The Sunset of SFX: Where to Now?
On Feb. 1, Robert Sillerman’s plans for EDM domination finally came crashing down.
After a four-year spending spree during which his would-be powerhouse SFX Entertainment acquired promoters ID&T (with its Tomorrowland, TomorrowWorld and Mysteryland festivals), Made Event (Electric Zoo) and Disco Donnie Presents, along with dance-music download/streaming service Beatport and artist management firm TMWRK, the company filed for Chapter 11 bankruptcy protection. On that day, an investor who held SFX shares since its splashy $12-a-share IPO in October 2013 would have lost all but 5 cents per share -- a 99.6 percent decline.
It was a long fall for the 68-year-old wannabe dance music mogul, who attempted to apply a formula that had paid off for him richly in the past; creating a focused conglomerate by acquiring stand-alone companies. In the '90s, he bought up 71 radio stations before selling them to Capstar Broadcasting for $2.1 billion. Next, he acquired regional concert promoters and sold the ensuing company, SFX Entertainment, to Clear Channel in 2000 for $4.4 billion. But this time, he freely admitted he didn’t understand EDM -- and his attempt to cash in on the dance music boom was met with widespread cynicism from its insular community.
SFX, delisted from the Nasdaq on Feb. 10, will continue to operate, and although Sillerman is still chairman, he has been “completely neutered” and lacks both operating abilities and the ability to spend money, according to a source. The bondholders that have taken control of the company required SFX to hire a new CEO within 90 days, and the company already has engaged an executive search firm, says a source with knowledge of the situation. (SFX and Sillerman declined comment.)
The key going forward will be holding together and better managing what has been criticized as an unorganized collection of subsidiaries. Many chalked up SFX’s problems up to poor management, but a source close to the situation tells Billboard the promoters' independence is also the result of the deals signed with SFX. Reluctant to work with Sillerman, promoters agreed to receive stock as partial compensation in exchange for autonomy from the corporate parent. "He left the local operators with complete control of their businesses," the source says.
The company’s next steps are fairly typical for one undergoing a bankruptcy. It will go on a tight budget, attempt to gain financial stability and exit bankruptcy with sufficient strength for bondholders to get out of their investment. The judge has approved access to $80 million of the $115 million of debtor-in-possession financing -- meaning the bondholders are running the show -- and allotted $23 million for operating expenses.
Chapter 11 provides protection from the company’s creditors and buy it time to restructure debt, meet financial obligations and run its business with little interruption. Subsidiaries, however, are left in limbo, a source close to the situation tells Billboard: "Some people want to buy their businesses back, but it's not really up to them -- bankruptcy complicates things."
SFX and several of its subsidiaries have emphasized that it’s “business as usual,” although Tomorrowland contradicted SFX’s claim that a 2016 TomorrowWorld festival will take place, saying that its vision and strategy “are different from those of the publicly listed company.” The most recent installment of the festival, in September 2015, was beset by weather and transportation issues that stranded thousands of attendees without shelter, food and water.
“[The bankruptcy] was a good thing,” says promoter James “Disco Donnie” Estopinal. “It was necessary to get out from under the debt. For us, nothing’s going to change. All the festivals are happening.”
Sources believe everything, from the sale of select assets to competing promoters to acquisition of the entire company, is on the table. A likely scenario sees SFX being acquired by a private equity firm, allowing its bondholders to exit their investment and giving the buyer an opportunity to turn around SFX's financials outside of the public eye.
“People [inside SFX] have lost equity, money, lost control of their businesses,” says a source close to the situation. “But there is a feeling that, with new management, it could emerge in better shape at the other end.”
As for Sillerman? “He’s not getting anything from Wall Street ever again,” an insider opines. "He'll disappear."
Additional reporting by Kat Bein
This story originally appeared in the Feb. 20 issue of Billboard.