broderick in The Producers on Broadway. When she found she couldn't attend, Stephens, then a middle-school teacher in suburban Atlanta, sold her seats on eBay for $250 apiece. Today, Amy's Tickets has a staff of three, a stockpile of tickets, and revenue of well over $1 million a year. "Our goal was to make $1,000 a month, but this thing just exploded, and it continues to explode," she says.

Stephens is one of the hundreds of small players in a booming market crowded with online resellers, from relative newcomers such as StubHub—a major outlet for Amy's Tickets—to powerhouse Ticketmaster. As states repeal their anti-scalping laws and the Internet slashes the cost of doing business, these outfits are fighting to control tickets for everything from this summer's sold-out Police concert tour to midweek Major League Baseball games.

There's real money at stake. Last year, more than $2 billion of the $32 billion in ticket sales was attributable to resales, according to Forrester Research. Most of the resale sites take no inventory risk; they leave that to the individuals or smaller brokers whose tickets they sell. Instead, they charge 20% to 25% of the sale price.

"It's a very lucrative business," says Forrester analyst Sucharita Mulpuru. "It's like you're collecting a bounty."

With online sales soaring, sports teams are threatening to revoke season ticketholders' rights to put their seats up for sale without authorization. Major League Baseball teams are reselling their own tickets online and collecting a transaction fee. The Cleveland Cavaliers even have a separate resale site. "The teams are, in essence, scalping their own tickets because they've seen the profits being made in the secondary market," says Stephen Happel, a professor of economics at Arizona State University.

Meanwhile, the sites are competing to become teams' "authorized" resellers. "It's very much a land grab," says Mike Domek, founder of online reseller TicketsNow. "All the companies are battling it out."

They're taking distinct approaches. StubHub and eBay, which bought StubHub for $310 million earlier this year, resell tickets for individuals and small brokers like Amy's Tickets. StubHub also guarantees similar or better seats if anything goes wrong.

TicketsNow, an established broker, deals exclusively with a network of ticket brokers that it has vetted.

RazorGator sells seats online, but it has also gone the corporate route, putting together pricey event packages and managing companies' ticket inventories. (See story here.)

These newcomers are strong proponents of repealing anti-scalping laws—a step Florida, Illinois, Minnesota, New York, and South Carolina have recently taken.

All this is a threat to Ticketmaster, long the middleman between the sports teams and concert promoters and their fans. The company, owned by Barry Diller's IAC, has moved into the resale space as well, pitching itself as the only authorized distributor of certain tickets and trying to keep control of tickets' bar codes. "We believe ticket resale should be done in a safe, secure, and legal way that takes into account the rights of promoters, venues, and teams, and also protects consumers from buying fraudulent tickets of unknown origin," says Ticketmaster president Sean Moriarty.

But the company is being squeezed, not only by the emergence of the secondary market but also by the looming expiration of its long-term contract with Live Nation, the country's top concert promoter. "A large part of why Ticketmaster has been a cash cow is that it has these long-term contracts locked up," says Forrester's Mulpuru. "Now the dynamics of the industry are changing." (Moriarty says negotiations with Live Nation are continuing.)

It's likely that many of the smaller resellers will consolidate. Perhaps the line between the primary and secondary markets will blur even more. Or more seats for the most popular events may be auctioned off from the start, trimming the spread on resale. For now, says Rick Harmon, of TicketReserve, which is selling ticket futures for events like the Super Bowl, "there are lots of people making lots of money in a disorderly market. It's pure chaos out there."

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