What You Should Know About the Online "Fan-to-Fan" Ticket Marketplace

One of my friends asked me about a story she read involving a Kobe fan who bought tickets on StubHub to the Lakers' last home game of the season before Kobe announced his retirement. (Thank you, Angelic!) After the fan bought the tickets, the seller claimed to have typed the price incorrectly after Kobe announced his retirement and the price for comparable tickets skyrocketed. The seller canceled, relisted, and resold those same tickets. In the end, StubHub tried to find comparable tickets but came up short for the Kobe fan, and the Kobe fan was furious at how a giant like StubHub could play a role in such an injustice so nonchalantly.

The fan and the writer who posted the fan's story believe this is not right, though they use other words to get their point across. My friend asked me, "Is this legal?" My answer is a little long because the online secondary ticket market is full of complications, but the short answer is "Yes, this is legal from the online secondary ticket platform's stance."

With the convenience of this market comes risks for both buyers and sellers. Here are a few points y'all should be aware of to better understand how this market operates, what kind of role it plays in the sports industry, and why it is legal - however unfair it seems on the surface - for StubHub to handle the Kobe fan's situation the way it did:

1. Online secondary Ticket market platforms are neither buyers nor sellers.

Think of these platforms like the real estate broker you may hire to buy or sell a house. They do not have an inventory, they help bring together buyers and sellers who may be interested in doing business with one another, and they take an agreed-to proportion of the money after the transaction is complete. They neither hold the subject of the transaction nor receive the subject of the transaction, and they lay down terms and conditions that the buyer/seller must agree to in order to use their services. A broker is in no way necessary for the buyer or seller to get what they want, respectively, but a broker can be helpful to opening up the most options, especially when time is a valuable commodity, so long as parties remain prudent.

StubHub is, self-professedly, "an online ticket marketplace, where fans buy or sell sports, concert, theater, and event tickets. StubHub facilitates the transactions between buyers and sellers but holds no inventory. Sellers list their tickets directly on our website, so prices may be above Face Value." StubHub relies on both parties to each transaction, buyers and sellers, for its business to exist. The integrity of the business' existence, therefore, is largely in the hands of those using its services. This incentivizes both the business itself to monitor the platform to the best of its ability and the users as well to follow StubHub's terms in accepting its services.

2. The secondary ticket market is an estimated $5 billion industry in the United States.

In other words, this market is H.U.G.E.

Traditional ticket brokers, online ticket brokers (e.g., StubHub), and the people you pass who try to sell you tickets outside venues make up the secondary ticket market. Sellers in this market are commonly referred to as "scalpers," a term that used to have a negative connotation but has been wiped clean in recent years, because the sellers take advantage of the excess demand in the market. The seller in the original market (e.g., a sports team) often sells tickets for less than the highest price the market can handle in order to sell out or to create a larger fan base. So, once demand is a lot higher than the supply, the secondary market sellers get a hold of the tickets and sell them above the original market price (i.e. face value) because those sellers set the ticket price where the serious prospective buyers value them - above original price and up to the highest level the market can handle. Thanks to minimal government regulations and the Internet, brokers host ticket transaction platforms that people can use so freely that the U.S. market grows about 12 percent each year.

3. There is no federal law governing the resale ticket market.

Instead, states are allowed to have their own regulating laws, and those laws vary rather significantly state-by-state. Some states choose to try regulating who can resell tickets and where tickets can be resold while others have completely repealed their bans on ticket scalping.

For example, Minnesota and Connecticut repealed their laws prohibiting scalping. In contrast, Massachusetts requires ticket resellers to get a license from the state and, furthermore, those who are licensed cannot charge more than $2 higher than face value but can impose a "reasonable service charge"(i.e., the reseller's costs incurred in getting and reselling). Then there are states like Michigan where ticket scalping ban is good law. In Michigan, it is a misdemeanor to sell tickets over face value without the event owner's/sponsor's permission, and if a nontransferable ticket is sold to the person whose name appears on the ticket or it becomes registered under that name with the original seller, it cannot be resold. Michigan legislatures are beginning to push for legalization.

StubHub has had its fair share of time in court since its website services have a multijurisdictional reach. The New England Patriots sued StubHub back in 2006 for "(1) tortious interference with contract, and (2) tortious interference with a prospective contractual relationship" under its team policies and state laws. StubHub unsuccessfully claimed immunity, and the two parties settled three years later. The original sellers are not always the plaintiffs, however. Analogous to how the Kobe fan may elect to pursue, fans have sued online ticket resale platforms like StubHub (see Hill et al. v. StubHub). Last year, StubHub uncharacteristically went on the offensive and sued Ticketmaster, another online ticket platform that has its hands in the original ticket sale market and the secondary market, and the NBA's Golden State Warrior franchise. It alleged that forcing ticket-holders to resell on Ticketmaster constituted illegal "tying" (an antitrust claim) violating the Sherman Act, but StubHub fought unsuccessfully.

Click here to read the Northern District of California's full dismissal of StubHub, Inc. v. Golden State Warriors, LLC, and Ticketmastser, LLC. *

Why is there no federal law? Part of the reason could be the high level of difficulty in regulating a fan-to-fan market. Laws typically err on the side of protecting the consumer in business practices. In a fan-to-fan secondary resale market, though, consumers are likely on both sides of the transaction. Therefore, it is no surprise that the current trend in ticket resale regulation is categorized more as deregulation, for the movement is shifting toward accepting the practice.

4. Each platform has numerous user agreements, terms and conditions, and policies as a way to facilitate transactions with both parties' best interests in mind.

Who just agrees to something they don’t read?
— from South Park, s15e1 "HumancentiPad"

Any online marketplace that is business-to-business in nature has guidelines to follow to enjoy certain protections that the law offers. As an online secondary ticket marketplace, StubHub makes its users agree to many terms that the majority of people do not take the time to read. Remember the South Park "HumancentiPad" episode poking fun at the insanely long Terms of Service users agree to and never read? If you need a refresher, here is a clip.

Here are important documents anyone using StubHub should read. Whether you are the buyer or the seller, knowing the rights and responsibilities of all parties can help avoid misunderstandings and show you the secondary market platform's role in the transaction:

  • User Agreement: This is the biggie. By agreeing to this, you agree to all the extra agreements with links in the document as well.
  • Seller Policies: StubHub explicitly lists what sellers cannot do plus rules for posting tickets and getting tickets to buyers. This is to protect the buyers' interests but also to help sellers get their money and avoid any consequences that may arise from their actions on StubHub.
  • FanProtectTM Guarantee: Through this, StubHub makes certain guarantees to buyers and sellers. However, some users have been very vocal that they do not believe this protects sellers whatsoever. In my opinion, the core section is under FanProtectTM for Buyers and Sellers labeled "Abuse of the FanProtectTM Guarantee." It states, "StubHub will investigate all claims under the Guarantee and determine resolutions on a case-by-case basis. Such decisions are final" and proceeds to discuss actions it reserves the right to take where abuse is found.
  • Buyer Q & A: This highlights many frequently asked questions pertaining to buying and selling tickets in addition to general questions about how to use the platform.

Through these agreements with the secondary market platform, the users agree to let the platform pass on any liability risks to those users in each individual transaction. All of this makes StubHub's actions with the Kobe fan legal - it placed the buyer and seller on notice of the terms, including StubHub's liability waiver, and does not let users go about using the platform services without agreeing to the terms; it employs procedures that allowed Kobe fan to notify StubHub of the seller's shady practices; it tried to mitigate the damages by looking for comparable tickets; and, although we do not know whether StubHub took any action against the seller (e.g., temporarily or permanently suspending the seller, reporting abuse to appropriate legal authorities), we hope they did.

The closest federal parallel I can think of - since there is no federal law on the matter - to show the care these online secondary ticket market platforms take is the Digital Millennium Copyright Act (DMCA) and YouTube. YouTube's services span worldwide, and millions of people use its services. In the US, the service provider has a series of steps it takes to comply with the DMCA that allows it to be immune from liability in copyright infringement claims. Its system requiring viewers to "flag" videos posted places the burden on copyright holders to monitor their rights and follow up with the posted requisite procedures to pursue legal action. The burden is also on the poster to make sure they are not violating any federal or state laws in sharing their videos. The law makes the platform have a system that puts viewers and posters on notice (among other more complex details), and if it complies with appropriate "take down" procedures, it is immune from liability.

* For the record, StubHub does qualify for immunity under the DMCA because it has a section in its User Agreement on how to report intellectual property infringement and how to challenge a DMCA "take down." It seems to mirror these procedures in handling abuse generally. *

In order for these types of online platforms to exist, they need to have some level of immunity because it would be unreasonable to expect otherwise. That is why online platforms take the precautions they do even when the stories about how they successfully mitigate parties' losses are not given as much media attention. We give a little so we can take a little.

5. The Better Business Bureau (BBB) has reviews on these online platforms that are available to anyone who wants to see them.

On a scale of "A" to "F+", the BBB gives StubHub an "A" rating despite all the complaints that surface about StubHub similar to the Kobe fan's cry. The BBB uses 13 factors in determining a business' rating. For StubHub, this included the length of time it has been operating, its response to 362 complaints filed against the business in the past three years, and the resolution of those complaints filed against the business.

6. Some teams and leagues have partnered with specific ticket resale platforms to satisfy the demand the market has and the role it plays in the larger sports and entertainment arena.

The ‘natural monopoly every manufacturer has in the production and sale of its own product cannot be the basis for antitrust liability.’”
— Stubhub, Inc. v. Golden State Warriors, LLC, & Ticketmaster, LLC (citing Belfiore v. New York Times Co.)

These partnerships are a natural result of StubHub's failed lawsuit against the Warriors and Ticketmaster, but they are also strong evidence of the movement toward acceptance. Before we started to really analyze the economics of the situation, team executives likely believed that secondary ticket resellers earned a profit that really belonged to the team as the original seller offering the ticket. Now we understand that belief is mistaken.

A party who wants to resell a ticket takes on considerable risk that team executives should not have to burden themselves with in two distinct ways:

  1. Resellers in the secondary market assume the ticket will hold its original value and maintain the same level of demand as the primary market.
  2. On top of that, resellers assume that the demand will be above the current asking price in the primary market to keep the market from collapsing on the whole.
Screenshot of Michigan's ticket platform on its website promoting its official partnership with StubHub, http://www.mgoblue.com/tickets/marketplace.html

Screenshot of Michigan's ticket platform on its website promoting its official partnership with StubHub, http://www.mgoblue.com/tickets/marketplace.html

Example: The University of Michigan - StubHub Partnership

To illustrate, look at the University of Michigan. Michigan is one of a handful of NCAA member institutions that has partnered with StubHub in recent years. Former athletic director Dave Brandon aggressively made this move as one of many sharp changes to the university's athletic department procedures and policies. "The University of Michigan is proud to team up with StubHub and Paciolan to provide Wolverine fans with a trusted and easy to use ticketing platform," he announced. "We are confident that our fans will appreciate the convenience and security this partnership provides when purchasing or selling tickets."

Honestly, this looked like a logical move. Football ticket demand was high with an huge waitlist that you paid $500 to get on without guarantee, season ticket holders (students and otherwise) did resell tickets for much more than face value despite state laws, and the market showed no sign of collapsing because the overflowing demand has existed for a long time. As Brandon increased season ticket prices (i.e., increased face value) dramatically, the product on the field went in an inverse direction.

The institution's new partnership with the secondary market platform revealed that the ticket face value was higher than the demand so that the primary and secondary markets were hurt. Michigan's football ticket market collapsed not because of the secondary ticket marketplace partnership but because of the decreasing product quality. The partnership is what gave us the evidence. As soon as the product quality went back up, the partnership helped repair the primary and secondary markets. Demand increased well above supply, prices were "reasonable" however the markets viewed them, and the partnership flourishes.

All in all, we are looking at a growing fan-to-fan marketplace that the law wants to lightly regulate but keep free at the same time. Risk comes with convenience for both sides of the transactions. More often than not, we are the players in this market, and these platforms give us the arena. The law intends to protect all parties' interests, but we have to approach the market reasonably and diligently so we can have reliable transactions as well as markets that operate to their fullest potential.