U.K. competition authority raises doubts about Viagogo's $4B deal to buy StubHub, which it could be forced to sell. One potential suitor: a former business partner of Viagogo's CEO.
LONDON — When Viagogo CEO Eric Baker announced in the fall of 2019 that his company planned to buy StubHub, the ticket exchange and resale company he co-founded in 2000, it played like a $4 billion tale of acrimony and redemption. Now the deal is at risk of unraveling, and Baker's former business partner, Jeff Fluhr — who in 2004 urged the StubHub board to force Baker out — is ready to pounce should U.K. regulators rule the merger cannot proceed. He says he would buy the whole company.
"I have a deep love for the StubHub business," said Fluhr, now a venture capitalist, in a written submission to the Competition and Markets Authority posted Nov. 13.
The stumbling block for Baker and Viagogo is an ongoing investigation by the CMA, a U.K. government department, over whether the sale — which Viagogo announced it closed in February — would substantially lessen competition in the United Kingdom, leading to higher fees for ticket buyers. A provisional CMA investigation, published Oct. 23, found this to be true, with the two firms collectively covering over 90% (split roughly 60% and 30% between Viagogo and StubHub, respectively) of the U.K. secondary ticketing market. To address those concerns, Viagogo would need to sell all or part of StubHub worldwide, said the CMA, or else all or part of Viagogo.
Viagogo responded with a proposal to offload StubHub's U.K. and European primary and secondary ticketing business, as well as a subsidiary that operates in Latin American countries, while keeping its profitable North American operations. There are, however, caveats for any potential buyer. Most notably, the new owner of StubHub would only be able to use the StubHub brand in the United Kingdom for three years, after which it would revert back to Viagogo.
U.K. concert ticket experts say Viagogo's offer falls short of what's needed. "We do not believe that a partial divestiture in any form would improve the situation," says Sam Shemtob, director at the Face-value European Alliance for Ticketing.
"Virtually all of StubHub's value is in North America," says Reg Walker of Iridium Consultancy, a leading expert on the U.K. ticket retail market that opposes the merger. "There is no value in what they are offering to sell."
Fluhr agrees. He co-founded StubHub with Baker when both men were studying at Stanford University, and then sold the company to eBay for $310 million in 2007 — three years after he urged the board to push Baker out.
In his CMA submission, Fluhr, now a general partner at San Francisco-based investment firm Craft Ventures, which has more than $850 million in assets under management, said "insurmountable business challenges" would result from a partial sale of StubHub, given the company's "complex and multifaceted" software technology. "Splitting StubHub in this way," he wrote, "would almost certainly result in failure for the carved-out business."
Fluhr's interest in reacquiring StubHub, presumably for far less than the $4.05 billion Baker paid pre-pandemic, would be particularly painful for Baker, who has long blamed Fluhr for removing him from the business back in 2004. Baker retained shares after his exit, and the two men often clashed over StubHub. "I never would have sold the business to eBay," Baker told Billboard in late 2019. "That was not my choice."
It was, however, Baker's choice to raise $4 billion in cash and debt to finance the acquisition of StubHub in November 2019 — a bidding-war deal that was valued at 25 times earnings before interest, taxes, depreciation and amortization, according to eBay — and which now looks spectacularly misjudged, given the global shutdown of live music and entertainment due to the coronavirus. The company has laid off hundreds of staff members as it struggles to issue refunds to customers and claw back money it paid out to ticket brokers that provide the bulk of StubHub's inventory. StubHub chief executive Sukhinder Singh Cassidy resigned from the company in May, telling Billboard, "The company doesn't need two CEOs."
Singh Cassidy also rejected rumors of financial trouble during the pandemic — "We're not going bankrupt," she said. Amid the wrangling though, one fact is becoming clear: "Viagogo's $4 billion acquisition of StubHub is proving to be one of the most poorly timed deals in recent corporate history," says Adam Webb, campaign manager at U.K. anti-scalping group FanFair Alliance, which also told the CMA it objected to the acquisition.
Complicating matters, the CMA's investigation found that both Viagogo and StubHub have vastly overestimated the size of the U.K. resale market. The companies said it was worth £1.5 billion to £2.5 billion ($2 billion to $3.3 billion) in 2018, while the CMA valued it at about £350 million ($467 million).
If the CMA does rule that Viagogo has to fully divest itself of StubHub — a decision is expected before Feb. 3, 2021 — the regulator not only has the power to enforce the sale but can also appoint an independent trustee to handle the transaction. That would leave Baker and his investors out of the negotiations.
For now, Viagogo and StubHub say they are continuing to discuss options with the CMA. "We remain confident that we will reach an appropriate solution," says StubHub.
Others are not so sure. "The only way to address the CMA's competition concerns is for Baker to sell off Viagogo globally and keep StubHub," says Walker. "Or sell off StubHub globally and keep Viagogo. Either way, he's going to take a massive hit."