Jeff Birren
A ticket to a sporting event is considered to be a revocable license. The holder of the license is admitted to the event on a specified date and time for a specified location to view the event. The ticket holder must avoid certain specified conduct or is subject to removal from the event without a refund. Much of that is clear from the face and backside of the ticket. It is a single product, admission to a single event.
The Golden State Warriors have been a huge hit at the box office, and long before the team began to consistently win. Games have been sold out year after year, and their tickets are in high demand. The team claims to have a season ticket waiting list of over 10,000. Stubhub was one of many scalpers that purchased and resold Warriors tickets to the public.
However, Stubhub saw its revenue model threatened by the Golden State Warriors’ efforts to rein in scalping. In 2012 the Warriors entered into a deal with Ticketmaster. As part of the agreement, the Warriors created their own “secondary market”—today’s polite way of saying scalping—on their web site. Season ticket holders could offer their tickets for resale on this site using the services of Ticketmaster. Fans who offered their tickets for resale on other sites were subject to having their season tickets cancelled. The Warriors web site proclaims that their site was “The Only Place to Buy and Sell Authentic Single Game Tickets.” The Warriors and Ticketmaster split the fees generated from the resale on the site. The tickets are also available through the NBA website, under “NBATickets.com Resale Marketplace, Golden State Warriors.”
Stubhub saw their revenue decline. Stubhub sued the Warriors and Ticketmaster, alleging that since 2012, their inventory of Warriors’ tickets has declined by 80%. Stubhub also alleged that season ticket holders have been informed that if they sell their tickets through any other scalper, they can have their season ticket privileges revoked. Stubhub also alleged that the prices for scalped tickets increased as a result of the defendants agreement, though the steady increase of the team’s performance, culminating with the 2014-2015 NBA championship and record-breaking start to the 2015-2016 season likely also led to higher demand and thus higher prices.
Stubhub claimed that it sued in order from preventing this practice from spreading to other teams. In that case, “millions of Americans will be held captive to a monopoly secondary ticketing exchange” (Darren Rovell, “StubHub files suit against Warriors” ESPN, March 31, 2015).
The case was filed in the United States Northern District for California on March 29, 2015. Stubhub hired major law firms Simpson, Thatcher & Bartlett, with lawyers from their New York and Washington, D.C. offices, Constantine Cannon, and Orrick, Herrington & Sutcliffe. The case was assigned to United States District Court Judge Maxine M. Chesney. The Warriors hired Arnold & Porter and Ticketmaster retained Latham & Watkins. The first several months of the case were spent filing motions for admission Pro Hac Vice. After that dust settled, the defendants filed a Motion to Dismiss on July 7, 2015.
The Complainant alleged that there was a secondary market for scalping tickets, a so-called secondary market, and that the Warriors and Ticketmaster were engaging in anticompetitive conduct in this secondary market, in violation of the antitrust laws. More specifically, Stubhub claimed that the defendant’s arrangement constituted “illegal tying” of a product (the ticket) in the primary market, and a product (the same ticket) in the secondary market.
Stubhub further alleged that the Warriors agreement with Ticketmaster was a “series of coordinated agreements and acts to limit competition” in the scalping market, constituted both a conspiracy and attempt to monopolize the scalping market, and moreover constituted an exclusive dealing arrangement with respect to their alleged secondary market, and that this excluded other scalpers including Stubhub from that market.
Stubhub alleged that there are two separate product markets — a primary market and a secondary market for tickets — and that the geographic market was the San Francisco Bay Area. The Defendants did not dispute the geographic market description. However, they disputed the product market description.
The court agreed: “Stubhub’s proposed markets are not cognizable as a matter of law, as neither encompasses all interchangeable substitute products even when all factual inferences are granted in [Stubhub’s] favor” (Order Granting Motion to Dismiss; Affording Plaintiff Leave to Amend, Continuing Case Management Conference, U.S. Dist. Ct. Nor. Cal. Case No. 3:15-cv-01436-MMC, 11/050/15, citations omitted, (2015) at 6). In particular, “a ‘primary’ ticket to a Warriors game and a ‘secondary’ ticket to a Warriors game are ‘commodities reasonably interchangeable by consumers for the same purposes’ (citation omitted) as both primary and secondary markets are used for the purpose of obtaining entry to a Warriors game,” (Id.).
The court further rejected the “Primary Ticket Market” description “for the additional reason that the sole product for sale in said market are Warriors tickets sold ‘directly by the team’ itself (see FAC ¶ 40), and the “natural monopoly every manufacturer has in the production of its own product cannot be the basis for antitrust liability. See Belfiore v. New York Times Co., 654 F. Supp. 842, 846 (D. Con, 1986, aff’d 826 F. 2d 177 (2nd Cir, 1987); see also Williams v. National Football League, 2014 WL 5514378 at *1, 4 (W.D. Wash. October 31, 2014) (dismissing antitrust claims based on theory Seattle Seahawks limited ‘primary-market ticket sales for {an} NFC Championship game’ to resident in specified geographic locations; finding claims ‘{did} not relate to competition between firms in a market, but to the exercise of a natural monopoly on sales of tickets to a single stadium’),” (Id. at 7).
The court also found Stubhub’s “unpersuasive” claim that the Justice Department had recognized their proposed markets when it brought an action to clock a merger between Ticketmaster and Live Nation, another ticket distributor: “The complaint on which Stubhub relies, however, is readily distinguishable, as the challenged merger was between two primary ticketing services that competed in a nationwide market in which major concert venues purchased those services, (citation omitted). Nothing in the cited complaint suggests the Department of Justice is of the view that the primary tickets to a single team’s games played at a single venue are not reasonably interchangeable with secondary tickets to the same games” (Id.).
The sixth claim was for an alleged violation of the Cartwright Act, California’s law controlling intrastate commerce: “The claim is based entirely in the same conduct alleged in support of Stubhub’s’s Sherman Act claims” (see FAC ¶¶ 153-58), and ”[t]he analysis under California’s antirust law mirrors the analysis under federal law because the Cartwright Act…was modeled after the Sherman Act’’ (Id. at 8, citations omitted). “Accordingly, for the reasons stated above with respect to the First through Fifth Claims, the Sixth Claim is subject to dismissal for failure to allege a cognizable product market” (Id.).
The court then stated that it did not reach the Defendant’s other arguments, and declined to exercise supplemental jurisdiction over two other state law claims. It gave Stubhub leave to refile its complaint by November 30, 2015 and to either refile the state law claims with an amended complaint, or to include them in state court.
Stubhub decided not to file an amended complaint. It entered into a stipulation with the defendants that they had not waived their right to appeal, and on November 30, 2015, Judge Chesney signed a Stipulated Order of Dismissal With Prejudice And Entry of Final Judgment. With that, the ticket scalpers head to the Ninth Circuit.
Birren is the former general counsel for the Oakland Raiders and a frequent contributor to Sports Litigation Alert.
