The Coronavirus pandemic – and the global effort to contain it – has already left some serious economic damage in its wake.
One of the hardest hit companies in the maelstrom is Live Nation Entertainment, whose central operation, that of promoting concerts, has been completely wiped out by the virus.
Earlier this month, in an attempt to calm the nerves of investors, Live Nation made a bold move, pledging to slash company costs by up to $500m this year – with Live Nation CEO Michael Rapino honorably forgoing his $3m annual salary as part of this effort.
On the same date (April 13) Live Nation announced it was also raising a new $120m credit facility, while committing to implementing hiring freezes and the “reduction or elimination of other discretionary spending” including marketing expenditure.
The firm said these initiatives were being carried out to “reduce fixed costs and conserve cash”, as a bulwark against “uncertainty associated with the duration of current conditions globally”.
As a signifier of Live Nation’s ongoing security (and liquidity), the company reassured investors on April 13 that it had access to a total of $3.8bn, made up of $914m in free cash, plus a total debt capacity of $940m, plus – and this is the important bit to remember – $2bn of “event-related deferred revenue”.
“Event-related deferred revenue” is, in layman’s terms, cash that’s been paid to Live Nation for events that haven’t yet happened.
Can you see where this is going?
The figures released by Live Nation on April 13 were reiterated by the firm’s President, Joe Berchtold, on CNBC’s Squawk Alley the following day.
“We have $1bn of cash, we have roughly $1bn of untapped debt, we have another $2bn of liquidity that we can access, so about $4bn in total that we can access,” said Berchtold. “We have a [cost] run rate of just over $2bn a year, a couple of hundred million a month, and that’s before the cost cutting initiatives were put in place.”
Note Berchtold’s confidence in the “$2bn of liquidity” there – which, again, according to Live Nation’s SEC filing the prior day, appears to be entirely made up of “event-related deferred revenue”.
“Live Nation’s President said in April that the firm’s access to $3.8bn in cash – including $2bn of “event-related deferred revenue” – would be enough to see the company through, with zero concerts going on, until somewhere between October 2020 and January 2021.”
Berchtold added: “Between that [level of] liquidity and those cost reduction efforts, what we’re doing to conserve cash now, we absolutely believe that… even if we do no concerts for the next 6 months, 9 months going into next year, that we will be able to get through to that point.”
To run you by that again: Live Nation’s President said in April that the firm’s access to $3.8bn in cash – including $2bn of “event-related deferred revenue” – would be enough to see the company through, with zero concerts going on, until somewhere between October 2020 and January 2021.
You therefore have to assume that Berchtold is indicating, in approximate language, that without more cash, things would start becoming financially untenable for Live Nation in or around Q4 2020 to Q1 2021 – when the firm would have to seek more capital.
As well as making ripples in the business media this month, Live Nation and its fully-owned subsidiary, Ticketmaster, have also been at the center of a major consumer story.
Five days before Live Nation’s $500m cost-cutting plan was announced on April 13, Ticketmaster was getting hammered in US newspaper headlines for seemingly changing the wording of its refund policy in the middle of Coronavirus lockdown.
According to a New York Times report, Ticketmaster’s website previously said that refunds “are available if your event is postponed, rescheduled or canceled”, but had later been altered to only say refunds “are available if your event is canceled.”
“Between [$3.8bn in] liquidity and [our] cost reduction efforts… we absolutely believe that… even if we do no concerts for the next 6 months, 9 months going into next year, that we will be able to get through to that point.”
Joe Berchtold, Live Nation
The ticketing company later informed the press that its wording had been (in USA Today’s phrasing) “edited for clarity”, while further pointing out that its refund policy for postponed events had (also USA Today’s phrasing) “always been set by event organizers – not by Ticketmaster”.
It’s surprising Ticketmaster didn’t get a tad more scrutiny over this announcement – what with its biggest event organizer partner actually being its parent company, Live Nation – but there we go. It certainly wasn’t missed by one artist manager of a major touring artist, who told MBW in a livid email: “Does this mean the consumer is inadvertently helping Live Nation with their cash flow, when many these fans need that money to put food on the table on these difficult period?! Outrageous!”
In the end, Live Nation/Ticketmaster did the right thing. On Friday (April 24), Live Nation officially and publicly announced a two-pronged COVID-19 refund policy, dubbed ‘The Ticket Refund Plan’:
- (i) For cancelled shows, customers who’d previously bought a ticket can now either get their money back, or, if their show was at a Live Nation venue, instead choose to take 150% credit towards future concerts;
- (ii) For postponed shows, all customers can indeed (hooray!) claim a refund within 30 days of the new show date being announced, or keep hold of their ticket.
Back to the business angle.
On April 13, this is what Live Nation was telling its investors: “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.
“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.”
Live Nation claim on April 13
“Based on these trends, as well as an analysis of scenarios where refund rates increase above 20%, [Live Nation] 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.”
Much has changed since then, of course – and not just that now-settled storm over Ticketmaster refunds.
Consumer confidence in large public gatherings may be slipping as COVID lockdown continues. Surveys suggest that as many as 40% or even 45% of people don’t now feel confident returning to live music concerts, specifically, until a COVID-19 vaccine is established and made available.
Meanwhile, every time a Live Nation customer requests a refund for their already-purchased ticket, it reduces the company’s crucial $2bn pot of “event-related deferred revenue”.
Remember, Live Nation President Joe Berchtold estimated on Squark Box that with $3.8bn (“about $4bn”) in accessible cash, Live Nation could survive (“get through”) to somewhere between October 2020 and January 2021, bolstered by its cost-saving efforts.
“Fans, we hear you. We don’t want you to be waiting in limbo while shows are being rescheduled. Thanks to your feedback, Live Nation has revised our refund policy.”
Michael Rapino, Live Nation (pictured main)
Live Nation, then, seemingly has a tricky balance to strike, between: (a) being the good guy for its customers (i.e. advertising a route for consumers to claim back their money for postponed shows); and (b) relying on “event-related deferred revenue” for its own fiscal security during the income-free COVID-19 concert shutdown.
Now, the firm appears to be leaning firmly towards (a).
Michael Rapino even tweeted on Friday: “Fans, we hear you. We don’t want you to be waiting in limbo while shows are being rescheduled. Thanks to your feedback, Live Nation has revised our refund policy.”
(Talking of Live Nation’s ‘revision’ of its policy, I note that in another para sent to investors on April 13 (bolding/underline mine), Live Nation said: “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.” Hmm.)
On April 13, Live Nation stated that it had run an “analysis of scenarios” whereby a refund rate of 20%-plus affected concerts that were scheduled to happen pre-COVID lockdown – and that it wasn’t worried by the result.
But what now happens to Live Nation’s “event-related deferred revenue” if that 20% becomes 30%, or 40%… or 45%-plus?
“surveys suggest that as many as 40% or even 45% of people don’t now feel confident returning to live music concerts until a COVID-19 vaccine is established.”
Well, here’s some simple math: If Joe Berchtold’s right, and a $3.8bn cash pile would be enough to “get Live Nation through” to, say, November, he’s indicating an expected required company cash buffer of somewhere in the region of $475m per month.
Therefore, if Live Nation’s $2bn in “event-related deferred revenue” were to get sapped by 45% (down to $1.1bn), it would cost the company, by Berchtold’s numbers, around two months of time.
(Worth reiterating here that Berchtold told Squark Alley that Live Nation had a “[cost] run rate of.. a couple of hundred million [dollars] a month” before its cost-cutting measures – meaning our two month estimate may be more like four or five months in reality.)
Adding to the pressure on Live Nation’s liquidity: the firm is set to buy Mexico-based 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.
Live Nation previously announced that it expects the OCESA transaction to go through in the second quarter (i.e. before the end of June).
This deal is hugely important to Live Nation’s global expansion plans; at least, it was, pre-COVID.
Right now, it means something the company could do without: the imminent expenditure of $400m-plus in cash from that $3.8bn pile… a pile now also being reduced by ticket refunds requests – as advertised by Live Nation itself.
UPDATE: Today, some fresh major news about Live Nation was announced.
Live Nation confirmed to the markets earlier today (April 27) that The Public Investment Fund of Saudi Arabia – a fund which invests on behalf of the government of Saudi Arabia, with total estimated assets of $320bn – has acquired a 5.7% stake in its company.
As a rough guide, Live Nation is currently trading with a market cap value of $9bn. A 5.7% stake would therefore equate to a valution in the region of $513m.
A previous version of this story suggested that Live Nation sold the shares direct to the Saudi fund. In fact, the shares were purchased on the open market.Music Business Worldwide