eBay's Place in the Dirty World of Ticket Scalping

Update: eBay’s acquisition of StubHub has just been announced.

The secondary market for event tickets is a dirty but lucrative place to be. I have first hand knowledge from my time as COO of RazorGator, a Kleiner-backed ticket marketplace based in Los Angeles. There’s a food chain, starting with the guys that hang out at stadiums before games and concerts scalping tickets, up through ticket brokers that actually have a place of business, finally ending with the ticket marketplaces offered by companies like eBay and StubHub.

The entire food chain is closely connected, and the ticket brokers in the aggregate control most of the market. They have elaborate computer systems for trying to obtain the hot concert tickets from Ticketmaster the second they go on sale. Theater is covered with insiders at the box office who hold the best tickets for hot shows for brokers, and receive a cash kickback for their trouble. Brokers also own season tickets for the hottest sports teams, and develop long term relationships with fans who control good season tickets and don’t want to give them up, but rarely attend games. It’s a relationship, mostly cash business, and the best ticket brokers make millions a year. Little of that revenue actually gets reported to the IRS.

Most people would be surprised at how few people control most of the tickets for the really big events like the SuperBowl and March Madness.

Brokers sell tickets any way they can. They hire scalpers to hang out at events, telling them not to hold too many tickets or cash at any one time in the likely event they are arrested or shaken down by the police. They have their own websites. And they list their tickets on marketplaces like eBay, RazorGator and StubHub. Usually they list the same tickets in multiple places, and if they are sold multiple times they try to find comparable replacement tickets, or just bail on the customer.

eBay keeps their hands fairly clean, although they move a lot of event tickets. They never own the tickets directly which keeps them above the ticket scalping laws, and they try to enforce the complicated and varied state laws regulating secondary ticket sales. The many brokers who sell tickets on eBay tend to treat eBay customers pretty well, mostly out of fear that eBay will ban them if they don’t.

Will eBay Acquire StubHub?

StubHub is another ticket marketplace that has done extremely well in the last few years. Rumors suggest they moved more than $400 million in tickets last year, earning $10 million or so in profit. There have been rumors for some time now that eBay is in the process of acquiring StubHub for $300 million or so. Bambi Francisco first reported this last October. The Wall Street Journal (subscription required) is repeating the rumor today, saying a deal may come as early as this week.

Our sources at ebay denied the October rumor, but they are strangely silent today.