The Hubbub Over StubHub

Over the past few years, I've written extensively (here and here) about the precarious relationship between StubHub and Major League Baseball, particularly as it pertains to the cannibalization of primary market ticket sales. So, it wasn't much of a surprise when the Yankees decided to opt out of MLB's just-renewed deal with the on-line ticket broker, opting to form a relationship with Ticketmaster instead. And, almost as predictable was the mound of criticism heaped upon the team for making the switch. Unfortunately, much of the anger has been misguided and many of the underlying arguments have been based on a poor economic foundation.

As a season ticket holder, I would like to believe that the team's new relationship with Ticketmaster will be more fan friendly, but I can not...at least not yet. The reason is because terms of the deal have not been disclosed. Without key details, it's impossible to compare the merits of the Yankees' new platform to StubHub. Will the fees be lower or higher? When will the blackout apply? Is there going to be a higher price floor? All of these issues weigh heavily on an evaluation of the deal, but until they are known, it's not only impossible, but irresponsible, to make broad claims about the Yankees' motives and the impact on fans.

Although the details behind the Yankees' arrangement with Ticketmaster have not been disclosed, the team's dissatisfaction with StubHub is well known. According to the team, StubHub's algorithm, which gradually lowers prices until the blackout period, was leading to sales well below face value, and often pennies on the dollar. Some have argued that this situation is a function of a fair market, so the Yankees, being good capitalists, should either accept the secondary prices or lower the value of the tickets they sell directly to the consumer. That might seem like a sound position, but it ignores several economic fundamentals.

StubHub is a market place skewed heavily toward buyers, which makes sense because, until recently, the online broker charged a flat fee for transactions. Not only is the platform designed to generate lower sales prices, but all of the transparency is weighted toward the buyer as well. In a perfect market, buyers and sellers have equal access to information, but on a secondary market for tickets, information flows one way. Whereas buyers can see the entire inventory of available tickets, sellers have no idea how to gauge demand. Similarly, buyers know the seller's deadline, so they can simply wait them out for a lower price. Further complicating matters is many sellers are offering a fungible product which, in some cases, is still being sold on the primary market. In other words, sellers on StubHub are being disadvantaged from all angles.

So, who cares if season ticket holders can't resell their tickets anywhere near close to resale value? Why should the Yankees care? Because a large percentage of ticket sales are sold to season licensees. It's easy to forget, but those who buy partial and full season plans are fans too (or, at least, the tickets will be used by fans). Although the team should not dismiss the concerns of the individual game buyer, it also has a responsibility to ensure that the value of its season ticket plans is not diluted by the secondary market. Balancing the concerns of these two fan constituencies isn't easy, but under StubHub, the advantage had tilted significantly in favor of those buying piecemeal.

Another common argument is that if the Yankees did not charge so much, the discounts on StubHub wouldn't be so significant. The obvious implication is the secondary market is thumbing its nose at the team's inflated valuation of its product. However, that logic has several flaws, not the least of which is the team uses a static pricing model. Just as the secondary market suggests the Yankees are overpricing tickets for non-premium games, the inflated prices for summer weekends and games against prime competitors suggest they are also leaving some money on the table. Unless the Yankees move to a dynamic pricing model (something the team has resisted), it wouldn't make sense, or cents, for the team to lower prices because midweek games sell for pennies on the dollar. Besides, one result of that action might be increased prices for the best games, which would further price out the "average fans" about whom so many are worried.

Clearly, it's in the Yankees best interest to preserve their season ticket base, so it's hard to fathom why so many have been critical of the team's efforts in this regard (especially by many who scream and holler for the team to spend endlessly on payroll). That's doesn't mean the Yankees should adopt a secondary market that tilts the balance in the opposite direction, but there's no reason to believe that will be the case. Not only will Yankee tickets still be listable on StubHub (albeit without immediate electronic delivery), but chances are the new platform will still allow for discounted tickets, just not at the same levels to which some fans had grown accustomed. Does that make the Yankees greedy? Many will still undoubtedly come to that conclusion, and, to be honest, the team definitely has its own financial best interests in mind. However, in this case, the team's concerns also dovetail with those of its season ticketholders, so, even if that fails to elicit sympathy from those looking to score a cheap set of tickets, it would be nice if the criticism wasn't based on a misrepresentation of the economic fundamentals involved.

Ultimately, the devil may be in the details. If the new arrangement with Ticketmaster strikes a fair balance between season ticket holder preservation and individual game value buyers, the uproar over the Yankees' decision to opt out of the StubHub deal will subside. And, if the Ticketmaster terms prove excessively weighted toward sellers, the outcry will get louder. Either response would be legitimate. However, let's agree to wait for those details to emerge.