Live Nation CEO and President, Michael Rapino, is giving up his $3m-per-annum salary as part of measures put in place by the company to slash expenditure by $500m this year amid the COVID-19-driven shutdown of the global live music industry.
It’s been a very long 45 days since Live Nation’s Q4 earnings call on February 28, when company President, Joe Berchtold, informed investors that his firm had seen “no pullback in fan demand or ticket buying” outside China and Italy due to Coronavirus – and when an optimistic Rapino noted that, despite the early Coronavirus headlines, Live Nation had just successfully sold out a festival in Australia.
Added Rapino on that date: “The consumer still seems to be buying tickets on a global basis…We’re going to take this cautiously as we watch the markets and assume a [COVID-19] hotspot will flare up and a show will be canceled here and there. But we’re confident, long-term, the show will happen; the revenue will flow and the fan will show up.”
From then to now, of course, the world has completely changed, signified by US President Donald Trump calling a State of National Emergency on March 13. Live Nation itself announced an ongoing cessation of all global concert activity in mid-March.
In the end, the unprecedented shutdown/postponement of the live entertainment business hasn’t just happened “here and there” – it’s sadly been unanimous, and worldwide. The header image of Live Nation’s investor site (pictured below), is a cruel reminder of how different life was just two months ago:
Today (April 13), Live Nation has announced a series of financial moves designed to protect its business against the COVID-19 closedown.
These include the raising of a new $120m credit facility, as well as what the firm calls a “cost reduction program” – with a target of slashing the company’s annual costs by a whopping $500m during FY 2020.
“Given the uncertainty associated with the duration of current conditions globally, the company has launched a number of initiatives to reduce fixed costs and conserve cash,” Live Nation explained in a press release.
“Given the uncertainty associated with the duration of current conditions globally, the company has launched a number of initiatives to reduce fixed costs and conserve cash.”
So how will Live Nation cut its spending by half a billion dollars?
Part of the answer to that question lies in a promise to “implement salary reductions, with salaries for senior executives reduced by up to 50%, and the company’s CEO voluntarily forgoing 100% of his salary for the duration of the salary reduction program”.
According to a freshly-filed SEC document, as first spotted by Variety and screen-grabbed below, here’s how those senior exec salaries stack up:
As you can see, Rapino’s basic reduces from $3m to $0, while Berchtold’s falls from $1.3m to $650k. The salary of General Counsel Michael Rowles is also slashed in half ($800k to $400k), as is that of CFO Kathy Willard ($950k to $475k).
These salary reductions will apply from April 16 until Live Nation’s board of directors agrees to restore them to their previous levels. Yet even if the five named senior executives above see their salaries reduced for a full 12 months, it would cumulatively only save the company $4.62m across the year – a long way from the $500m target highlighted by the business for cost-savings.
Where else is this money going to come from?
Live Nation says further cost reduction efforts will include “hiring freezes, reduction in the use of contractors, rent re-negotiations, furloughs, and reduction or elimination of other discretionary spending, including, among other things, travel and entertainment, repairs and maintenance, and marketing”.
There is currently no mention of redundancies amongst the firm’s 10,500 full-time employees; instead, the company is focusing on the furloughing of staff via “government support programs”.
“[Live Nation will be] reducing advances in both its ticketing and concert businesses.”
It explains: “In most European and Asian markets, including the U.K., Germany, Italy, France, Spain and Australia, there are robust payroll support programs to mitigate a substantial portion of employee costs. Additionally, in the U.S., Live Nation expects to receive payroll support under the Employee Retention Credit for employers program established as part of the 2020 CARES Act.”
Live Nation adds that it will be “reducing advances in both its ticketing and concert businesses” – not an insignificant statement. In the past, for example, Live Nation has struck advance-based deals with megastars priced into the hundreds of millions, including a reported $200m agreement with Jay-Z signed in 2017.
Furthermore, Live Nation says it will be “re-assessing all capital expenditure projects and evaluating all other cash deployment activities”.
It seems unlikely this re-assessment will affect Live Nation’s pending acquisition of a majority stake in Mexico’s OCESA Entretenimiento – the biggest concert promoter in Latin America.
According to an SEC filing from last summer, Live Nation has entered into a definitive agreement to acquire 51% of OCESA for a purchase price of MXN $8.835bn (approx $462m), of which MXN $7.93bn (approx $414m) will be paid in cash, with the remainder in Live Nation stock.
This is a huge deal for Live Nation, and has the potential to greatly accelerate its business in Latin America, but hasn’t yet been officially signed and sealed by Mexican regulators (LN initially expected this to happen by the end of 2019, but Joe Berchtold told investors in February: “[At] this point, we expect the acquisition to close sometime in the second quarter.”
As such, that outlay of $400m-plus in cash will be factored in to Live Nation’s 2020 performance, but, if the deal gets done, will obviously significantly reduce Live Nation’s liquidity.
An announcement of a $500m cost-savings target wasn’t the only big news from Live Nation today designed to calm investors.
The company announced that it had agreed a new revolving credit facility of $120m, guaranteed by JPMorgan Chase, with the potential to increase said facility to $150m. As a result, said Live Nation, it now has approximately $940m in available debt capacity.
“With this additional liquidity, the flexibility in our debt covenants, and cost-cutting efforts, we believe that Live Nation has the financial strength to weather this difficult time.”
Michael Rapino, Live Nation (pictured)
The company further noted: “Live Nation‘s total cash and cash equivalents balance was $3.3bn as of February 29, which included $914m of free cash and $2bn of event-related deferred revenue.
“This free cash and event-related deferred revenue, together with the now available debt capacity of $940m, gives the company a total liquidity position of $3.8bn.”
With that in mind, Michael Rapino said: “The live entertainment industry has delivered incredible global growth for over 20 years, which speaks to the great passion and resilience of fan demand.
“With this additional liquidity, the flexibility in our debt covenants, and cost-cutting efforts, we believe that Live Nation has the financial strength to weather this difficult time. We will be ready to ramp back up quickly and once again connect audiences to artists at the concerts they are looking forward to.”
Live Nation also moved to reassure investors that the vast majority of its shows had been postponed, rather than cancelled – which wouldn’t, in the majority of cases, mean the company was on the hook for refunds (thus the ‘deferred revenue’ mentioned above).
It explained: “Through March 31, Live Nation has had eight thousand shows impacted by the event stoppage starting in mid-March of this year, with 15 million tickets sold for these shows. Of this, seven thousand shows with 14 million tickets sold were postponed, accounting for 90% of tickets impacted. The remaining 10% of tickets, or 1.6 million, were for shows that were canceled.
“We will be ready to ramp back up quickly and once again connect audiences to artists at the concerts they are looking forward to.”
Michael Rapino, Live Nation
“Refunds have been issued for tickets for all canceled shows, and the company expects to allow some refunds for postponed shows in the U.S. and select international markets as new event dates are set. In multiple international markets, including Germany, Italy and Belgium, government regulations which allow for the issuance of vouchers in place of cash refunds for rescheduled shows, and in some cases for cancelled shows, have been put in place or drafted.
“For rescheduled shows that have offered refunds over the past month, 5% to 20% of fans have requested refunds while the vast majority preferred to hold on to their tickets for the future date. Based on these trends, as well as an analysis of scenarios where refund rates increase above 20%, the company does not expect material declines in its event-related deferred revenue balances given the geographic diversity of the funds, the large portion of funds held by venues, and ongoing ticket sales for events in late 2020 and 2021.”Music Business Worldwide