Eric S. Fuller
Sukhinder Singh Cassidy and 200 more out at Stubhub
Yesterday, Forbes magazine published an article describing the epic misfortune of Eric Baker and Viagogo purchasing StubHub just in time to see the entire live events industry decimated by Covid-19.
This morning, Billboard published an article confirming StubHub’s president Sukhinder Singh Cassidy and 200 others are going or gone. When the top executives leave, it’s the closest thing you’ll get to the ringing of a bell.
Both stories talk about my predication of why StubHub will likely file for bankruptcy. Neither explains my logic, so I will.
Live events basically shut down on March 15, 2020. With the possible exception of NFL for whom a different set of rules apply, likely no mass events will occur with a full audience before 2021. My guess is we’re going to be into the spring of 2021 before we start to see full rooms again, if then.
All tickets sold for events from March 15, 2020 until live events resume are either being rescheduled or canceled.
Here’s how the math works. For rescheduled events which people intend to attend, nothing happens. The tickets will be good in the future. For events which are canceled or people no longer wish to go, they get their money back. And, therein lies the issue for StubHub and other secondary markets. In order to refund the ticket, they’d have to have the money. They don’t.
I’ve explained this in other articles such as:
It’s really simple. Until March, 2020, whenever a ticket sold on StubHub, and was delivered to the buyer, StubHub paid the seller who owned the ticket. If the sale was for $100, likely StubHub paid out $75 and kept the remaining $25 as its fee. From that $25 StubHub paid the credit card processing fee, likely $2.50 and had $22.50 leftover. This money went to pay its staff, rent, purchase bandwidth to host its web traffic, maintained a call center and incurred massive advertising expenses. How much do you think that leaves them? Likely little, as the way business works is that current income pays current expenses.
Now, since Mid-March 2020, ticket sales are minimal. No one knows when any event will occur, so why buy tickets. Estimates are that StubHub’s sales are down 90%.
In order to preserve cash, StubHub made two changes. First, it is not giving any cash refunds, except where forced by state law and forceful demands of consumers. Otherwise, you just get store credit. Second, it is not paying ticket sellers for anything until the event actually occurs.
This combination is the lifeline keeping StubHub afloat. They’re keeping the money for events which they sold, and they’re not paying sellers for the tickets which they are selling now. That’s why they still have any cash. The money in StubHub’s accounts is not really theirs anymore. It’s really the cash they owe the sellers for tickets for which StubHub was paid but has not paid the seller. It’s just like getting a shipment of shoes on credit to sell at your store. You get the cash as each pair sells. But, at some point, you have pay Nike.
Nobody yet has asked this question, but it’s the one which will determine StubHub’s fate:
What happens to StubHub when events resume?
First, all those people who are holding StubHub credit from the year or so of canceled events will try to redeem the credit. That will trigger StubHub to use a ticket for which they will owe the seller a payment.
Second, the events which StubHub has continued to sell this year will begin to take place, and as they do those payments for tickets sold for which payment to the seller was deferred will come due.
Where will that money come from? There is likely close to $1 billion in credits being held by consumers whose tickets on StubHub were for events which are canceled. (Remember, prior to the shutdown StubHub was selling $5 billion or so a year in tickets.) And, there will likely be another $250 — $400 million owed sellers whose payments were deferred until events took place.
My best guess is that StubHub is hoping that when events resume, they resume full force and that they can massage their cash flow long enough to skirt these outstanding liabilities provided sales ramp up superfast. But, the longer this goes on, the lower the probability that works.
Meanwhile, when events restart there will be competition from companies who don’t have the legacy reputation of having refused refunds to customers or payments to sellers. Plenty of VC money will be there to enter the space with newly formed entities which have a perfect balance sheet.
Viagogo/StubHub has great VC partners in Bessemer and Madrone. Eric Baker is smart and connected. I didn’t go to Stanford like he did. I went to UC Berkeley. At Cal we learned that one option when you’re drowning in debt is don’t throw good money after bad. I’d guess that debtor in possession financing will be easier to line up for StubHub than $2 billion more operating capital to uncluster the F. After all, who’s getting hurt? Just those ticket brokers everyone loves to hate and a few consumers who will likely understand that it’s not StubHub’s fault. It’s Covid, or the failure of the government to treat secondary markets like a cultural asset needing preservation. The story can be spun for a fraction of the cost of filling the hole which currently exists on StubHub’s balance sheet.
I want to make this clear: I like StubHub. What they did was transformative. They legitimized the secondary market for tickets. They built technology which improved the consumer experience. They made a lot of money for a lot of people. I really wish we weren’t where we are now. That’s just how it goes sometimes. Life can sneak up from behind and break your heart when you’re busy looking forward.
It’s not a certainty that StubHub will file for Bankruptcy. It’s just the most likely way they survive to compete in the 2.0 version of normal.
I’ve had the good fortune to interact with many of you either directly, at conferences, during group chats or through stories such as this one. I want you all to know that I believe in you, and I believe in this business. As my part of trying to help rebuild, I’ll be answering reasonable questions. That’s my way of contributing to solving this crisis. Just email, my address is below.
I’ll do my best to either answer you directly, or if I see certain questions repeat frequently I’ll post another article which goes over them all. I will not identify publicly the source of any question.
Let me know what you think.
I’m a consultant advising leading companies in the live event space. If you are an investor, artist, promoter, team, producer, venue operator, primary or secondary market of ticketed events or have comments on this article, please don’t hesitate to contact me:
Copyrighted 2020 by Eric Fuller