Disco Donnie Estopinal, the first promoter to sell his business to Robert F.X. Sillerman's newly re-formed SFX Entertainment, is an American dance scene folk hero: He almost went to jail fighting for the rave cause in 2000, when the U.S. government attempted to apply the so-called "Crack House Law" to event promoters, deeming them responsible for drug activity at their events. He stood his ground, and the indictment was dropped -- clearing the way for promoters to go about their business without concern, and fueling the fire that eventually ignited the U.S. EDM explosion.
So it was significant when Estopinal, one of the most credible guys out there, faced his peers on June 10, 2012, the very day the sale of his Disco Donnie Presents was announced. Sillerman was still a new name, and a new idea, to the burgeoning EDM industry, which was just starting to celebrate its newfound prosperity: Insomniac Events' Electric Daisy Carnival -- which would take place that weekend in Las Vegas -- was sold out, surpassing 300,000 attendees during its three days. Skrillex had just won three Grammy Awards. Swedish House Mafia was still alive and kicking, riding high off of selling out New York's Madison Square Garden in just nine minutes. Things were good, and they were growing.
Estopinal had street cred with the ravers, so he faced criticism for collaborating with a perceived moneyed opportunist like Sillerman, but Estopinal's esteem with Wall Street is much lower. After all, the first company Sillerman chose to buy was his Donnie Disco Presents, one that ran more than 600 events last year and still lost money.
Now, with Sillerman, 65, just weeks away from taking the EDM incarnation of SFX to the public markets in a $175 million initial public offering, Wall Street is about to provide some tough answers. In a few weeks the industry will know how investors really feel about the burgeoning EDM movement, and more specifically their opinion of Sillerman's latest roll-up.
Here's the irony: In the 14 months since Estopinal sold his company, not only have suspicions of Sillerman somewhat dissipated, but the EDM community, by and large, has already changed its tune.
Insomniac's Pasquale Rotella was once one of the most vociferous opponents of "selling out," but just a few weeks ago he inked a $50 million deal to sell half of his successful business to the biggest corporation of them all, Live Nation. Now, dance promoters across the land aren't so much waiting on a call from Sillerman's people as they are making sure they too can capitalize on what could wind up being just another dance music "bubble."
At EDMBiz in June, during the "Growth and Investment in EDM" panel, five venture capitalists and one lawyer discussed the potential of the "EDM space" -- a phrase used often during the conference's three days. They generally agreed that they're looking for "average opportunities" of around $50 million, and threw around phrases like "management roll-up," "single agency plays" and "curation technology" to describe what they're looking to buy. Most of EDMBiz's attendees -- many of whom had given Estopinal a hard time last year -- were there looking for a deal, after all.
You could call it the "Sillerman Effect": The quick education of a formerly ramshackle group of entrepreneurs about how big money works, and the even quicker loss of their concerns about it. SFX picked up several additional companies in the intervening year, including significant gets like digital download site Beatport and Dutch event producer ID&T. Ron Burkle's Yucaipa is backing former Pacha director Danny Whittle's new Ibiza project, including a nightclub and a collective DJ working facility. Even Patrick Moxey's proud indie Ultra Music entered into a strategic alliance with Sony Music, making him Sony's worldwide president of electronic music.
But of all the acquisitions, joint ventures and venture capitals, Sillerman's gamble and vision are the biggest. He didn't dip his toe; he stuck in his whole foot. He told Billboard last year he'd invest $1 billion to build his EDM empire, but he hasn't spent anywhere near that much and he couldn't even if he tried-the EDM industry just isn't that big.
For Sillerman the goal isn't to aggregate profitable businesses -- many of his buys are losing money. It's to make something bigger than the sum of its parts, a network of media opportunities that amount to a global youth marketing platform, framed around EDM -- or as SFX calls it, EMC (electronic music culture). The company lost $49 million on revenue of $242 million in 2012. Or, to be more accurate, the companies SFX has wholly or partially acquired had a pro forma loss of $242 million last year.