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BRIGHT IDEAS

Admit Two

StubHub's founders want to take the worry out of getting close seats.

By Josh Fried

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.”

 

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.”


JOSH FRIED, '01, is a writer in San Francisco.

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