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StubHub's winning ticket

The lively online market for the big Patriots game shows how an upstart site has changed ticket sales - and why it is our Sports Business of the Year.

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A weekly column by Chris Isidore, CNNMoney.com senior writer

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StubHub President Chris Tsakalakis - his company is transforming sports business.
StubHub President Chris Tsakalakis - his company is transforming sports business.
StubHub signed a sponsorship deal with Major League Baseball in 2007, but saw the NFL go with rival TicketMaster.
StubHub signed a sponsorship deal with Major League Baseball in 2007, but saw the NFL go with rival TicketMaster.

NEW YORK (CNNMoney.com) -- When the Patriots try to finish off an undefeated season tonight, thousands of Pats fans will come out to Giants Stadium and thousands of Giants season ticket holders will be counting the money they collected by selling them the tickets.

To some people, those simple business transactions between football lovers were signs of the apocalypse, or at least proof that fans have become as disloyal as free agent players or owners who move their teams in the middle of the night in pursuit of a sweeter stadium deal from a new set of taxpayers.

And greasing many of those transactions, and catching some of the flack along with the Giants fans dumping their tickets, is StubHub, the leading online ticket resale service that has handled the sale of more than 6 percent of tickets at Giants Stadium for the big game.

But the secondary market - the formal name for the slur known as ticket-scalping - has always been a part of sports. And this weekend's game shows that the secondary ticket market benefits everyone the more developed it becomes.

Giants fans who have to shell out big bucks for season tickets can make back a bit of that money by reselling their seats for a game that means little to the team, which has already earned an entry to the playoffs.

For the Giants, the secondary market ensures that the stadium will have few empty seats.

And Patriots fans will have a weekend getaway and the chance to see a game they might be able to tell their grandchildren about.

A lot of these fans found one another online. Ticket resale Web sites have blossomed, growing as much as 50 percent this year to become a $2.5 billion business, according to an Forrester Research.

No company has done more to transform that business, and the business of sports overall, than StubHub - and that's why I've named it my first annual Sports Business of the Year.

It's been a busy year in the business of sports. Clashes between sports networks and cable giants. Free agent contract dramas that overshadowed the World Series. Industry-changing sponsorship deals.

But nothing has been more significant, or will have as long-lasting effect, as the rise of the market for ticket reselling.

StubHub, which handled more than 5 million ticket sales in 2007, or more than it had done in its six-plus year history leading into 2007, is clearly the leader in that field.

It's name is on its way to becoming the shorthand for those buying and selling tickets, the way "to Google" has come to mean conducting an Internet search.

More than 5,000 of those ticket sales on StubHub were for this Saturday's Patriots-Giants game, a bit more than double the number of Giants tickets the site handles in a typical week. About a quarter of the tickets sold went to buyers in New England states, while just over half stayed in the New York-New Jersey area, meaning there's a good chance more Giants fans than Patriots fans got tickets to the game through StubHub, despite the gnashing of teeth.

The most expensive seats sold to Saturday's game went for $1,600 a ticket. The average was $222.

StubHub was launched by a couple of Stanford Business School students, Jeff Fluhr and Eric Baker, after the Internet bubble burst in 2000. Fluhr said his parents were upset when he left school to start the company. But he and Baker, along with their investors, saw some business advantages to an online ticket marketplace, including a proven revenue stream and an existing off-line version of a fragmented industry.

"We knew that on every transaction we were making money," said Fluhr. "This was existing consumer behavior. It wasn't like we were trying to create a new behavior. We were just trying to provide an easier and safer way to do it."

Baker left the company soon after it started, and eventually founded Viagogo, a European competitor that is moving into the U.S. market. Fluhr left soon after he sold StubHub to eBay (EBAY, Fortune 500) for $300 million at start of this year. He remains a consultant to the company.

The new leadership at StubHub comes from eBay, which has allowed it to essentially continue to operate as a stand-alone company, said Chris Tsakalakis, the president of StubHub, who had been with eBay since 2003, most recently running its ticketing business.

Earlier this year, StubHub passed parent eBay for the first time in the total number of tickets sold, according to Tsakalakis.

Tsakalakis said he understands that some fans blame StubHub and other online sites for driving up prices of tickets to hot events. But he believes he's simply opening up the marketplace. Many tickets end up selling for less than their face price, particularly as demand for the tickets falls.

For example, the average ticket price on StubHub for Sunday's Jets-Chiefs game - a contest being held in the same stadium as the Patriots-Giants game but with far less at stake - was $74. And tickets for the Seahawks-Falcons game in Atlanta, a game with even less demand, was going for only $49.

Tsakalakis doesn't apologize for the forces of supply and demand.

"If par value of stock were treated like face value, we wouldn't have a stock market," he said. "People put a lot of faith in face value. But there's a big difference between face value and market value. The market value of a product really varies over time. The real demand is highly variable, highly dynamic."

But this was also a year when not just fans embraced the online ticket resale market. Finally, so did the leagues and many teams.

The eBay ownership of StubHub was a key to the company becoming the official ticket reseller of Major League Baseball.

And that sponsorship deal is a sign that many sports teams and leagues have finally figured out that the secondary market is not only something they can't fight, it's something they can and should embrace. And that is helping that market to start to reshape the business of sports.

The fewer no-shows means increased concession sales. More important, teams are seeing greater, not reduced, demand for their original ticket sales.

Fans are more willing to buy seats if they know there's a safe, liquid market to resell tickets. It makes them more willing, and able, to buy season and partial-season ticket packages. Even baseball's top officials concede the sport's record attendance this year was helped, not hurt, by the growth of StubHub.

There are still some states, such as Massachusetts, where the resale of tickets at a profit is basically illegal, but those laws are on their way out. Not surprisingly, StubHub led the charge to change the laws governing reselling tickets in many states, including New York.

Of course, some teams are still trying to fight the trend. Most notable in this category are the Patriots, which sued StubHub in November 2006 for violating the team's policy on ticket resale and Massachusetts law.

A month later StubHub countersued, accusing the the team of monopolization, conspiracy to restrict trade and unfair trade practices. Both suits are pending.

The legal battle probably didn't help the company in its effort to reach a sponsorship deal with the NFL similar to its MLB deal. Last week, the NFL signed up with IAC/InterActiveCorp (IACI, Fortune 500) unit TicketMaster for a sponsorship deal.

But that sponsorship loss is not as serious setback for StubHub. In fact, with TicketMaster making a push in the ticket resale market, it can only serve to grow the overall online ticket resale industry. And that's a winning ticket for both fans and teams in the long-run. To top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.