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Stubagogo: One of the worst-timed acquisitions in history?

With ticket sales on pause worldwide and StubHub reportedly facing bankruptcy, Adam Webb ponders whether it could take new owner Viagogo down with it…

13 Apr 2020

Adam Webb, FanFair Alliance

“As we sit here today, [coronavirus] has not [affected ticket sales], because most of the live events where we’ve seen cancellations have really been in China, and a few in Taiwan and Singapore. Most important for everyone, we hope that they get it under control, and solve the health crisis – but right now it’s been isolated to Asia specifically, and mostly China.”

(Eric Baker, interview with Squawk Alley, CNBC, 21 February 2020)

Viagogo started last month in typically bullish mood.

In the slipstream of their $4.05bn acquisition of StubHub in mid-February, on March 7th the UK’s Daily Telegraph ran a news story suggesting Covid-19 was proving a boon for the secondary ticketing market. While the rest of the live events sector faced impending crisis, listings on Viagogo had apparently risen 45% in the previous week.

According to the report, this was due to “nervous concertgoers and sports fans frantically trying to resell tickets for major events amid the panic around the spread of coronavirus.”

As someone with an interest in this area, I quickly checked viagogo.co.uk.

Strange.

There was no noticeable surge. As per usual, 80–90% of ticket listings were accompanied by star-shaped icons – denoting that the seller is a ‘trader’ rather than a consumer. I contacted the journalist, asking for the evidence to substantiate these claims. (They are yet to return my emails.)

In the month since, events have moved fast.

Despite closing the StubHub acquisition on 13 February – in his CNBC interview, Baker claimed to have paid $2bn in cash and a further $2bn in debt financing – further integration between the two platforms (dubbed ‘Stubagogo’) is being prevented because of an initial enforcement order from the UK’s Competition and Markets Authority, with the possibility of additional investigation.

Viagogo’s ownership of StubHub doesn’t bring much to the party, aside from a highly toxic reputation

Effectively, this has left StubHub in a state of limbo.

Speaking to Billboard, a StubHub spokesperson stated they are “currently operating as an independent company, no longer under the support of eBay but not yet operated by Viagogo.” Albeit if you search eBay for event tickets, the site still defaults to StubHub and describes StubHub as “an eBay company”.

Again, all quite strange.

And then the full impacts of live music shutdown started to unfold.

On March 25th, StubHub announced it was furloughing two thirds of its workforce, swiftly followed by a change in company policy on refunds. Buyers of tickets to cancelled events in North America would now be offered vouchers in lieu of cash.

Predictably, this has already attracted a $5m class-action lawsuit, on the basis that StubHub brought the crisis on itself as a result of their publicly stated policy of paying out their largest suppliers (such as ‘super tout’ Julien Lavallee) in advance of events.

It sounds like rough times ahead.

But if the future looks bleak for StubHub, it’s arguably bleaker for Viagogo.

Moody’s has downgraded Viagogo’s corporate outlook from “stable” to “negative”

Even before Covid-19, the acquisition of StubHub looked wildly overpriced. $4.05bn is reportedly 25 x StubHub’s EBITDA – an astonishing amount for a relatively mature business operating predominantly in the highly congested US market and facing substantial commercial and regulatory challenges.

Viagogo, meanwhile, is a relative minnow in the US. Its ownership of StubHub doesn’t really bring much to the party, aside from a highly toxic reputation. The acquisition has essentially resulted in a change of ownership – no more, no less – whereas a merger between, say, StubHub and Vivid Seats, would have been genuinely transformative and created a much larger market-dominant platform.

Added to this, outside the US, Viagogo’s long-term viability looks far less secure than it did 2–3 years ago. In the UK, the recent sentencing of Peter Hunter and David Smith, who sold substantial volumes of tickets through Viagogo, has imperilled the business model of large-scale resellers on whom the secondary platforms rely. With more trials to come, Viagogo’s supply chain looks to be under threat.

Meanwhile, the company still faces legal actions in several other territories, all of which are likely to probe and cross-examine Viagogo’s less-than-transparent business practices.

An insight into these can be found on the Federal Trade Commission website, in an illuminating exchange of emails between the CMA, Viagogo’s lawyers at CMS, and the FTC – all of which indicate an almost pathological reluctance by Viagogo to disclose information about key staff, key shareholders, its turnover or its byzantine corporate structures including companies such as Basset Capital LLC, Grover Street Holdings, FJ Labs LLC, Andro Capital Management, IFOT Services Ltd and VGL Services.

This could well be one the most poorly timed acquisitions in recent corporate history

Earlier this year, the Moody’s rating agency downgraded the corporate family rating of Pugnacious Endeavors (Viagogo’s parent company) to B2, before changing the company’s outlook from “stable” to “negative” – citing both a “lack of public financial disclosure” and “the absence of board independence” for its changed credit profile.

While we wait for the CMA to make further announcements on the merger, the weeks and months ahead will likely be of some consequence.

Viagogo has already put staff at its customer service centre on 30 days’ “protective notice”. Their purchase of Google advertising appears to have stopped dead.

Listings are dormant, not surging.

But above that is the fact that Eric Baker and his investors appear to have paid out $4.05bn for a crippled business that lies, according to some reports, on the verge of bankruptcy.

In the context of the unprecedented crisis being played out in all our lives, this could well be one the most poorly timed acquisitions in recent corporate history.

 


Adam Webb is campaign manager for FanFair Alliance.

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