StubHub’s CEO Built a Hedge Fund to Scalp Tickets and Resell Them to His Own Platform – Lawmakers Declare ‘Buying Tickets Has Gotten Outrageously Expensive’

Buying tickets to see your favorite band used to be pretty simple. But nowadays, it has turned into an Olympic sport.

If a really big name is coming to town, you can expect to spend a good 4 hours battling bots in a virtual queue. And if you’re lucky enough to get through to checkout, your reward is a dynamic pricing model that multiplies your grand total before you’ve even had time to enter your credit card details.

That’s why live entertainment has turned into a luxury for a lot of us, and the ongoing narrative is that merciless scalpers and resellers are to blame. But Congress just flipped the script after publicly calling out StubHub (STUB) CEO Eric Baker for using his secondary market to generate unfair profits.

It turns out that Baker isn’t only the CEO of StubHub. He’s also the co-manager of a ticket-focused investment fund that buys tickets in bulk and resells them through platforms like StubHub. According to lawmakers, that means institutional ticket resellers are getting a huge advantage and further inflating the costs of an industry that already feels like it’s stacked against ordinary fans.

This raises a pretty important question for investors — and the answers are going to impact more than StubHub's share price.

Why Is Congress Looking Into StubHub?

The debate over expensive concert tickets has been raging on for years. Ever since the Covid-19 pandemic, demand for live entertainment has skyrocketed. People want to make up for lost time and get out to sporting events, concerts, and festivals. 

That being said, supply remains fixed. The NFL can’t build bigger stadiums to accommodate demand, and Taylor Swift will never find an empty field big enough to fit all of her fans.

So, we’re dealing with a major supply imbalance that benefits opportunistic resellers. Institutional buyers have reacted with increasingly sophisticated software backed by serious capital. They're able to purchase giant blocks of tickets before listing them on secondary marketplaces at inflated prices, and nobody's been doing a thing about it.

The current sticking point is about ownership.

If malicious third parties are flipping tickets for a quick buck, it sounds unfair. But if the secondary marketplaces themselves are responsible for this profiteering, it sounds downright wrong (if not illegal). That’s essentially the accusation Congress is making.

At the end of July, U.S. Representative Robert Garcia sent a scathing letter to StubHub CEO Eric Baker demanding answers to what he’a calling a “blatant conflict of interest."

That alleged conflict of interest stems from reports that Baker co-owns and manages an investment fund called Andro Capital. 

While that might sound innocent enough, it turns out that the fund’s sole purpose is to bulk-buy tickets before turning around and reselling them on sites like StubHub. Recent U.S. Securities and Exchange Commission (SEC) filings and public disclosures suggest Andro has been operating alongside StubHub and adversely benefitting from the company’s resale ecosystem.

The primary concern here is that affiliated mass-scalpers are essentially getting preferential treatment or lower selling costs than the ordinary users trying to resell their unused concert tickets. But the Committee on Oversight and Government Reform has also raised concerns over another affiliated investment vehicle called Colloquy Capital.

This firm appears to be providing financing to professional ticket resellers so they can buy up huge inventories of event tickets that can be flipped at a profit. Doesn't sound great for StubHub, does it?

The company already pushed back. StubHub has been saying that its ownership structures and third-party arrangements were all disclosed before the company went public last year, and that all of its activities are 100% legal.

But lawmakers clearly disagree, and investors are going to feel an impact no matter who wins this argument.

Why Should Wall Street Care About Any of This?

Investors tend to assign premium valuations to marketplace businesses because they’re operating as neutral platforms built on trust. Companies like Airbnb (ABNB) and eBay (EBAY) succeed because users believe the platform is working for them rather than competing against them. That’s why their shares hold value.

If regulators conclude that StubHub’s dealing with a conflict of interest, that trust will be instantly eroded. The consequences could be deadly, too. StubHub is already dealing with plenty of lawsuits and a $10 million Federal Trade Commission (FTC) settlement over hidden pricing practices.

These added questions over Baker’s business dealings place further pressure on StubHub to prove that it actually values its users. If it can’t stand up to that pressure and demonstrate some goodwill, it also places uncertainty over share prices. Nobody wants to invest in a business that's facing multiple regulatory headwinds, and StubHub’s value is going to get hurt as a result.

This Congressional investigation might not produce a lot. After all, things do move slow in Washington. But if we’re lucky, it could become a catalyst for broader reform in the U.S. ticket resale market. Americans are currently dealing with a painful cost-of-living crisis, and lawmakers can’t do a lot about most of the variables at play. Insanely priced concert tickets probably feel like the lowest hanging fruit they've got right now.

At the end of the day, ticket demand isn’t going anywhere. But the secondary ticket market won’t be able to stay under the radar anymore and pretend it’s just another corner of the bustling entertainment market. It’s increasingly being viewed as a financial marketplace in and of itself, and that means there’s more scrutiny on the way. If you’re holding shares in StubHub, you may start to see the impacts of that scrutiny sooner rather than later.