The following comes from Simon Liddell (pictured inset), Director of Centtrip Music and Entertainment. He explains how those involved in the live festival industry can mitigate potential currency volatility risks efficiently. Centtrip is a leading fintech company specialising in intelligent treasury management, FX and payments for the music and marine sectors.
With the festival season just around the corner, managers are finalising their acts’ itineraries, artists are getting their sets performance-ready and promoters are gearing up to spread the word. If you are a rock band, a hip-hop artist or a DJ, a key variable in the success of any international festival and how much you will get paid this season heavily depends on how well you and your representatives will manage risks associated with currency fluctuations.
Sudden and large moves in currency markets can affect your bottom line substantially. In addition, a plethora of variables from Brexit to Trump’s presidency or slowing economic growth can move the price today and in the future in ways that are not always easy to predict.
What’s the deal?
In the UK, which has a fast-growing domestic music business, Brexit has had a significant impact on the Pound’s value relative to its peers.
Before the June 2016 referendum, the Pound was trading at 1.50 against the Dollar and at 1.30 against the Euro. The Pound has since dropped by as much as 20 per cent and now hovers around $1.29 and is only at €1.13.
With the rising likelihood of a no-deal Brexit, the Bank of England’s predictions that Sterling could drop by as much as 25 per cent and reach parity against the Dollar and inflation could hit 6.5 per cent are becoming ever more real.
This has been good news for artists performing overseas and paid in Dollars. As it stands, a big UK artist who got paid $1 million at Coachella in 2016 would have been £91,000 better off the following year. But it has also been painful for festival owners in the UK needing to pay artists in Dollars and Euros. How many tickets will they need to sell to cover the difference?
Why does this matter?
Foreign-exchange rates change constantly and, depending on whether they go up or down, they can either increase or hurt your bottom line.
But you can take precautionary measures to mitigate risks associated with these substantial moves in the currency market. Doing nothing is in itself a gamble. With some of the greatest financial minds unable to predict the outcome from key market-moving events, hoping that rates will either stay the same or move in your favour is probably the riskiest approach you can take.
So, what can you do?
You don’t need to be at the mercy of the currency market. Consider taking steps that will help reduce those risks or even remove them entirely.
- Forward contracts enable you to lock in an exchange rate for a specific amount in your preferred currency for delivery on a set date in the future. Locking in half of the money you may require helps you reduce the impact of negative market moves by 50 per cent. It also gives you flexibility, allowing you to take advantage if markets move in a positive direction.
- Market orders are another useful tool. Currency markets move constantly within the 24/5 opening window. That means volatility can happen while you are out of office or asleep. Market orders allow you to target a specific rate so you can take advantage of that volatility.
- Check you get the best rate. This may sound obvious, but you would be surprised how many still ignore this. In today’s digital age, individuals have access not only to traditional fx routes but also new technologies that can benefit your bottom line and help you achieve greater cost efficiency.
- Avoid other unnecessary costs. When locking in rates, you could also scrutinise your payments. Are they as cost-efficient as they can be? Often when using a traditional bank to transfer money overseas, you face additional charges on top of the fee for converting currency.
Have you considered fintech?
The new swath of fintechs offer smarter products spanning foreign exchange, business expenditure and international payments for a better and more cost-efficient way of managing your finances.
From multi-currency accounts available on an app to multi-currency prepaid cards used for trouble-free touring, fintechs offer an array of smart and cost-efficient products and services created with artists and their representatives’ needs in mind.
The risk profile of artists and festival organisers is different. That’s why we have a dedicated team of currency market experts who have years of experience of working within the music and wider entertainment industry and can help mitigate any currency fluctuation risks.Music Business Worldwide