True Cost of the StubHub IPO on Artists: Bots, Billionaires & Bullsh*t
Chris Castle examines the actual cost of the StubHub IPO on artists, calls out the ticket resale platform for predatory practices, and examines the failure of the U.S. government to enforce the BOTS Act.
Op-ed CHRIS CASTLE of Music Tech Policy
StubHub is one of the richest thieves in the live ticket arbitrage market. The company is also a direct beneficiary of the U.S. government’s abysmal failure to enforce the Better Online Ticket Sales (BOTS) Act. Just like Spotify, another Goldman Sachs’ grifter, StubHub’s main objective is about to be a reality–a $16.5 billion initial public offering that will make its executives even richer. In case you were wondering where the value of all that touring was going, now you know. And StubHub’s IPO is yet another slap in the face to artists, not to mention the fans exploited by this tech oligarch.
Given the government’s newly acquired interest in the ticketing business as measured by the Department of Justice antitrust lawsuit against Live Nation, you would think that the DOJ and FTC would also step up to their obligation to enforce the BOTS Act. Remember, The BOTS Act, signed into law by President Obama in 2016, was designed to curb the use of automated software (bots) that purchase large quantities of event tickets, often within seconds of their release, to resell them at inflated prices through market makers like StubHub. It is so under-enforced that StubHub will no doubt be able to sneak out an IPO and slurp up money from the pubic trough before anyone knows better.
BOTS-driven Risk Factors
If it were ever enforced, the BOTS Act could have a significant financial downside for StubHub. I can’t wait to see the risk factors about bots in their IPO prospectus because let’s face it–if there were no bots and no boiler room operations, StubHub probably wouldn’t have much of a business. No bots, no billionaires. This one is not a theoretical antitrust case, this one is dealing with real-time massive consumer fraud about to be perpetuated and funded by the public financial markets.
The government’s enforcement of the BOTS Act is so poor that Senator Marsha Blackburn, a gifted legislator and one of the law’s co-authors, found it necessary to introduce even more legislation to try to get the FTC to do their job. The Mitigating Automated Internet Networks for (MAIN) Event Ticketing Act is a bill introduced in 2023 by Senators Blackburn and Ben Ray Luján that aims to give the FTC even fewer excuses not to enforce the BOTS Act. It would further the FTC’s consumer protection mission against IPO-driven ticket scalping.
The sad truth is that the FTC didn’t take its first action to enforce the 2016 law until 2021. And that’s the only action it has ever taken. Yet we live in hope.
When the drafting sessions get started for the StubHub IPO, the underwriters really need to ask themselves how big a hit the company’s valuation will take when prosecutors figure out how dependent reseller platforms are on bots and market manipulation to extract hard-earned dollars from enthusiastic fans.
And it isn’t just bots by the way. MTP readers will recall our discussions about speculative ticketingwhich turns live event tickets into commodities to be traded like pork bellies–minus the consumer protection of the securities laws. Speculative ticketing is when a market maker like StubHub allows shady operators to offer the public a ticket that the seller doesn’t actually own and may not even exist. This is what happens when an artist has publicly announced a concert tour but has not yet put the tickets on sale. Speculative ticketing lets a scalper offer a ticket that doesn’t exist without properly disclosing that the seller doesn’t own the ticket being sold.
Now that just sounds criminal, doesn’t it? Selling something you don’t own?
StubHub RICO Suave
And speaking of criminal, StubHub is currently defending a civil RICO case in New York, accused of making a market for tickets it is not able to sell. The Kaiser v. StubHub class action lawsuit, filed on January 3, 2024, in the Supreme Court of the State of New York, alleges fraudulent ticket sales by StubHub, Inc. The plaintiff, Daniel J. Kaiser, a resident of Brooklyn, New York, claims that StubHub knowingly and repeatedly advertised and sold fraudulent tickets, thereby defrauding consumers and violating the Racketeer Influenced and Corrupt Organizations Act.
What’s RICO? Civil RICO can be brought by private plaintiffs like Mr. Kaiser, but criminal RICO has to be brought by the government. Criminal RICO cases are initiated by government prosecutors, who must first obtain an indictment from a grand jury, followed by a criminal trial. While both civil and criminal RICO cases address racketeering activity, criminal RICO focuses on punishing and deterring criminal behavior, requiring a high standard of proof and resulting in severe penalties. Now there’s a risk factor. How’s this sound:
Potential Liability Under the Racketeer Influenced and Corrupt Organizations Act (RICO)
We are currently under investigation for potential violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). RICO is a federal law designed to combat organized crime by allowing for both criminal and civil penalties for acts performed as part of an ongoing criminal organization. The investigation is focused on allegations that certain activities conducted by our company and its affiliates may constitute a pattern of racketeering activity under RICO.
Uncertainty and Potential Impact on Business Operations
The outcome of this investigation is uncertain, and we cannot predict the timing, outcome, or potential impact on our business, financial condition, or results of operations. If we are found to have violated RICO, we could face severe penalties, including substantial fines, forfeiture of assets, and significant reputational damage. Additionally, a criminal conviction under RICO could result in imprisonment for our key executives, which would severely disrupt our management and operations.
Nothing says white collar crime like RICO. This kind of consumer fraud is happening on a massive scale, yet the FTC apparently doesn’t feel it rises to the level of an investigation priority.
Making it Stop
In the face of this weak-kneed approach to law enforcement, artists could simply prohibit the resale of their concert tickets. If companies like StubHub keep trying, that very well may be the result, particularly with fan-to-fan solutions like Twickets competing with the likes of StubHub. How about this risk factor:
Restrictions on Ticket Resales Could Adversely Affect Our Business
Our business model relies significantly on the resale of concert tickets. However, many artists and event organizers have implemented policies that prohibit the resale of their tickets above the face price. These restrictions are designed to prevent ticket scalping and ensure that fans can purchase tickets at reasonable prices.
If artists or event organizers enforce these resale restrictions, it could limit our ability to sell tickets at a premium, which is a key component of our revenue generation. This could result in reduced profit margins and negatively impact our financial performance. Additionally, compliance with these restrictions may require us to implement new systems and processes, which could increase our operational costs.
Furthermore, any violation of these resale restrictions could lead to legal actions against us, including fines and penalties, and could damage our relationships with artists, event organizers, and customers. This could harm our reputation and result in a loss of business opportunities.
Investors should consider the potential impact of these resale restrictions on our business and financial condition before making an investment decision. There can be no assurance that we will not face additional restrictions or legal challenges related to ticket resales in the future, which could further adversely affect our business.
Underwriters be thinking, where do I sign up, right? Maybe not.
