We hope you enjoyed the summer festival season because it looks like SFX, parent company to Tomorrowland, Mysteryland USA, Electric Zoo, Stereosonic, Voodoo Experience, Beatport and Flavourus seem to be dealing with some financial issues. The EDM conglomerate that had raised $260 million with it’s IPO has been hemorrhaging money ever since, failing to meet the street’s estimates even once with shares plummeting even further amidst a desperate move to raise cash, a bid to take the company private, and now a lawsuit against founder Robert Sillerman who allegedly Zuckerberged his original partners by reneging on his original agreements with them prior to the IPO. Investors may follow suit (pun intended) as the situation continues to escalate. Let’s look at the chart for SFX (stock symbol SFXE):
As you can see, the stock NEVER got appreciably higher than where it opened at, its been heading steadily downward since the beginning of 2014. The way that stocks are priced before they go public, its practically guaranteed that the stock will go higher and that it will at some point at least meet analysts’ expectations as those expectations become lower and lower– this has never been the case with SFXE. Now investors have accepted an offer from the founder to buy back shares at less than half of what they were originally worth, essentially losing $130 million. Amidst this, Sillerman was forced to sell $15 million of shares back to institutions (which he will buy back later for a higher price) in a desperate move to raise liquidity (undoubtedly for operating costs) which has caused investors to doubt whether Sillerman will be able to secure the financing the complete the buyback deal.
As if one couldn’t be more skeptical of Mr. Sillerman’s… business practices… he’s now getting slapped with a fat lawsuit from his alleged original partners who claim Sillerman left them in the dust after they secured key partners without being issued shares to the company prior to the IPO.
So, where did all that money go? I haven’t had a chance to review the earnings reports in-depth but one has to wonder how an events company can squander hundreds of millions of dollars in so little time when festival tickets sell for hundreds of dollars a piece. What could happen if SFX goes under? Payments to artists and labels via Beatport are already being withheld during this “transitional period” and it wouldn’t be unreasonable to think that some SFX-sponsored events may disappear in the near future. The only thing we know for sure is that the company is not competing with rival Live Nation and investors aren’t happy.
Check out the form letter that was sent out by Beatport this morning:
Since inception over 10 years ago Beatport has paid almost $200,000,000 to its label partners. Beatport’s parent company, SFX, is currently involved in a ‘going private’ process that has trapped certain earned label payments. This process will be coming to an end in the next few weeks, at which time all payments will be able to be made. Beatport prides itself on being the broadest and original friend of the makers of electronic music and will clear this one time obstacle very shortly.
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