Cities have shut down nightclubs and raves over drug concerns throughout dance music's 30-year history. But that was before the arrival of EDM with its giant and young audience, and the massive investment it attracted. Live Nation, Yucaipa and Robert F.X. Sillerman's revived SFX have all anted up hundreds of millions of dollars for EDM entities in the last 12 months. Sillerman's now taking SFX to public investors to raise as much as $300 million, according to a filing. The industry believes its rollout to investors is imminent because its deal with German promoter iMotion expires if the initial public offering (IPO) misses an Oct. 16 date.
Electric Zoo Festival Canceled Following Two Drug-Related Deaths
This makes the Electric Zoo incident, the first drug-related shutdown of the EDM era, all the more significant. The two deaths, the city's actions and the extensive media coverage amplify what up until now have been whispers about the genre's viability for potential investors as well as brand sponsors, which figure into Sillerman's plan significantly. His vision, reportedly, is to create cohesive media opportunities across a single platform made up of his acquisitions. Sources say he's valuing a program of that nature as high as $50 million.
"If you Google 'EDM' and it links to a story about a kid's death, the ricochet effect of that is undeniable. That it's tied into the stock market is the worst timing possible."
Made Event is among the acquisitions listed as "planned" in the SFX IPO prospectus, for $35 million in cash and stock for 70% of the business. But the deal doesn't appear to have closed: An amendment filed Aug. 30 (the Friday of Electric Zoo) moved an original deadline of Aug. 21 to Sept. 30 and upped SFX's deposit of $2.5 million to $3.75 million. It also reserved the right to extend the deadline to Oct. 31 for an additional $1.25 million. If the deal didn't close then, Made would keep the full $5 million. The extension speaks to SFX's reported cash-flow problems, and hones in further on October as IPO timing. SFX executives Shelly Finkel and Donnie Estopinal attended Electric Zoo on Friday, perhaps solidifying these changed terms. So the events of the weekend landed squarely on Sillerman's doorstep.
"Brand partnership strategies for 2014 are signed off in the end of 2013," say Amy Thomson, manager of acts like Swedish House Mafia and Alesso, and consultant to Ron Burkle's Yucaipa. "If you Google 'EDM' and it links to a story about a kid's death, the ricochet effect of that is undeniable. That it's tied into the stock market is the worst timing possible."
SFX IPO: Robert Sillerman's Growing 'EMC' Empire
SFX knew what it was getting into: One of many risk clauses in the initial IPO filing details the potential drug problem. "We are subject to risks associated with activities or conduct, such as drug use at our festivals, events or venues that are illegal or violate the terms of our business licenses," it reads. "Illegal activities or conduct at any of our events or venues may result in negative publicity or litigation." The clause details such possible consequences as the inability to obtain permits and "[making] an investment in our securities unattractive to current and potential investors, thereby lowering our profitability and stock price."
For a major brand or a Wall Street investor, the difference between one psychoactive drug and another is probably moot. During an investment panel at the Billboard Touring Conference last November, panelists discussed the intangibles of dance culture and the relative risk in the live EDM space as it relates to the viability of investment in the scene. "That scene has certainly got some risk in it that we don't in other parts of our business," C3 partner Charlie Walker said. Todd Boehly, president of Guggenheim Partners (owner of Billboard parent company Prometheus Global Media), added, "If it's a problem for the promoter, it's a problem for the investor."
And for the sponsor. "Outlets like the L.A. Times and Wall Street Journal will all start debating the effect on stock market prices, and that level of newspaper is on the breakfast table of the CEOs of Coca-Cola, Pepsi, Nokia, Samsung and so on," Thomson says. "The biggest thing that adds to your bottom line from day one without selling a ticket is a brand partner. If they're reading that kids die at these things, they're gone, and if they're gone, it's absolutely devastating for promoters."
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