StubHub May Have Found the "Golden Ticket" in the Contest for the Resale Ticket Market

Everyone knows StubHub and Ticketmasters are competitors in the resale ticket market, but one side might have a leg up after a temporary knock down. EBay-owned ticket reseller StubHub announced that it is filing suit against Ticketmaster Entertainment, Inc., the nation's primary ticket seller for sporting and entertainment events, and the NBA's Golden State Warriors, the team that some boast is now "clearly, clearly the best team in the league" and may have this season's MVP as its leader. In the complaint filed on Sunday, StubHub alleges that Ticketmaster and the NBA team engaged in "unfair and illegal anti-competitive business practices that prevents the fans from deciding how they want to resell their tickets and which artificially drives up ticket prices." You can read the full complaint here at your own pleasure.

I know what you are thinking. How can a company and a team prevent fans from reselling tickets in the secondary market where StubHub operates, especially when Ticketmaster is mostly known for operating the initial sale of the team's tickets in the primary market?

 Source: http://blog.stubhub.com/wp-content/uploads/2015/03/2015-03-29_1_Complaint.pdf

Source: http://blog.stubhub.com/wp-content/uploads/2015/03/2015-03-29_1_Complaint.pdf

Well, this is where it gets interesting.

Since 2012, Ticketmaster has been the Warriors' exclusive ticketing partner. The Warriors have every right to enter into exclusive deals for the "first sale" of tickets so that fans can purchase primary market tickets from Ticketmaster and no one else. Ticketmaster holds exclusive ticket-sales agreements with many, many teams. That is not the issue. StubHub claims that the two defendants utilized this agreement to "create and exploit a captured monopoly Secondary Ticket Exchange by illegally excluding competition from providers of Secondary Ticket Exchange services."

What exactly did they do? Allegedly, they "cancelled or threatened to cancel fan ticket subscriptions to Warriors season and post-season tickets if fans choose to resell their Warriors tickets over a Secondary Ticketing Exchange that competes with Ticketmaster’s" like StubHub's exchange. This, StubHub says, gave a "Hobson’s Choice to Warriors fans: use Ticketmaster’s Secondary Ticket Exchange exclusively or forfeit your Warriors tickets altogether." StubHub claims that the NBA team told fans that if they chose to resell tickets through a ticket exchange other than Ticketmaster's, they would have ALL ticket privileges taken away, i.e., they would not be offered the chance to purchase playoff tickets for the season which they were season ticket holders nor would they be invited to purchase season tickets the following season. Ticketmaster and the Warriors went further in their anticompetitive campaign, according to StubHub, by misleading consumers about the legitimacy of other secondary market exchanges.

Why did Ticketmaster and the Warriors do it? StubHub identifies one big reason in its complaint - "to reap service fees and profits that they could not earn in a competitive Secondary Ticket Exchange environment." That is a hefty statement. Then again, it is coming from one of the strongest competitors in the relevant market, and as you will see below, it might have merit.

How is StubHub arguing that this is illegal? StubHub claims that the defendants' actions violate sections 1 and 2 of the Sherman Act (U.S. antitrust law) and California state law. Section 1 prohibits anticompetitive behavior, namely, that contracts to restrict trade are illegal. Section 2 supplements the prior section by focusing not just on the anticompetitive act but the anticompetitive result: monopolization. One frequent issue in antitrust cases is defining the relevant market. It can be workdwide, national, regional, industry-specific, or a combination of a variety of factors.

So, StubHub alleges that Ticketmaster and the Warriors made this agreement and threat to monopolize the secondary ticket exchange market and cut out competitors. For example, StubHub is likely one of the first websites you visit when you can no longer attend an event and want to get rid of tickets if friends and family won't take them out of your hands. Here, StubHub, inarguably a strong competitor, has been cut out of the market for ticket sales in the Warrior region. Listings of Warriors tickets on StubHub have dropped 80% since last year. It looks like the alleged threat worked. If StubHub's claims have evidentiary support, Ticketmaster could make similar agreements with every NBA team and cut out competitors in every NBA team fan region unless they are stopped. Not only could this knock out all competition but it could greatly take away consumer choice and artificially raise ticket prices, and consumer protection is one of the main (or some may say the main) purpose of antitrust law.

How did Ticketmaster respond to StubHub's allegations? On Tuesday, the Warriors' website stated that the ticketson Warriors.com and NBATickets.com, Ticketmaster's secondary ticket exchange here, are the "only sites where tickets are guaranteed to be authentic." Ticketmaster chimed in that the NBA teams want "resale to be a secure experience, not an opportunity for scalping or fraud" and that third-party secondary market providers' money-back guarantees fail to guarantee the tickets' authenticity. Furthermore, Ticketmaster denies that it forced Warriors fans to resell their tickets on the Ticketmaster platform altogether, calling the claim "baseless" and "without merit."

This case was literally filed this week, but since this is regarding a huge market in the sports industry, everything to follow will definitely stimulate discussion.