Sunday, October 21, 2012
MLB’s Haves, Have-Nots Not StubHub’s Fault
Now that the 2012 Major League Baseball postseason is in full swing, what better time than now to revisit the access fans have to attend MLB games?
It has been the norm over the past decade or so for the haves and have-nots being the new normal during the playoffs, and fans' access to tickets, including the league division series, the World Series, and now the expanded wild card games.
That means that the corporations, media, team employees, and the very well-heeled get first crack at postseason seats. There is then a public lottery for any remaining seats. In the case of major market stadiums, however, that means the high altitude or nose bleed sections; some with obstructed views.
Yet MLB's Major League Baseball Advance Media, LP (MLBAM) decided to put its proverbial toe in the water and to test the secondary ticket or re-sale market, when it decided to enter an agreement with StubHub, a subsidiary of eBay, beginning with the 2008 MLB season.
StubHub, which became an eBay subsidiary in 2005, but five years into its existence, is now the second largest ticket broker service other than Ticketmaster Entertainment, LLC.
As MLB, not unlike other professional sports leagues, college teams — including those belonging to the NCAA — entertainers and musical artists, saw a way to generate more revenue, it too jumped in the pool.
But the StubHub operation and MLB's goals in relationship to StubHub is worthy of some attention after their initial five pact comes to an end this fall. Their contract is up for a possible renewal of their relationship, and Ticketmaster may indeed make a run for MLB's business, before it all shakes out.
Firstly, the secondary ticket has been misrepresented to the average fan by many MLB team spokespersons, within the media, and by MLB itself. And most fans have no inkling as to its intricacies or mechanisms. But that is done by design.
The objective is to hide-the-ball, so to speak. And not unlike many a business these days, such as banks, telecommunications, airlines or hotels, they try to hook customers and redact as much of the fine print as is legally possible; and sometimes not even legally.
How MLB and its teams generate revenue and from which sources is never specifically disclosed, unlike many other industries. And unlike many other industries, MLB still enjoys an anti-trust exemption, long past worthy of its original purpose; considering that it fully conducts intrastate commerce.
But what MLB does have in common with all mega-billion dollar operations is the bottom line; and if necessary, nickel and diming the average consumer, and the least able to afford such tricks.
So MLB found a way to worm itself into the secondary ticket market when it entered its agreement with StubHub, the official secondary ticket seller of MLB.
MLB says that teams have the option of opting out of the StubHub agreement, provided they foot the bill for the sponsorship costs, settling on commission splits and transaction fee shares with a company that can give them the most market penetration and best bang for their buck. And MLB would have to approve the whole deal.
And for MLB owners who are looking to save a buck, additional costs to make a buck is a turn-off, even to the fat-cat teams, which could prove less lucrative than the current MLB deal with StubHub.
The top complaints to MLB regarding the contract with StubHub come from the New York Yankees and the Los Angeles Angels, primarily because they have a tremendous amount of costly seats to move on a daily basis during the regular season.
As season ticket holders are the highest priority amongst their ticket holder population, the NY Yankees and the L.A. Angels must ensure that such ticket holders are being accommodated the most, for retention and also to attract prospective season ticket holders.
Most season tickets are the best seats in the house, essentially all seats below the upper decks. And they are bought primarily by corporations and the upper class.
Yet the NY Yankees have seen a decline in the amount of the most expensive of its seats since 2011, their second year of residence in their $1.2 billion stadium. And not unlike their usual way, they laid blame elsewhere, and in this case, StubHub.
But even though StubHub is the official secondary ticket broker for MLB and the NY Yankees, it is perfectly legal for tickets to be sold through other secondary ticket companies. It is actually up to the ticket holder who purchased it in the primary ticket market.
With a management style that is not shy about getting green from any revenue generating source it can, the NY Yankees supposedly get good marks for pretending to be fan-friendly. But the purchasing public knows otherwise.
However, there remains little hard data to prove the NY Yankees' contention that they are getting ripped off by StubHub and the like. Rather, it would appear more likely that MLB and its franchises are over-leveraged and cannot have it both ways.
To wit, the secondary ticket market actually means re-sold tickets. Its inventory almost exclusively derives from the very season ticket holders that teams like the NY Yankees claim that they are protecting.
But it is the season ticket holders who have become a key component in the secondary ticket market, as they have become their very own ticket brokers, legally. Unlike the old-school illegal ticket scalpers and brokers of yesteryear, now the teams want more of a stake in that resold ticket, for which they have already been handsomely paid, but which is now big business.
What some teams such as the Yankees have not built into their ticket pricing structure is dynamic pricing. Dynamic pricing takes into account basing ticket prices upon supply and demand, promotions, visiting teams and even the weather. It is real-time ticket sales.
The fact that the NY Yankees and other teams are failing to get as much revenue they would like from resold tickets is the issue and they can address that by making their own changes, creatively, rather than casting blame.
But because the NY Yankee ticket structure relies so heavily upon corporate season ticket holders, which the lower and middle class fan cannot possibly afford, it is plain as day that the NY Yankees clearly have not only helped to create the Great Ticket Divide at Yankee Stadium, but wants all revenues, including that from double-dipping into tickets.
And as it is the season ticket holder which prospers from the secondary market, instead of worrying about that issue, perhaps MLB and its teams should be thinking more about the game being more affordable to the average fan.
MLBAM is compensated for half the revenue on commissions that StubHub earns — or 12.5% of StubHub's estimated take of 25% plus half of the $10.45 StubHub transaction fee or $5 per transaction. MLBAM also received a generous sponsorship fork-over from StubHub, according to those in the know, but which MLB refuses to disclose.
All revenue received by MLBAM on behalf of MLB is then divided amongst all 30 MLB teams.
The picture that fat-cat teams paint is one that they are the victims. Such is reminiscent of agreements owners make with players in the range of $100-200 million with players and when they do not pan out or find out they could not actually afford them in the first place, whine that it is the union's or someone else's fault.
Given that the Yankees' seats in the lower level are so exorbitant in price — ranging from well over $1,000 for a field-level seat and $300 for one in the mezzanine, the NY Yankees created their own monster.
And MLB has relied upon the cushy crowd and broadcast TV network deals to over-inflate a market which is obviously no longer relying upon the little people.
But it is in fact the little people, and also in this case meaning children — whose families or single parents no longer attend MLB games — that it may regret closing out. Then perhaps MLB will see its own bubble burst, just as the banks, real estate, and airlines have, to name a few.
However, the only way that the little people can now afford to enjoy a NY Yankees game is in the nose bleed section after having to pay nearly $50 to park or upwards of $10 for a hot dog.
And a secondary issue to the ticket issue and could be the underlying reason MLB owners are seeing red rather than green is how it all initially came about.
In the year 2000, all 30 MLB team owners unanimously voted to allow MLBAM to be the exclusive interactive media and internet operation to generate more revenue. Little did they know at the time that it would eventually include MLBAM presiding over a secondary ticket market that had not even been established in the form of StubHub in its infancy in 2000, the year it incorporated.
Back in 2000, teams were still whining about illegal scalpers and illicit brokers, since they did not get a cut of those sales. Now, five years into the StubHub deal, it makes one wonder whether they wish they could now put the toothpaste back in the tube.
But as we have learned from the NFL, NBA, NHL lockouts of 2011 and 2012, respectively, the main sticking point of all the lockouts concerned revenue sharing splits with the players.
And instead of multi-billion dollar leagues proceeding with caution in this volatile economic climate, they remain unabashedly greedy.
As such, the NY Yankees to demand that StubHub should change its paradigm for sales by creating a hard floor or the lowest price for which a ticket may be sold, they are interestingly not asking for a ceiling, as they would only profit from more over-inflation of the price of such a ticket sale.
MLB is certainly not the only league guilty of creating a caste system when it not only comes to attending games, but for fans to even watch games requiring tiered premium TV packages, Internet streaming of games, and satellite radio coverage in order to consume its product. Add to that the multi-media blackout system that cuts out swathes of fans nationwide for many games out of market.
But the NFL, which has a better long-term prognosis for retaining interest in its game and even the NBA, which is enjoying resurgence from fans for the past several years, are still not the game of baseball.
With less and less American children not being exposed to or being out-priced from consuming MLB, its fan base will continue to erode; as its subsidization from the American fan is the life-blood of MLB.
And as such, what was once considered America's national pastime will rather definitively become a part of America's past.