By Sarah Lacy Advertisers, beermakers, and the National Football League are all gearing up for their biggest day of the year -- Super Bowl Sunday. But for a handful of fast-growing ticket companies, the big game is a time to sit back, relax, and thank the Patriots and Eagles for their good fortune.
Not content to just change the way people book their plane tickets, the Internet has also become the playing field of choice for buyers and sellers in the $10 billion market for event tickets -- particularly for the sold-out games, concerts, and plays that fetch top dollar. Called the secondary-ticket market, it includes those bought by professional brokers and speculators, as well as extras that season-ticket holders can't use.
GOOD BUSINESS MODEL. A huge market with tons of small players, it was perfect for an Internet transformation, and in 1999, several entrepreneurs spotted it. Six years later, some 800 Web sites are reselling tickets. Many are simply traditional brokers with a Web site, but several profitable and growing businesses -- TicketsNow, StubHub, and RazorGator -- have emerged and are poised to take on eBay (EBAY), the master of helping people find the hard-to-find online.
TicketsNow Chief Executive Mike Domek was a broker for seven years. He worked the phones out of his small Chicago office, buying tickets from season-ticket holders or soliciting them through ads, then reselling them for a profit. He had long sought a better way to connect buyers and sellers, and saw a future online. Today, his business employs 100 people and generates annual revenue north of $40 million from online sales and the licensing of its listings, which allows smaller online brokers to have access to a ticket inventory.
Jeff Fluhr had the same idea on the West Coast. A student at Stanford Business School with a background in finance, he had never worked a day in the ticketing industry but knew a good business model when he saw it. He hired some engineers, wrote some code, raised startup cash from friends and family, and within a year, San Francisco-based StubHub.com was born. He also now employs about 100 people and will sell $100 million in tickets this year -- a figure he says is growing 300% annually. The outfit gets about 25% of the take.
TRAFFIC COMPARISON. Further south, in Los Angeles, there's RazorGator. Last year, it sold 4,000 Super Bowl tickets -- more than 6% of the total. About 5,500 have been sold for this year's game. In 2004, RazorGator scored a coup by signing a deal with Yahoo! (YHOO) to be the second-hand ticket provider behind its own Yahoo Tickets site. Like TicketsNow, RazorGator is run by broker veterans, some with more than 30 years of experience, says President and CEO David Lord.
Each resale site attracts thousands of visitors per month and has scored important relationships -- TicketsNow with brokers around the country, StubHub with major league sports teams, and RazorGator with Yahoo and MSN. But unlike many dot-coms from the largely doomed Class of 1999, they're profitable. Like eBay, none of them absorbs the cost associated with buying tickets, but they get to take as much as a quarter of the sale proceeds just for connecting the two parties.
As privately held outfits, each online ticket reseller can lay claim to the unverifiable title of market leader for now. But a recent study by Compete Inc., a Boston research firm, shows StubHub getting the most traffic. Of consumers that visited one of the three sites, 48.8% went to StubHub, 40.8% went to TicketsNow, and 10.4% went to RazorGator, says Gregory Saks, senior associate at Compete.
CREATING A MARKETPLACE. Most of these visits are a result of paid-search ads for keywords like "Super Bowl," he says. None of the sites has a strong national brand that's driving traffic -- making that a big goal for all three in 2005.
Success may also come down to business models, says David Kirsch, a professor of entrepreneurship at University of Maryland's Robert H. Smith School of Business. Kirsch studies dot-com businesses, and in the ticket world his money is on StubHub.
That's because it's trying to create a marketplace, like eBay or the New York Stock Exchange. It never touches the tickets, and the bulk of people listing them are individual season-ticket holders, not brokers. TicketsNow, RazorGator, and others are aggregators, which pull together inventory from ticket brokers all over the world, he says. Individuals can list tickets too, but that's not the bulk of their supply.
ACHILLES HEEL. TicketsNow, for one, must have the tickets in hand before it lists them. That cuts down on fraud and builds trust, but it's less efficient when buyers and sellers can't interact more directly, Kirsch says. "That's why eBay is so successful," he says. "Aggregators can't scale the same way."
But RazorGator's Lord argues that his company's ties to the ticket-broker world are a plus. Because of his experience, he can organize corporate outings to sold-out events and the accompanying parties. Lord compares it to an online travel site like Expedia (IACI) vs. a site with a full-service travel agent behind it.
The sites' real competitor is eBay, which sells more than $300 million in tickets annually and boasts by far the biggest community of buyers and sellers. But the online auction giant has a huge Achilles heel: The potential for fraud. Every big sporting event is followed by news stories of people who got ripped off buying fake tickets. Although buyers can check out how others have rated a given seller, eBay is largely run on the honor system.
BUILT-IN GUARANTEES. The smaller competitors, on the other hand, offer 100% guarantees. If you get a bum ticket, they replace it for free. While TicketsNow inspects the tickets in-house before listing them, StubHub and RazorGator hold the seller's credit-card number. If they sell fake tickets, they get charged for the replacements. The companies say the policy generally deters scammers.
With online tickets, fraud is particularly problematic because buyers don't usually learn they've bought fakes until they get to the turnstile -- when it's too late. Even if their money is refunded, what they really want is to attend the event. That's why Kirsch expects eBay will eventually buy a business like StubHub. "People just want some guarantees built in," he says.
Until then, these companies will strive to outdo each other, one event at a time. Once Super Bowl mania dies down, U2's North American tour will become the next hot ticket. After that? The most lucrative season of all: Baseball. Online ticket peddlers may not be blessed with another historic World Series, but as more people discover their sites, expect 2005 to be another banner year.
Shopping for Super Bowl Tickets Online
Most Expensive Ticket
Impossible to tell: Many are listed for 99 cents but have unspecified reserves that must be met before the bidder wins
$4,499 each for club level
Frustrating keyword search on "Super Bowl" turns up 9,000 listings, most of which aren't game tickets
$2,668 each for top deck, row Z tickets
$7,947 each for lower level
Good shows all tickets for the game on one page with seating chart, prices, and other details
StubHub offers replacements for any fraudulent tickets, charging them to the original seller's credit card
$2,620 each for top deck, row X
$8,750 each for lower level
Good separates out searches for the big game and other parties
TicketsNow takes possession of the tickets and verifies them before listing
$2,360 each for tickets on the top deck between 20-yard lines
$4,087 each for lower level between the 35 yard lines
Most foolproof Super Bowl promos dominate the homepage, and with one click, RazorGator aggregates many listings by section and price
RazorGator offers replacements for any fraudulent tickets, charging them to the original seller's credit card
Lacy is a reporter for BusinessWeek Online in the Silicon Valley bureau