Worst. Deal. Ever.
After Eric Baker was fired from StubHub, the ticketing giant he cofounded, he tried to even the score by raising $4 billion to buy it back—weeks before coronavirus utterly destroyed the business. Revenge isn’t always sweet.
After Eric Baker was fired from StubHub, the ticketing giant he cofounded, he tried to even the score by raising $4 billion to buy it back. Weeks later, the coronavirus destroyed the business. Revenge isn’t always sweet.
It’s Thanksgiving Eve 2019, and Eric Baker is already celebrating. “There has never been a better time to be in live events,” he says giddily, knowing that he’s positioned to profit from pretty much all of them. Two days earlier, Baker had announced the biggest deal of his life. His online ticket marketplace, Viagogo, would buy its larger rival StubHub from eBay for $4.05 billion. It was a tale, for Baker, of triumph and revenge. He had cofounded StubHub at Stanford Business School; then his cofounder kicked him out, spurring him to covertly launch Viagogo overseas. November’s announcement offered Baker a shot at redemption. “It’s personally satisfying to have my two babies together and be able to reunite them,” he said then.
Three months later, on February 13, the deal closed. Baker, 47, whose company had paid with a combination of $2 billion in debt and $2 billion in cash, had created a global colossus that sold millions of event tickets last year, bringing in $1.5 billion in combined annual revenue. His 23% stake in the new firm put him close to becoming a billionaire.
Then came the pandemic.
As the coronavirus rippled further into Asia, then across Europe and into North America, stadiums shuttered, artists canceled tours and Broadway shows went on hiatus—wiping out at least 90% of StubHub and Viagogo’s revenues, analysts estimate. StubHub furloughed twothirds of its U.S. staff in late March. Around the same time, Moody’s downgraded the companies’ outlook from stable to negative.
“[It’s a] spectacular misfortune to have shelled out $4 billion four weeks before the entire industry locked down,” says Eric Fuller, a consultant who tracks the ticketing market. Though the firms have limited overhead—they stock no inventory of their own—Fuller thinks StubHub could soon file for bankruptcy unless it secures a bailout. (StubHub declined to comment, but a spokeswoman told the Sports Business Journal in April that it “is not going bankrupt.”)
It gets worse. The British government has launched an antitrust investigation into the acquisition, forcing Viagogo and StubHub to keep operating separately until at least June. Viagogo says it is cooperating with what it calls a routine investigation. Not only has that delayed efforts to streamline the businesses, but Baker can’t even call the management team at StubHub to help them navigate the crisis, even though he owns it.
Success is nearly always a matter of some luck and good timing. In this case, Baker—who declined repeated requests for a follow-up interview —had neither. It’s rare that you can judge a deal within months of completion, but the verdict on this one is absolute: Baker’s purchase of StubHub will go down as one of the worst deals in history, closed just days before the pandemic eviscerated the live-events business that, with regard to ticket reselling, he had so gleefully cornered.
Baker’s résumé—Harvard, Stanford, McKinsey, Bain—reads like a manual on how to get rich. Credit that trajectory, perhaps, partly to the dynasty in which he grew up. His maternal grandfather was a real estate entrepreneur, and his paternal grandfather ran Baker Industries, a security company that operated armored cars. Baker’s father, Malcolm, eventually took over the family business, which was acquired in 1977 for $118 million (roughly $500 million today).
“It was always driven into me, the excitement of trying to build something, be your own boss, control your own destiny,” Baker says. “I didn’t really know how that would manifest.”
He started by enrolling at Harvard, where he studied government, then followed a frequently trodden path to McKinsey in search of “a lot of money.” But he quickly grew bored. “It wasn’t necessarily for me,” he said in a 2012 interview at USC. “It’s a lot of very high-IQ people who aren’t tremendously commercial all the time.”
Two years into the job, in 1997, Baker jumped to the private equity firm Bain Capital, helmed at the time by Mitt Romney. “Obviously, I was the low man on the totem pole,” he says, but “I learned more in my two years at Bain Capital than anywhere else I’ve ever been.”
It was during his time at Bain, according to Baker, that he first hatched the idea for an online ticket marketplace. His girlfriend wanted to see The Lion King on Broadway, but tickets were scarce, requiring him to look on the secondary market. “‘How do you do it?’ ” he remembers thinking. “‘Do I go on a street corner?’ I’d have to look online and find a ticket broker and pay through the nose. It wasn’t a lot of fun.”
He kept the idea in his back pocket until he landed at Stanford Business School the next fall.
There he met Jeff Fluhr, a square-jawed firstyear student with his own private equity pedigree. The two entered a version of Baker’s concept into Stanford’s annual business-plan competition. Among dozens of entries, they were named one of six finalists.
But on the day of the finals, the pair didn’t show up. “We wanted to stay under the radar screen of potential competitors,” says Fluhr, who has since cofounded the VC firm Craft Ventures, which has made investments in Houzz, Twilio
and Warby Parker, among others.
From there, the founders’ paths diverged for the first time. Fluhr dropped out of school to work on the business with a small team, including Jeff Lawson, who is now the billionaire founder of Twilio. It was risky: The dot-com bubble had just burst. “We were sort of swimming against the current,” Fluhr says.
Baker stayed back at Stanford, though he offered input on the side and retained an equity stake. “He didn’t initially want to commit,” says an early StubHub employee. The site launched in October 2000 without him.
By the time Baker rejoined in June 2001 as president, Fluhr, who was then CEO and the firm’s largest individual shareholder, had already substantially refined the business plan: Brokers or regular ticket holders could list their tickets on the site; StubHub would take a cut from both buyer and seller. (Its fees now average 23%.)
By 2004, even as business was booming, the founders were clashing. According to a later report in Fortune, Baker wanted to focus on partnerships with major sports leagues, while Fluhr sought to grow StubHub as an independent entity. “It’s not the first time people have [had] a falling-out,” Baker said last November. “Just the way things were structured, Jeff owned a little bit more stock than I did.” According to Baker, the board and Fluhr wanted him out. “They just said . . . ‘You’re gone. You’re fired. Leave.’ ”
Baker thought about traveling the world for a year. Then he had a better idea. When he left StubHub, the company had never asked him to sign a noncompete agreement. “I think the thought process was, well, ‘Gosh, Eric is the second-largest shareholder, he’s not going to compete,’” Baker recalls. That was wrong. Barely a month after getting let go, while planning the first leg of his trip, to London, Baker realized his former colleagues were years away from expanding into Europe. He decided to beat them to it.
Wearing a powder-blue button-up— no tie, as always—Baker made his grand reveal in Europe in August 2006. After a year of stealthy planning, he held a press launch for Viagogo, flanked by executives from Manchester United and Chelsea Football Club, its inaugural partners. “[StubHub] didn’t know that I’d done it until we made the announcement,” Baker told Forbes. “I think they were shocked.”
He had little time to revel in his revenge. The next year, eBay acquired StubHub for $310 million. Baker opposed the deal, thinking Fluhr & Co. had sold out too early, as he later told the Wall Street Journal. Outvoted, he pocketed the cash and returned his focus to Europe.
Employing a business model similar to StubHub’s, Viagogo attracted a glitzy roster of investors including Steffi Graf, Andre Agassi and LVMH’s billionaire founder, Bernard Arnault. Lest he be forced out of yet another company, Baker gave himself supervoting shares that guaranteed him total control. “I modeled it after Putin and the Politburo,” he quipped in 2012—years before self-imploding founders Adam Neumann and Travis Kalanick made such terms unsavory. Baker claims Viagogo grew faster than StubHub did in its early years, and by 2011 the platform was processing hundreds of millions of dollars in transactions each year. By 2019 it processed billions, profitably. Forbes estimates its gross profit margin stood at 25% last year, even as it competed in a crowded field against Ticketmaster, Vivid Seats, Eventbrite, SeatGeek and, yes, StubHub— whose margin was slightly lower.
But a litany of negative press accompanied that ascent: Artists griped over inflated ticket prices; customers complained of hidden fees and counterfeit listings. In 2018, Margot James, then the U.K.’s Minister for Digital and the Creative Industries, declared on BBC Radio: “Don’t choose Viagogo. They are the worst.”
“There’s always been controversy,” Baker told Forbes in November. “You’ve got to educate people when you’re disrupting things . . . . We need to do a better job of that. And that’s what we’ve been doing.”
Back in the U.S., eBay, StubHub’s parent, was under pressure of its own. For nearly a year, the combative billionaire Paul Singer and his hedge fund, Elliott Management, had been needling the firm to sell off noncore assets, including StubHub. And Elliott rarely loses a fight. Singer famously spent 15 years warring with the government of Argentina over bond payments, which resulted in a $2.4 billion payout to his firm in 2016. In this case, for eBay, that proved a huge stroke of luck.
For his part, Baker refused to worry, even when the World Health Organization labeled Covid-19 a global health emergency on January 30, two weeks before the deal closed. The shot at redemption was just too enticing to pass up: He had learned a hard lesson years earlier when he decided not to drop out of Stanford and go all in on StubHub, costing him equity and, eventually, his job. This time he wagered with conviction.
He went ahead with the deal, funding it with debt as well as more money from his top two investors: the VC firm Bessemer Venture Partners and Madrone Capital Partners, a private investment firm affiliated with the Walton family, of Walmart. (Neither would comment for this story.) As Baker calmly noted on CNBC just after the acquisition, “Right now, [the virus] has been isolated to Asia.”
Baker’s confidence now looks brash from the vantage point of a world that changed overnight. Cancellations came crashing down like a tsunami: Madonna, March Madness, Nascar, South by Southwest, Broadway, Oktoberfest in Munich and Wimbledon.
Customers demanded refunds en masse. In the U.S., StubHub balked, except where legally prevented from doing so. Instead it began offering vouchers worth 120% of the original purchase price—a reversal of its usual refund policy. The problem: It didn’t have the money. For years, StubHub operated on a “float” system. When it processed a transaction, it immediately gave the seller its cut of a ticket sale, even if the event was months away. Once the coronavirus hit, clawing back payment from thousands of sellers simultaneously was unlikely.
“There’s no possibility that they could refund all the money without raising additional funds,” says Eric Fuller, the live-events consultant. Cue the social-media firestorm and, possibly, lawsuits. (In April, a Wisconsin man filed a classaction suit against StubHub, seeking $5 million. The company declined to comment.)
“A lot of these companies that live month to month or on three-month horizons are going to have issues surviving,” says Fred Rosen, who ran Ticketmaster from 1982 to 1997. But, he adds, “The minute live acts [start] again, there would be StubHub 2 . . . . The concept of the business doesn’t go away. It’s a question of how long can you survive when it’s raining?”
For now, Baker’s firms are still solvent. In March, Moody’s reported they had over $400 million in cash, enough for at least a few months, the agency posited. There are also the deep pockets of Baker’s investors, assuming they would risk throwing more money at a company with an uncertain future.
The problem is that nobody knows what comes next. StubHub and Viagogo will likely be some of the last businesses to rebound. They rely not just on live events—which will likely need a vaccine before they can fully recover—but also on excess demand for those events that forces buyers to the secondary market. That could take years.
My, how quickly things have changed. “We think we’re at the intersection of two very good trends,” Baker said prior to the acquisition. “One is what I call globalization, because the world is a smaller place, and two is live events.” Then the winds changed direction, and carried with them Baker’s momentum. He closed the loop on his story. Just not the way he wanted.