Shift in Secondary Market Policy Has Ticket Brokers On Ropes

JohnWallStreet

Ticket brokerage is a portfolio play, so with the NBA, NHL and MLB all intent on finishing their current seasons without fans in attendance and the NFL expected to be in ‘reduced fan scenario’ this fall, the business is facing a tumultuous time. But the lack of games and ticketing inventory is only the second strongest headwind brokers are facing. A shift in secondary marketplace policy - that now has the likes of StubHub, Vivid Seats and SeatGeek all paying out sellers after the event - has spawn serious liquidity problems for a significant portion of the brokerage industry. Remember, while the NBA, NHL and MLB have no intention of playing in front of fans again this season, they’ve yet to formally cancel games - which would trigger a credit (not a help for liquidity purposes) or refunds - either.

Our Take: Historically speaking, the secondary ticketing marketplaces have paid out sellers “on sale” (i.e. once the payment was processed) oron confirmation” (i.e. when the tickets were delivered) and brokers would then reinvest those funds into more inventory. While the change is in the industry’s best interests (the prospect of having to claw back funds in the event of a cancelation is problematic for the entirety of the supply chain), as one C-level ticketing executive explained “[the delay in payment] means that brokers have no capital to invest and thus no revenue coming in.”

With no capital to invest and ticket inventory at a minimum - regardless of how many fans are ultimately permitted to attend NFL games - “a number of brokerage businesses are bound to close up shop.” The marketplace executive we spoke to said he believes the 10-20 companies that sell “hundreds of millions of dollars worth of tickets each year” should be able to weather the storm (they have the powder on their balance sheets to cover short-term losses) and the “really small guys without any fixed costs can likely remain opportunistic, but the brokerages in the middle of the road - those with a decent amount of overhead (think: a team of salaried employees) - are bound to have liquidity issues.”

Consolidation in the number of sellers on the secondary market does not necessarily mean that the amount of tickets sold through the broker community will decline (assuming capacity crowds aren't a thing of the past). Our source suggested there would be “brokers there to fill the void”, good news for marketplace businesses that rely on their supply. While it’s unclear how just many brokers have folded up shop since the sports hiatus began, the secondary marketplaces have yet to miss a beat. In fact, ticket sales in the wake of the NFL’s schedule release (a date akin to Black Friday within the industry) “were very brisk; comparable to last year. Down just single digits.”

The NFL has taken the position that it will be business as usual come September 10th, but it’s plausible - if not likely - that fan capacity will be limited in many markets. While the prospective loss of ticketing inventory would certainly hurt ticket brokerage businesses (as mentioned, having funds tied up in credit towards the ’21 season isn't going to be of much help in the short-term), the social distancing guidelines expected to be in effect have the potential to be equally troublesome. The ticketing executive explained “typically if a broker lists four tickets on a marketplace they can be sold together, in pairs and theoretically as four singles”, but if seating capacity is limited and “the broker is forced to sell the four-pack to one buyer” (because separate parties must be 6 feet from each other), it will limit the pool of prospective customers and depress ROI on the sale.

It’s logical to assume if seating capacity is limited seats will be in greater demand (thus driving up prices and providing brokers with a potentially lucrative opportunity). Our source wasn’t so sure. Doubts remain that fans will return to sporting events before a vaccine is found. A recent Kraft Analytics Group study indicated that it’s either “too early to tell” if fans would come back post-lockdown or believed that fans would be “slow to return” in 13 of the 23 NFL markets included within their study.

Fans avoiding the ballpark in droves until a vaccine is found remains the single greatest threat to the brokerage business. That’s because if teams come out of the sports hiatus “in need even further help selling tickets”, they could theoretically lean on Ticketmaster (the primary ticketing partner for most) to dump their exclusive business model and allow/enable available seats to appear across various secondary marketplaces (yes, the financials would have to be addressed). While it’s purely speculation at this point, if that were to occur ticket brokers - whose value is currently very much tied to the distribution of tickets -“either become pricing and technology partners at much lower margins, continue on with significantly less inventory or simply exists as risk mitigators.”

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