The Lawsuit to End Ticketmaster's Monopoly on the Golden State Warriors

When Ticketmaster and the NBA announced a partnership to develop a "comprehensive online ticketing destination" in 2012, NBA Executive Vice President of Team Marketing and Business Operations Chris Granger couldn't have been more excited. "This will be revolutionary in its approach," Granger said. "This will be the first time in ticketing history where the primary ticketing inventory will be presented right next to the secondary inventory."

As it turns out, there was a good legal reason why this so-called revolutionary approach hadn't been tried before. This week, Ticketmaster was sued by rival StubHub in California, with StubHub alleging the agreement between Ticketmaster and the Golden State Warriors was "designed and employed" to "create and exploit a captured monopoly Secondary Ticket Exchange" by illegally excluding competition from providers of Secondary Ticket Exchange services."

In other words, the Warriors ensure season ticket holders can only sell their tickets through Ticketmaster, which can profit wildly through additional fees. With tickets only available in one place, fans have no option but to pay the fees if they want a ticket. These profits are then shared between the two companies while fans are stuck with artificially higher costs.

Ticketmaster denied the allegations in a statement released Tuesday.

According to the complaint, Ticketmaster and the Warriors enforced this monopoly by threatening season ticket holders who attempted to sell their tickets on Stubhub or through other secondary markets with the cancellation of their tickets. The Warriors currently have a 10,000 person waiting list for season tickets, and a spot on that list requires a $100 deposit, making cancellation a far more legitimate threat for fans than it would have been, say, three years ago, when the club was coming off its fourth straight losing season.

As a result, competing secondary markets have seen their supply of Warriors tickets dry up, leaving consumers with only one option: Ticketmaster and their exorbitant fees. StubHub's complaint included a chart depicting the dramatic decline in Warriors tickets on their marketplace, a dropoff of roughly 80 percent. Paul Ross of Golden Gate Tickets, a San Francisco-based ticket broker, confirmed his business has seen a similar effect. "This season we've been restricted to only selling our tickets in one place, through our Warrior accounts on the NBA ticket marketplace," Ross told me over the phone Wednesday. Ross can still sell the few tickets he can get his hands on, but he can't do it without charging Ticketmaster's fees on top, eliminating his competitive advantage in the marketplace.

Dr. Stephen Happel is Professor Emeritus of Economics at Arizona State University and co-authored an in-depth paper analyzing these exact markets, titled "The Eight Principles of the Microeconomic and Regulatory Future of Ticket Scalping, Ticket Brokers, and Secondary Ticket Markets." In the paper, Happel and Dr. Marianne M. Jennings detail the long history of secondary ticket markets, the markets that form around tickets previously purchased from the original seller—whether by a broker, a scalper, a site like Stubhub or Ticketmaster, or just between friends when one can't attend the event as scheduled. Secondary ticket markets have been around as long as ticketed entry has, dating back at least to the Globe Theatre in William Shakespeare's London.

Secondary ticket markets form around all sorts of live events, from sports to concerts to plays to anything requiring ticketed entry. These events have a necessarily limited supply—the number of seats in the venue—and the price set by the primary ticket sellers (teams and theaters) have always been well below the prices some consumers would be willing to pay. Brokers and scalpers fill in this gap in the market.

Sports teams, theaters and the government have repeatedly tried to attack the problem of ticket scalping through legislation, but the laws of supply and demand always win out. Restricting the secondary ticket market only creates black markets. Fans who want to attend games have a much harder time finding tickets, and when they do, they come with inflated rates as ticket sellers pass their new costs onto the fans and increase prices to account for lower supplies.

"I think StubHub has a very good case," Happel told me over the phone Tuesday. "I'd really like to see them win this lawsuit, because this is going on with other NBA teams as well. I want vibrant secondary markets, and I think [TicketMaster's agreements with NBA teams] will restrict markets considerably. I just want a vibrant secondary market. I want a vibrant resale market," Happel said. "TicketMaster has gone into a number of states here in the last couple of years, either upfront or kind of behind the scenes to try to get laws passed that say that the promoter/owner, primary seller, can designate the sole reseller of tickets, and to me that's a vertical monopoly.

"And we economists just do not like vertical monopolies."

Why not? I asked Happel what would happen to fans should TicketMaster and the Warriors win and maintain their right to dominate both the primary and secondary markets.

"I would imagine that if somehow the Warriors win this lawsuit, StubHub will just stop selling Warriors tickets and probably other NBA tickets where the same kind of arrangement exists between the team and Ticketmaster," Happel said. "So I think StubHub will back off, which to me is a loss to the consumer because you've removed another competitor from the marketplace."

The real problem comes with what TicketMaster will be able to do—and has already started to do—with full control over the secondary market. "I know what Ticketmaster will do," Happel said. "They'll add on fees. The thing about it is now that you have paperless tickets and tickets you can print at home with barcodes on them. It'll make it much easier for Ticketmaster to, every time the ticket changes hands, they'll charge a fee. So you buy a season ticket, you decide to go on their website and sell it to me. Now I have it, but I can't go. I go on the website, there's another fee. Each time there's a fee, there's a fee."

"I'm not opposed to fees per se if there's services being provided," Happel said. Ticketmaster, however, is less providing a service than manning a toll both. Fans who want to either buy or sell through Ticketmaster pay the toll in the form of fees attached to the ticket sales. Ticketmaster needs muscle to back up their system—fans would just go somewhere else with lower or nonexistent fees otherwise. Enter the Warriors, who enforce Ticketmaster's toll through their threats of ticket cancellation. And thus tickets either don't end up on the market at all or they are sold at higher prices thanks to the endless fees piled on.

"The point is, prices are going to go up, there'll be fewer tickets traded, it'll just restrict the whole process," says Happel.

Ticketmaster shot back at StubHub on Tuesday, as company president Jared Smith said, "NBA teams like the Golden State Warriors have implemented ticket exchanges powered by Ticketmaster because they want ticket resale to be a secure experience, not an opportunity for scalping and fraud." The comparison to ticket scalpers is an easy dig, given their seedy reputation. But it is the competitive presence of scalpers and other alternative brokers that drives down prices by expanding supply and fees by providing options to consumers. And it is particularly ironic considering the relationships NBA teams have had with ticket brokers as recently as a few years ago—including Ross's Golden Gate Tickets.

"I think, mostly, we would just like the Warriors to not discriminate against us as ticket brokers. After all, they solicited us to sell the tickets in the first place. You know, at our business here at Golden Gate Tickets," Ross said. "When they have seats available, they seem to not care about selling them to us. Now they seem to want to take them away."

Happel said his local team, the Phoenix Suns, has engaged in the same practice. "There's something that smacks of ethical issues here. The brokers have supported you for years, they've been loyal, give them a chance to buy tickets and trade them," he said. "You get this crazy mentality of, well, we're going to be fair to the fans. But it's not fair to the fans. The best thing you can do is have a free market."

The ticket buying experience is always going to be a pain in the ass. It feels like robbery to be charged more than face value of a ticket. But if the events we want to attend are compelling enough to draw full houses— as Warriors games will be as long as Steph Curry is dazzling fans—these markets are going to form one way or another. Fans need options because options keep sellers honest. And when one seller manages to wrest full control of this market—as Ticketmaster would should they win this lawsuit—they effectively get to do whatever they want in it, and when that happens, everybody else loses.