In change of heart, leagues embrace secondary ticket sellers

Pity the poor schmo trying to make a buck with his "Need Tickets" sign in the parking lot of a sold-out stadium, watching fans just stream past him because they've already bought their ducats from a virtual scalper.

The NFL and NHL made their entry into that virtual world official this week with announcements of their new "secondary ticket" partners -- Ticketmaster, in both cases. The ticket resale business is off the streets and in the suites.

Leagues still have big issues with some secondary-market players who operate with software that snaps up hot tickets the instant they're on sale. They cut in line in front of Joe Fan and can swamp computer systems, as they did during the Colorado Rockies' online ticketing fiasco leading up to the World Series.

But leagues have made peace -- and, more importantly, deals -- with firms that provide an online market for buyers and sellers of tickets. That's a big shift in a short time. Owners long believed in their divine right to control the distribution of, and collect all the revenue from, their teams' tickets.

Some still feel that way. The New England Patriots have sued StubHub, the secondary ticket market's leading player, for doing business with their season-ticket holders. The team forbids holders from selling tickets for more than face value. (StubHub has countersued and the suits are still pending.) The New York Yankees have put a similar prohibition on season-ticket holders.

But the huge growth of the online secondary ticket market has caused most owners to set aside their old objections in favor of pursuing new revenues. That business has been growing at a 50-60 percent annual clip since 2002 and is now a $3 billion industry. In addition, states have widely repealed or softened anti-scalping laws in recent years, clearing away much of the legal cloud over the business.

The NFL and NHL announcements this week didn't change the economic landscape so much as they gave a final stamp of approval to a business owners once regarded with great disapproval. They had no choice but to follow where some big changes beyond their control were leading them, according to Fredric Rosen, former CEO of Ticketmaster and now chief of a Toronto-based tickets firm, AudienceView.

"The Internet made a shambles of the ability to enforce scalping laws and brought transparency to the secondary market," Rosen says. "[Tickets] became a commodity and the ticket world became a free market. The owners discovered the public was actively participating in a huge way and saw the value of it."

Leagues realized they'd be leaving huge money on the table if they didn't get in bed with their former enemies. Consider the volume and markup at just two big regular-season games this year. At a September game between the Yankees and Red Sox, 20 percent of the fans at sold-out Yankee Stadium bought their tickets on StubHub for an average of $90, according to company spokesman Sean Pate. (The Yankees' average 2007 ticket price was $29, according to Team Marketing Report.) For the Packers-Cowboys game in Dallas on Nov. 29, Pate says, about 7,000 attendees bought their tickets on StubHub at an average price of $300. (The Cowboys' average ticket price is $84, according to Team Marketing Report.)

The leagues want a piece of that action as well as some control over it. All four major professional leagues -- MLB, NBA, NFL and NHL -- made secondary ticket deals this year, as the growth of the secondary ticket market accelerated. StubHub will sell 5 million tickets in 2007, matching its total tickets sold in the prior six years of its existence. While StubHub also does big business in concerts and other events, sports is by far its biggest generator of volume, Pate says.

The NBA made the first move, announcing Ticketmaster as its official secondary market vendor in February. MLB made the biggest, reaching an agreement in August with StubHub that is both the most comprehensive and lucrative among the leagues. MLB will reap $250 million from StubHub over five years, according to industry sources, mostly via its split of revenue on tickets sold.

These deals mean different things in different sports. In the case of MLB, StubHub has exclusive rights to the business. Teams that have been running their own ticket-exchange programs -- the Los Angeles Angels, Chicago Cubs and San Francisco Giants are among them -- must now turn the business over to MLB's official secondary ticket vendor. Clubs can opt out of participating, but those who do will have to link to StubHub on their Web sites.

In the NFL, Ticketmaster will pay a reported $100 million over five years to run what's being called the NFL Ticket Exchange. That sounds like a league-wide operation, but it isn't. Ten of the league's 32 teams use other secondary market vendors and will continue to do so for the duration of their contracts. An NFL season-ticket holder can put his seats for next Sunday's game up for sale wherever he wants: RazorGator, TicketsNow, TicketLiquidator, you name it. He goes wherever he thinks he'll get top dollar.

The advantage for industry leader StubHub is providing the biggest marketplace for buyers and sellers. For example, StubHub currently has about 7,600 Dallas Cowboys playoff tickets available. Ticketmaster's site, TicketExchange, is offering about 660.

Ticketmaster, king of the primary market for sports ticket sales, is scrambling to catch up as a secondary market competitor. It used to accuse the online ticket firms of engaging in unauthorized sales and cast doubt on the security of their transactions. But the secondary ticket market's growth made entry into it an imperative. That's why it has bid aggressively to be the leagues' secondary market vendor.

Ticketmaster's series of deals with the leagues might or might not give it more traction in this brave new world of ticketing. But there is one likely effect of the leagues' further legitimizing this industry. It will hasten its consolidation, which began when eBay acquired StubHub for $300 million earlier this year. More competitors will merge, since business forces likely will require an enterprise to be big to play successfully with the big leaguers of the NFL, NHL, NBA and MLB.

Plenty of owners in these leagues aren't just grabbing the bucks in the deals with Ticketmaster and StubHub. They're also changing their way of thinking about the secondary ticket market. They no longer see it as the enemy but as an ally of their own box office.

"Our teams need to sell a lot of season tickets," says Bob Bowman, chief of baseball's online arm, MLB Advanced Media. "The more vibrant, safe and legal the secondary market, the more likely people will buy season tickets, knowing they can sell their seats for the games they can't attend."

And the leagues' partnerships with ticket resellers yield great data along with sponsorship dollars, according to Neil Glat, an NFL executive who negotiated the Ticketmaster deal. These online transactions provide the NFL with consumer information that aids its sales and marketing efforts.

"We want to be smarter about who's coming into the building," Glat says.

John Helyar is a senior writer for ESPN.com and ESPN The Magazine. He previously covered the business of sports for The Wall Street Journal and Fortune magazine and is the author of "Lords of the Realm: The Real History of Baseball."