SBJ/Sept. 16-22, 2013/In Depth

How StubHub built a home in sports

Company rose from the shady history of secondary ticketing to bring trust to the resale market

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When Jeff Fluhr and Eric Baker came up with the idea for StubHub as first-year students at Stanford business school in 2000, they identified three characteristics that made ticket resale a prime opportunity.

They saw a vast market, with billions of dollars in tickets to sporting events and concerts changing hands. They knew it was fragmented, with eBay only beginning to percolate as a ticket marketplace. And they understood that it was stigmatized — their word, which aptly described what many fans then viewed as a shadowy exchange.

It was that last factor that offered Fluhr and Baker the greatest chance to distinguish themselves.

This year StubHub bought naming rights to the former Home Depot Center in Carson, Calif., home of Major League Soccer’s L.A. Galaxy and Chivas USA.
Photo by: StubHub
“It was this gray market, with a confusing set of legal issues,” said Fluhr, who left the company after selling it to eBay for $310 million in 2007. “And then you had the consumer perception of the guy with the trench coat at the game, trying to hawk tickets out of the trunk of his car.

“Maybe that would have scared a lot of people away from it. But for me and for Eric, we viewed that as a big opportunity. Any time there is a fundamental consumer need for something, but it’s inefficient or there’s a lack of trust, that means there’s a problem that could be fixed. We said this is ripe for change and ripe for disruption. And that was the genesis of the business plan.”

Now co-founder and CEO of Spreecast, a social video platform that allows viewers to join online chats, Fluhr points to StubHub’s ability to bring not only scale, but trust, to the secondary market — a term that didn’t even exist when the site launched — as a linchpin in the company’s growth and eventual dominance.

Once an outlier in a sales channel that many in the industry dismissed or ignored, StubHub has graduated to the mainstream of sports and entertainment, viewed similarly to long-accepted ticket providers on the primary market.

Buyers gave StubHub and Ticketmaster almost identical favorability scores in a nationwide survey conducted this summer by Turnkey Intelligence in conjunction with SportsBusiness Journal (see charts). The survey, covering 400 consumers who bought tickets to at least one MLB game this season, placed StubHub and Ticketmaster well behind the websites and ticket windows of their favorite teams but far ahead of other sites, including eBay and Craigslist.

A closer look reveals that on the matter of authenticity, buyers who expressed an opinion ranked the top three outlets similarly. Ninety-five percent gave team websites high scores on authenticity. Ticketmaster came in at 90 percent, with StubHub at 85 percent.

That’s an important revelation, considering the messaging that the NFL and NBA use on their resale sites, which
operate through Ticketmaster.

On its website, the NFL describes its ticket exchange as the “only NFL-approved way” to buy and sell tickets, saying buyers can “rest assured knowing their tickets are 100 percent legitimate.” The NBA calls its site “the only trustworthy source for authentic NBA Tickets.”

At least in baseball, fans don’t see it that way. StubHub executives said their surveys and brand studies show fans of other sports don’t see it that way, either.

The affinity gap between StubHub and eBay also is particularly interesting, since StubHub is an eBay subsidiary.
 
StubHub differs from its parent’s ticket site in two key ways. It offers far more tickets, though that has not always been the case. And it offers not only a money-back guarantee, but the promise that it will deliver similar or better seats at the same price if the initial sale falls apart.

Nine years after striking its first team sponsorships with the Chicago Bears and Detroit Lions, StubHub now has deals with 80 U.S. teams and sports venues, including 23 MLB clubs and 37 major college athletic programs, as well as ESPN, Apple, BlackBerry and Google.

“Once you can actually fulfill, and people buy these tickets on faith and it works, that spreads like wildfire,” said Bob Bowman, CEO of MLB Advanced Media, which named StubHub its official resale outlet in 2007 and renewed the deal on behalf of 28 of its 30 teams last year. “It works. StubHub works.”

It sounds obvious enough today. But, considering where StubHub started, and the polarizing manner in which resale has been viewed and discussed within the sports business, the rise is a striking one.

“One of the things I’m most proud of is that, in sports, nobody questions the validity or usefulness of the secondary market anymore,” said Ray Elias, StubHub’s CMO. “Everybody has gotten involved [in resale] now in one way or the other.”

So how did StubHub get here? How did it go from trench coat to entrenched?

Think of it in three prongs.

There was the brand, built from nothing. And a connection, forged despite vast initial resistance. And there was a guarantee, which, really, is at the heart of everything that came after it.

Guarantee pays off

First, the guarantee was a paragraph. Then, two sentences. It still was too much.

“Trying to describe that the ticket is authentic and that StubHub will make sure, at all cost, that you get that ticket or better — that is not easy to do in a pithy marketing message,” said Elias, who joined the company in 2004. “So ultimately it came down to being able to name it the FanProtect Guarantee, and to reinforcing and reinforcing and reinforcing that StubHub, like any best-in-class e-commerce company, was going to stand behind the product that we’re selling.

“This was not Craigslist. And at the time it was not eBay.”

StubHub’s deal with MLB Advanced Media, first made in 2007 and renewed last year, now covers 28 of the league’s 30 teams. Here, fans in rooftop seats look on from across the street at Wrigley Field. “It works,” said MLBAM CEO Bob Bowman. “StubHub works.”
Photo by: Getty Images
Fluhr realized from the beginning that the guarantee would be critical to his company’s success. Even as eBay and others began to capture market share, he remained confident in the opportunity.

EBay offered only a marketplace, along with the warning “Buyer Beware,” leaving it to consumers to tell one another which sellers to trust. Some sites offered buyers their money back if there were problems, but a ticket to a game or a concert is not like an ill-fitting sweater or an iPad with a scratched screen. Tickets not only are perishable, but they are tied to experiences, which can be emotional. Getting your money back won’t rewind the game you missed, or salve the disappointment of a family looking forward to a night out.

“The guarantee was in many ways the nucleus of the value proposition that we were offering,” Fluhr said. “People were skeptical about buying tickets. We were trying to be the solution and the safe alternative.”

A branding watershed came in 2007, when StubHub and ESPN announced a sweeping integration.

Initially, StubHub’s conversations with ESPN were focused on advertising. StubHub bought space on ESPN.com, as well as on other popular sports sites. But as they talked further, it became clear that there was a larger opportunity. Fans often went to ESPN.com schedule pages when they considered buying tickets. But they were like “cul-de-sacs, without something actionable beyond that,” Elias said. “If you start putting ticket links on there, the fans can move forward. They don’t leave ESPN and then go click on Google.”

By incorporating links on ESPN, StubHub not only drove buyers to its site but also gained an important connection to the mainstream, similar to the one it made earlier that year when it struck a monumental, five-year agreement with MLBAM.

Sponsorships deliver sellers

The signs in the stadiums, the “Stuuuuuuuub Huuuuuuuub!” over the PA, the links on the team websites, all of them served to wed the emerging brand to established ones across the sporting landscape.

But the sponsorship deals that StubHub did with teams — starting with eight it signed with NFL teams in 2004 and 2005 — were driven far more by the desire to gain access to sellers who could help it build inventory than a desire to showcase the brand to buyers, who they figured they would reach through the Web and on sports radio.

The NFL was a logical starting point for a sponsorship play, since football had the largest season-ticket base and the
Early deals with NFL teams gave StubHub access to sellers who could help build its inventory.
Photo by: AP Images
highest sellout rate. There were sellers, and even more season-ticket holders who’d be willing to sell if it were easier. There were single-game buyers, and even more who would be willing to buy if they could be sure the tickets were good.

StubHub struck deals with two NFL teams: the Chicago Bears and Detroit Lions. Before long, there were six more.

Rather than offering a revenue-share deal in which it would serve in the role of vendor, as it did with teams in its first few years, StubHub wrote a check, typically for $200,000 to $500,000 a year, that would establish it as the team’s official resale marketplace. StubHub got to keep all the money from the resale transactions, got increased exposure for its burgeoning brand, and got access. The teams got a new sponsor that would not only write a check but also help them deal with a leading complaint from season-ticket holders, who hated eating the cost of unused tickets.

“When we approached them, they’d barely heard of StubHub, let alone understanding there was an opportunity to create a brand-new category for sponsorship,” said Danielle Maged, global head of business development and partnerships at StubHub, who delivered those early NFL sponsorship deals while working for the company as a consultant. “Once we started to communicate what we were trying to offer to season-ticket holders, [the teams] got it.

“We disrupted the existing value chain. We offered season-ticket holders and buyers a lot more control than they ever had been given. That is the polarizing issue at the heart of this. We marketed StubHub as a service to fans backed by the team, so they could safely do what had never been done before in a platform that is managed.”

The decision to go from back-end vendor to official status sponsor changed the way that StubHub was perceived in front offices across sports. Rather than dealing with midlevel executives from ticketing departments about revenue-share arrangements, the company was talking to senior management about midtier sponsorships.

Many of the same teams that initially rebuffed resale as “scalping” changed their minds when it came attached to a sponsorship.

“The minute we called these teams and said, ‘Hey, we’ll pay you a quarter-million or half-million dollars a year,’ they were all ears,” Fluhr said. “It was really the turning point for us. We became an official partner with some of the teams and we were doing college sports and pro sports.

“We did deals with a lot of teams, and we started to get a lot more leveraging clout, because we were moving hundreds of millions of dollars in tickets.”

As teams have come to better understand how much money is in the resale market, those sponsorship agreements have evolved to include more revenue sharing, along with other components.

Some teams see the consumer and pricing data they get from StubHub as more valuable than the sponsorship revenue. StubHub has become such a well-known brand that 60 percent of its traffic comes from people who go directly to the URL. It has come to value the ability to cancel and reissue tickets more than the referrals it gets from the team sites.

“A lot of our deals now are technology deals trying to offer consumers a seamless experience,” Maged said. “It’s not just about buying ads in ballparks. We’re way beyond that now.”

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