In defense of $10,000 Super Bowl tickets
Fans and teams may balk at outrageous resale prices, but the secondary market for sports tickets actually represents the best deal for everyone.
NEW YORK (CNNMoney.com) -- What would you call a $700 ticket going for more than $4,000? Gouging? Scalping? How about a bargain and free enterprise at its best?
This year's Super Bowl between the Chicago Bears and Indianapolis Colts is being played in Miami, in a state that recently removed all restrictions on what a ticket holder can get when reselling tickets.
That change, and the growth in online ticket resale services such as StubHub or RazorGator, are creating truly eye-popping prices for the privilege to attend this Sunday's game.
StubHub, which was bought this month by eBay (Charts), has reported eight tickets so far being sold for more than $10,000 apiece, with an average price of about $4,500, and the cheapest seat going for $2,424. Similarly, RazorGator is reporting an $8,000 price tag for some of the tickets it has sold and an average price of $4,400. All the Super Bowl seats, other than luxury suites, have a face value of either $600 or $700.
With Bears fans having waited 21 years since their last Super Bowl and Indianapolis fans never having seen their team in the championship game since it came to town in 1985, it's natural that demand for tickets has been very strong.
Fans who can't afford ticket prices that are close to the price of a car or a house down payment might want to blame the growth of online resale services. But economists and pricing experts say that the prices are lower than they would have been if old ticket reselling restrictions were still in place and the online services had never started.
Mike Janes, senior vice president of StubHub, says its studies of ticket prices in other states such as Illinois show ticket prices dropping after price caps and restrictions are removed.
"It means that more people are willing to sell, and therefore there is larger supply and, consistent with Economics 101, more supply means lower prices," said Janes. "The demand doesn't change based on the law, it changes based on how popular the team is."
David Lord, president of RazorGator Experiences, the unit of the company that handles not only ticket sales but travel packages to big events, said that the market is far more transparent than it was in the past.
"The common consumer is the dominant provider of this market. It's no longer a broker-led marketplace. There's no back-alley acquisition of tickets the way there was 10-20 years ago. Those days are gone."
The explosive growth of online ticket sales, up to an estimated $3 billion annually according to Forrester Research, has led to 250 percent annual revenue growth at StubHub since it started in 2000. That meant eBay had to bid $310 million for the service.
RazorGator, which started life as a traditional ticket broker in the 1980's, is privately held, backed by such venture capitalists as Kleiner Perkins Caufield & Byers, which helped get Amazon.com (Charts) and Google (Charts) started, as well as Oak Investment Partners and Steamboat Ventures.
There remain some states, including New York and Massachusetts, which have restrictions on the prices that people are legally allowed to charge for the resale of tickets, although New York is moving towards abolishing its limits. The laws are thinly enforced, however, and there's little to keep residents of those states from using the resale sites.
And some teams - including the New England Patriots, New York Yankees and Boston Red Sox - have tried to crack down in recent years on their season ticket holders who resell their tickets, threatening to take away their rights to buy postseason tickets or renew their packages for coming years. The Patriots even sued StubHub in November for handling resale of Patriots tickets; that suit is pending.
Such actions are foolish not only because the teams are waging war on their best customers, but because the growth of the resale market is helping teams sell tickets, and probably at higher prices. How? If fans know that they will be able to resell some of their tickets for a profit, they are more likely to accept season ticket packages increases.
In more a more typical business scenario, imagine what would happen to prices if a company selling stock through an initial public offering or a builder selling a new home tried to put restrictions on what buyers could make when they resold the product.
Frank Luby, partner at Simon-Kucher & Partners, the world's largest pricing consulting firm, said that it's clear to him that the team's primary ticket prices are helped by a robust and free secondary market; moreover, cutting down on no-shows is also beneficial to teams, since empty seats don't pay for parking or buy over-priced beer and food.
Luby said he expects more and more teams to set up their own secondary market for tickets and their ticket holders. But he said while the teams' own services may end up being very competitive, it's not in their interest to try to ban outside services because it would only be limiting the secondary market that helps them.
"It's a tough lesson for them to learn," said Luby. "One of the things that people forget with all the attention that teams get, these are relatively small businesses. There's only a handful that have someone to think about this problem. But the growth of these outside services is unavoidable. They're going to have to find the best way to live with them."