As outlined in my previous post ‘Op-Ed: The Nationalisation of Live?’ (https://tjchambers.com/2020/03/28/op-ed-the-nationalisation-of-live/), following the eventual decline of the Coronavirus COVID-19 pandemic, there will be a number of ticketing organisations that may not have survived an extended trading period with little or no revenue and unprecedented refund requests.
Furloughs, layoffs, and cutbacks across the live entertainment sector are already impacting artist management, live agencies, promoter-producers, venues and ticketing service companies. With more casualties to follow.
A recent Billboard article ‘Everyone Else Will Likely Go Out of Business: Why Most Ticketing Companies Won’t Survive COVID-19’ (https://www.billboard.com/articles/business/touring/9344816/coronavirus-why-most-ticketing-companies-wont-survive-covid-19) reported on the extreme fragility of a number of North American ticket retailers due to their exposure relating to advances historically made to concert and festival promoters before event maturity.
This calculated cashflow gamble – a by-product of the (B-2-B) market competition for clients – may ultimately imperil the fiscal well-being of many of those interlinked across the ticketing sector or potentially expose the end-consumer to the possibility of no (B-2-C) refunds being available.
Eventbrite Inc. (02.04.20) via Google
PaaS – Postponement-As-A-Strategy
Increasingly some within the primary ticketing market are utilising PaaS (Postponement-As-A-Strategy), with tickets already purchased for events now apparently valid for the rescheduled concert / conference / festival / sports tournament now provisionally timetabled for later this year or even 2021 as a (necessary) cashflow tactic, with attendant social-media marketing requests for consumers to #KeepYourTicket.
Others have creatively engineered upgrades to their ticketing UX to enable the conversion of part, or all, of the refund to become a donation to the charitable arthouse / museum / theatre etc. But only those with more fiscally secure audiences can successfully plead that organisations need the money more than individuals for any extended period.
The UK Government has confirmed that charitable organisations can also claim ‘Gift Aid’ on any ticket refund-donation so further rewarding (incentivising?) support for this initiative (https://www.thestage.co.uk/news/2020/coronavirus-theatres-can-claim-gift-aid-on-donated-ticket-costs-government-confirms/).
The secondary ticket market, who inserted themselves into the live entertainment business over the last decade with their claim to provide an arbitrage alternative (to the restrictive T&C’s of primary) enabling both P-2-P & industrial scalpers access to exchange facilities (albeit typically for a margin considerably above the original face value for high-demand events) for those with ‘unwanted’ tickets, are now increasingly unable to provide payments for tickets resold, or refunds for cancelled or postponed events and so are offering credit vouchers to be redeemed at some point in the future.
In this fast-moving environment, questions are now being openly asked by a growing number of industry commentators, including Eric Fuller (‘What will ticketing look like after StubHub files for bankruptcy? It’s Time To Decide’ – https://medium.com/@ericsfuller/what-will-ticketing-look-like-after-stubhub-files-for-bankruptcy-its-time-to-decide-533bc2e8eeab), as to whether some major players in the secondary market can survive the current cashflow crisis.
Coupled with the inability of many event promoter-producers to adequately cover the costs of rescheduling or cancellation of concerts, tours or residencies – with attendant potential claims from the talent, production services, venues, event co-marketing or televisual partners and sponsors, as well as any ticketing advances already received and potentially spent – the live entertainment industry has ground to a halt with few concrete options other than pray for recovery, plead for (continued) consumer support and (eventual) government bail-out.
CTS Eventim A.G. (02.04.20) via Google
All Ticket Sales Are Final* (*Pre-Virus Typical Consumer Ticketing T&C)
Across the sector there has historically been a widescale blurring of companies operational and escrow accounts in the belief that the good times of continued market growth, new territorial launches, incremental revenue opportunities and sector consolidation would continue unabated.
The live industry had assumed that the growing international network of venues supported by pop-spectacle and sports franchises, embraced by a growing global middle class, fuelled by FOMO designer-bling and the rising level of conspicuous consumption, would continue to be powered by an apparent willingness of ticket buyers to purchase weeks, months or years in advance of an event, during which they typically would have no authorised right to reconsider their purchase, exchange or resale.
The live sector expansion has therefore been largely built on the ‘free-money’ of advance ticket purchasing as well as various supply-side incentives e.g. ticketing service fee-splits, inventory-access rebates, ticket affiliate & distribution fees, and event-related advertising & sponsorship commissions.
In the good times these series of arrangements appeared to industry insiders to be appropriate and necessary – ‘it ain’t broke why fix it’?
Madison Square Garden Co. (02.04.20) via Google
But for the public they have effectively been mass-lending event organisers and appointed ticketing agents their money, on an interest-free basis, with undeniably restrictive rights to recoup before their selected experience takes place.
And now due to the inability of numerous event organisers and/or their ticketing agents to provide an on-demand refund facility for cancelled or postponed events, it is assumed that they will wait, again.
(This is undeniably a harsh interpretation of the current circumstances that many hard-working, honest and caring organisations, and their staff, operating in the live sector currently find themselves in. So, apologies in advance to them for any perceived slight whilst they are trying in exceptional circumstances to support and protect both their organisation and audiences. But a cynic would note that Consumer Law generally does not permit consumers to cancel their tickets and thus claim an automatic refund whilst the event is still onsale. And some in the industry are very aware of this.)
Cash Is King
It’s an old oft-repeated adage, but ‘cash is king’. And the live sector currently doesn’t have any.
It’s a basic commercial tenet for any company to survive, but cashflow is arguably the single most important financial metric.
A start-up company may have fantastic disruptive prospects with initial seed venture funds, an emerging corporation may have developed a promising business model with some level of revenue and reasonable operational expenses, whilst a mature organisation may have significant planned income and comprehensive fiscal controls.
But few live entertainment company operational bases are likely to be designed for the current pandemic which has decimated both supply & demand.
Companies operating within the live events and ticketing sectors will now have a negative cashflow and will have to take painful and corrective measures – cutting back on staff and operations, requesting rental freezes, delays to any business loans, and further refinement of any cashflow enhancing postponement strategies. Or face eventual bankruptcy.
Which is why, within the UK, the various live sector lobby groups and trade associations – CIF (https://www.creativeindustriesfederation.com/), FAC (https://www.thefac.org/), IVW (https://www.independentvenueweek.com/), MMF (https://themmf.net/), MU (https://www.musiciansunion.org.uk/), MVT (http://musicvenuetrust.com/), SOLT (https://solt.co.uk/), STAR (https://www.star.org.uk/), the umbrella organisation UK Music (https://www.ukmusic.org/) and others, have all agitated for government support across the live industry and in particular for employees, freelancers and self-employed workers.
The UK government has initially offered reduced business rates, flexibility for late corporate filings, delayed VAT payments, and the 80% underwriting for furloughed staff (up to £2,500 per month).
Despite the growing number of requests for more, there is (currently) no bailout envisaged for live entertainment organisations – there are simply too many other far more urgent sectors to support: Hospitals, Welfare, Food Distribution & Retail, Public Transportation etc.
DEAG Deutsche Entertainment AG (02.04.20) via Google
Live Entertainment & Access to Capital
To maintain or expand operations within live entertainment a company needs to be able to invest in specialised staff with expertise in talent selection and negotiation skills in deal-making, event production services, offline & online marketing, event promotions (including Health & Safety Regulations) and fiscal management.
The timing between the initial negotiation and then finalised agreement for the artist or attraction to perform, and the maturity of that contracted event, can take months and ready access to cash during this entire period is paramount.
The cost-base for any mid-to-large-scale event promoting business is therefore substantive, and as the number of concerts and tours increase, organisations have larger and larger demands for access to cash.
Without a substantive and regularised cashflow, a promoting business may not be able to compete for the most desirable artists or develop-fund new productions and may never be able to experience company growth but will stagger from event-to-event.
To correct this, what the live industry has done is developed a reliance on ticket face value advances and then other sources of incremental revenues: ticket service fees; rebates and commissions from the bulk purchasing of advertising; retrospective period-based discounts from productions services and venue rental; splits from car parking, F&B, Merchandise, etc.
What Mark Wienkes (Goldman Sachs) referred to in 2008 as a ‘River of Nickels’ strategy (https://www.wsj.com/articles/SB119638444764208825).
Live Nation Entertainment (02.04.20) Via Google
Alternatively, a business could take out a loan (assuming approval by lender(s) and with access to a significant down payment, interest rates and/or liens on property etc.), but Banks and other institutions have typically not welcomed the risk-position of live entertainment.
However, larger operators (in part due to their market-share, scale and consolidation tactics) have successfully arranged credit facilities which has then enabled further accelerated expansion via acquisition.
Live Entertainment & Ticketing M&A
Within the global live entertainment and ticketing industries Mergers & Acquisition (M&A) has been utilised by the leading international consolidators to strengthen their territorial network, to enhance their technology offerings, and to broaden their concert & festival promotions, ticketing services, and venue management portfolio.
For clarity, M&A are transactions whereby the equity ownership of companies or their operating divisions, or assets are transferred or consolidated within other acquiring organisations.
These deals can be structured in various ways including a single transaction acquiring the complete business, turnover and assets, through to initial minority acquisition, with a pre-agreed earn-out mechanism for original shareholders and/or management leading to an eventual full consolidation, and a myriad of other variants.
Acquisitions within live entertainment have focussed on two types of growth opportunities or consolidation: horizontal and vertical.
Horizontal Consolidation e.g. promoters / ticketers acquiring more-of-the-same
- Exercise economies of scale, centralisation of costs identifying synergies, reduction of duplicated staff & functions, adoption of best-practise
- Bulk-purchasing of talent / access to inventory – multi-year, multi-territorial engagement with non-compete clauses
- Bulk-purchasing of production facilities & logistics – staging, power, toilets, pa, lighting, fencing, roadway with event retrospective discounts
- Acquisition of bolt-on technologies & services (Contact Centres > Outlets > Kiosks > Internet > Mobile > Social) to enhance the host ticketing platform
- Typically, a US (Domestic) > International Dynamic
Vertical Consolidation e.g. the major international live entertainment aggregators:
- Artist Management – enabling closer access to talent / ticket inventory
- Venues – Diary Management & Operation is preferred to building or owning ‘Bricks & Mortar’, but some have made ‘downtown entertainment zones’ a speciality
- Festivals – delivering incremental revenue opportunities from diminishing the economic authority of ‘headline artists’, greenfield site rental (especially if owned by a sister-company), the adoption of cashless (delivering breakage, as well as insight / control over F&B sales ), campsite rentals, car parking etc.
- Ticketing: Pre-Sale, On-Sale, Up-Sale & Re-Sale – the four ticketing activities which cover off closed user group access, mainstream retail marketing & distribution, the full range of event pricing, bundling, packaging & product differentiation, discounting & dynamic pricing
A notable recent ticketing transaction was Viagogo announcing its intention to acquire StubHub from eBay for $4.05 Billion Cash (https://www.prnewswire.com/news-releases/viagogo-acquires-stubhub-from-ebay-for-4-05-billion-300964581.html) – the wider industry is now waiting with some interest to observe how this plays out in the current Coronavirus climate.
IQ Magazine reports that Live Nation made twenty acquisitions (including artists management, festivals, promoters and ticketing) in 2019 alone (https://www.iq-mag.net/2019/12/20-2020-live-nation-buys-malaysia-pr-worldwide/) with two transactions completed this year before the COVID-19 meltdown (https://www.iq-mag.net/2020/03/live-nation-acquires-norway-bergen-live/).
Crunchbase details that CTS Eventim has historically made twenty-three acquisitions, including promoters, venues and ticketing organisations including TicketOne (Italy), TicketOnline (Germany), TicTec (Switzerland), Kinoheld (Cinema), Lippupiste (Finland), Ticketcorner (Switzerland), Entradas (Spain) and Venuepoint (Denmark). More recently it announced exclusive negotiations with Fnac Darty on a strategic ticketing partnership including an initial 48% minority stake in France Billet (https://www.globenewswire.com/news-release/2019/07/24/1887368/0/en/Fnac-Darty-starts-exclusive-negotiations-on-strategic-ticketing-partnership-with-the-CTS-EVENTIM-Group.html).
Anschutz Entertainment Group (AEG) the world’s second largest presenter of live music and entertainment events is a subsidiary of the Anschutz Company and has recently bought out the other minority shareholders in AXS ticketing (https://www.aegworldwide.com/press-center/press-releases/aeg-purchases-all-outstanding-shares-axs), as well as numerous other historical acquisitions including Goldenvoice (producers of Coachella), Concerts West, Messina Touring Group, PromoWest Productions, Bowery Presents, Firefly Music Festival. It also merged its venues division AEG Facilities with SMG to form ASM Global in January 2019 operating more than 300 facilities across five continents.
Deutsche Entertainment (DEAG) is a live entertainment company operating in Germany, Switzerland and the UK via Kilimanjaro Live and Flying Music with its own in-house ticketing brand – MyTicket (powered in Europe by the Secutix SaaS platform) – complimented by the recent 75% acquisition of Gigantic in the UK (https://www.investegate.co.uk/deag-deutsche-entertainment-ak/eqs/deag-to-acquire-75–of-the-uk-ticketing-platform-gigantic-holdings-ltd/20191216122007EHOVN/).
Eventbrite has made nine ticketing systems and technology acquisitions including Lanyrd, Eventioz, Queue, Ticketscript, nvite, Ticketea and Picatic, and the more expensive and problematic Ticketfly for a reported $200M in June 2017 (https://www.musicbusinessworldwide.com/eventbrite-acquire-ticketfly-pandora-200m/).
Many others in the sector, both large and small enterprises have also grown via acquisitions and this level of sustained M&A activity has attracted some interest from Private Equity funds who also believe they can create similar live entertainment organisations.
Specifically, within the ticketing sector, AudienceView announced growth investment from Rubicon Technology Partners in 2016 (https://www.globenewswire.com/news-release/2016/11/03/1337005/0/en/AudienceView-Announces-Growth-Investment-from-Rubicon-Technology-Partners.html) and then subsequently acquired OvationTix, TheatreMania, WhatsOnStage, Vendini and UniversityTickets.
eTix announced growth investment from Parthenon Capital Partners in 2017 (https://www.prnewswire.com/news-releases/etix-announces-growth-investment-from-parthenon-capital-partners-300491831.html) and has subsequently acquired ExtremeTix, TicketBiscuit, Interactive Ticketing, TicketForce and StarTickets.
Providence Equity acquired a majority stake in Ambassadors Theatre Group in 2013 for a reported £350M (https://www.ft.com/content/f282fd10-3a44-11e3-b234-00144feab7de).
Whilst Providence’s growth-equity arm – PSG – in 2017 acquired and then backed Patron Technology (https://www.wsj.com/articles/providences-growth-equity-arm-backs-patron-technology-1500401130) to subsequently complete nine transactions including TicketLeap, ShowClix, SeatAdvisor, Thuzi, Marcato, and Ticketbooth.
Providence Equity has also separately backed Superstruct Entertainment to acquire a number of festival properties including Sziget, Elrow, Sónar, Wacken (W:O:A), Øyafestivalen, Flow Festival and others from Global Media including UK based Victorious Festival, South West Four, Kendal Calling, Truck, Tramlines and Boardmasters as well as Hideout which is held in Croatia.
And then there is Silver Lake Partners (https://www.silverlake.com/). With over $43Bn in combined assets under management its portfolio includes AMC Entertainment (Cinema), Oak View Group (Entertainment & Sports), TEG (Live Entertainment & Ticketing), Learfield | IMG College (Entertainment & Sports), City Football Group (Sports), Endeavor (Entertainment & Sports), UFC (Entertainment), The Madison Square Company Co. (Entertainment & Sports) etc.
Lastly, as noted by the FT (https://www.ft.com/content/a68f94b7-ecc8-4c29-8975-d01d5cefb560 – SubReq) various Hedge Funds are already breathlessly fundraising to exploit various market opportunities amid the current chaos. So, going forward transactions within the live entertainment and ticketing sectors may not simply be undertaken by current industry operators, or funded by those with a pre-existing sector interest, but by new money as well.
So, change is inevitable, and ‘live’ is from a cashflow perspective f***ed.
There will undoubtedly be some organisations that will regretfully fail to survive. Others will be forced to (temporarily?) merge, collaborate or downsize.
Some, with access to capital, low levels of debt, or friendly government loans for reconstruction, will ‘flourish’ and acquire (previous) competitors and new opportunities alike.
Going forward, perhaps there also needs to be a new social contract with consumers?
Not just with the health and safety of artists, staff and audiences of paramount concern and focus. Not just with cleaner venues with appropriate levels of social distancing. But perhaps a new model for event funding and sustainability that doesn’t simply rely on consumers being willing to lend upfront their cash for future spectacles of entertainment?
I’m happy to receive your comments relating to these posts, and if you’d like to contact about your Post-Virus plans don’t hesitate to get in contact: firstname.lastname@example.org
4 replies on “Refunds, Cashflow & Live Entertainment M&A”
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