|Shares Out. (in M):||231||P/E||0||0|
|Market Cap (in $M):||17,640||P/FCF||0||0|
|Net Debt (in $M):||0||EBIT||0||0|
|TEV (in $M):||0||TEV/EBIT||0||0|
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It has been about a decade since Live Nation was written up on VIC, the business is vastly different than it was back then and for further background I would reference 2 earlier write-ups from goob392 & aviclara181-- I've also included some background and history on the business as it has gone through multiple iterations.
Live Nation Entertainment is coming off two of the most challenging years in the business’s history, due to the pandemic, in which global live events, for the most part, were completely cancelled in 2020 and running at about 50% of normalized levels in 2021. From 2019 to 2020, Live Nation lost approximately 84% of its revenue during the first year of the pandemic; and in 2021, it was still running at only about 50% of its revenue from the pre-pandemic levels in 2019. As demand for concerts and live entertainment began to normalize, there has been significant pent-up demand (both from the consumer and the artists). We think 2022 is a new base level of activity (a banner year w/ ~ $15B in sales) for Live Nation given the demand destruction from prior years.
What is compelling about Live Nation today is the stock is still around 2019 levels- yet sales for FY ‘23 should be approximately +46% higher than 2019 levels, and corresponding adj. EBITDA ~ +54% higher than pre-pandemic levels. Live Nation is trading at approximately 14x EV/EBITDA, while some relevant live entertainment comps are trading at a significant premium.
While many view live events and promotions as a cyclical business, excluding the highly unique nature of the pandemic, Live Nation has historically been an extremely resilient business during recessions. For example, through the GFC from 2008-2009, Live Nation produced 7% topline growth (currency adj.) with double-digit EBITDA growth through one of the worst recessions we’ve seen since the mid-1970s. Live Nation troughed during the GFC at 8-9x EV/adj. EBITDA, but that was prior to the key acquisition of TicketMaster in 2010. The business is significantly larger now than in that period and has significantly more scale in what amounts to a monopoly in primary ticket sales and a very profitable re-sale ticketing business.
Live Nation is about -40% off its recent high, due to a combination of factors- the most recent of which includes a Senate Judiciary Committee resulting from the Taylor Swift debacle, where tens of thousands of fans, called “Swifties,” were unable to purchase tickets. This cumulative angst at not getting access to purchase tickets caused a wave of outrage and legal scrutiny. Taylor Swift likened the experience of her fans to “going through several bear attacks.”
All this bombastic negative press for Live Nation has compressed the multiple to approximately 14.0x EV/adj. EBITDA and a corresponding 4.5% FCF yield, quite compelling given that most live entertainment comps (WWE, MSG Entertainment, Liberty Media F1, and Vail Resorts) trade at on average ~ 16x. Furthermore, Live Nation’s biggest competitor, privately held AEG (Anschutz Entertainment Group), is rumored to be valued at ~ 21x. We think Live Nation is a rare business that deserves a higher multiple given its long-term growth profile (DD AOI growth & HSD to low DD revenue growth.)
Fundamentally, live entertainment has been severely depressed in activity over the past three years, with both artists and fans frustrated by global restrictions on live events. Artists’ primary form of income was severely impacted by the pandemic, and many blockbuster artists are just starting to set up global tours again. This has created a backlog of artists vying for venues and live performance tours. For instance, Taylor Swift’s last major tour production took place in the 2nd half of 2018, and her first tour since then will debut this year from March to August. Beyonce’s Renaissance World Tour also is coinciding with the lack of Covid restrictions on venues; her tour is set to run from May- Sept. ’23. Overall, the amount of pent-up demand for live events is massive; and unlike many businesses that benefitted from tailwinds from the pandemic, Live Nation is unique in that most of those tailwinds have been significantly delayed from a timing perspective.
Live Nation Entertainment is the world's largest ticket seller and promoter of live entertainment. In total, the company connects over 310 million fans across all of its concerts and ticketing platforms in about 45 countries. Ticketmaster provides ticket sales, ticket resale services and marketing and distribution globally through its flagship websites, mobile apps, numerous retail outlets and call centers- selling over 282 million tickets through its systems in 2021. Live Nation owns, operates, and has exclusive booking rights for, or has an interest in about 320 venues, including the House of Blues clubs. Also a leading artist management firm, the company has 100 managers providing services to more than 450 artists. Live Nation generates over 80% of its revenue in the US.
Live Nation has driven significant consolidation in the industry over the past 15 years+, vertically integrating local promoters, partners, and venues- increasing efficiencies across the platform.
Live Nation's reportable segments are Concerts, Ticketing, and Sponsorship & Advertising.
Its Concerts segment accounts for 75% of revenue. Operations involves global promotion of live music events in Live Nation owned and operated venues and in rented third-party venues. The segment also operates and manages music venues and produces music festivals across the world.
Live Nation's Ticketing segment accounts for approximately 20% of revenues. It sells tickets for events on behalf of clients and retains a fee, or service charge, for these services. It sells tickets through websites, mobile apps, ticket outlets, and telephone call centers.
Sponsorship & Advertising generates 5% of revenues. This segment employs a sales force that creates and maintains relationships with sponsors through a combination of strategic, international, national, and local opportunities that allow businesses to reach customers through its concert, festival, venue and ticketing assets, including advertising on its websites.
Robert Sillerman began his career teaching advertisers how to reach young consumers. He started investing in radio and TV stations and founded SFX Broadcasting (named for a scrambling of his initials) in 1992. In early 1997, the firm entered the live entertainment field with the formation of SFX Concerts and the purchase of concert promoter Delsener/Slater.
When SFX Broadcasting agreed to be bought in 1997 by Capstar Broadcasting, 87% controlled by investment firm Hicks, Muse, Tate & Furst (now HM Capital), SFX Entertainment was formed to house the live entertainment operations (it was spun off in 1998). In 1998, the company continued its rapid acquisition rate with the purchases of sports marketing and management team FAME, New England concert promoter Don Law, and national concert producer PACE Entertainment.
In 1999, the company bought concert promoter The Cellar Door Companies (which almost doubled SFX's size); sports marketing firm Integrated Sports International; sporting event management company The Marquee Group; sports talent agency Hendricks Management; 50% of urban-music producer A.H. Enterprises; and troubled theatrical producer Livent. SFX also made its first foray abroad through its purchase of Apollo Leisure, a UK-based live entertainment firm. The company rolled all of its sports talent and marketing businesses into a new division, SFX Sports Group, that year.
In 2000, SFX jumped on the other side of the acquisition train when it was bought by radio station owner Clear Channel Communications for about $4 billion. Sillerman stepped down as chairman and CEO, and was replaced by Clear Channel EVP Brian Becker. Later that year, SFX acquired Philadelphia-based concert promoter and venue operator Electric Factory Concerts; Core Audience Entertainment, Canada's second-largest concert promoter and events marketer; and the Cotter Group, a North Carolina-based motorsports marketing agency.
While operating as Clear Channel Entertainment, Live Nation spent nearly $2 billion on acquisitions (Pace Entertainment, Livent)- almost single-handedly consolidating the live entertainment industry.
Before being spun off in December 2005, the company changed its name to CCE Spinco, then Live Nation. That year, Randall Mays also became chairman, and Michael Rapino replaced Becker as CEO. As part of the Clear Channel spinoff, the company relocated headquarters from Houston to tony Beverly Hills. It trimmed the fat by shutting down operating divisions, such as museum exhibitions and music publishing (and laying off about 400 employees in the process), in order to focus on its core businesses of live music concerts, venue management, and website brand development.
In 2006, the company acquired rival HOB Entertainment for $354 million. Live Nation used the acquisition to expand its presence in the midsized venue business and fill in geographic gaps in its existing amphitheater network. As part of the deal, Live Nation gained high-profile House of Blues-branded music venues such as San Francisco's Fillmore Auditorium, Jones Beach in New York, and London's Apollo Theatre and Wembley Arena. The company subsequently began re-branding many of its midsize clubs "Fillmore," after the San Francisco venue.
In 2005, the company formed Delirium Concert LP, a joint venture with Cirque du Soleil. The Delirium tour began in 2006. The following year, Live Nation signed a $120 million deal with pop icon Madonna. Through its North American Music segment, in 2007, Live Nation promoted or produced some 10,000 live music events, including tours for Van Halen, Dave Matthews Band, and Kenny Chesney. International Music operations for the year included Cirque De Soleil's Delirium, as well as UK's Reading Festival. In the same year, the company also produced global tours for legends such as The Police, The Rolling Stones, Genesis, and The Who, and presented some 5,000 theatrical performances, such as the UK touring production of Chicago, through its Global Theater operations.
In 2008, the company divested itself of its North American theatrical assets. Later that year, the company signed pacts with U2 and Jay-Z. Michael Cohl, chairman and Live Nation Artists chief who spearheaded the deals, later resigned over conflicts with CEO Rapino. That year, the company also sold its motor sports operations. In early 2010, the company acquired Ticketmaster Entertainment, and Live Nation changed its name to Live Nation Entertainment.
Taylor Swift Debacle:
The Taylor Swift ticket-sales debacle in November of 2022 prompted a Senate hearing in January during which Live Nation faced questions from lawmakers over the company's exclusive arrangements with venues, ticketing fees, and defense against cyberattacks (bots and scalpers.)
November's system problems resulted in frozen queues and broken online checkouts for fans hoping to buy tickets to Swift's upcoming Eras Tour - including numerous people who had signed up for presale codes. Many would-be buyers spent hours on the broken site, only to walk away without tickets. Ticketmaster halted sales and said unprecedented traffic, including from bots, contributed to the breakdown.
After the Swift problems, the company came under fire again in December after its system broke down during reggaeton artist Bad Bunny's concert in Mexico City, resulting in ticket holders being denied entry. The company blamed the Bad Bunny issues on an “unprecedented” amount of fake tickets sold, as well as overwhelming demand.
In January, the Senate Judiciary Committee members questioned industry experts and executives — including Joe Berchtold, president and chief financial officer of Live Nation — about whether a 2010 merger between Live Nation and Ticketmaster allowed the company to unfairly grow its market share, and whether that dominance is hurting artists and consumers.
Here is the 3 hour examination:
In a 3-hour Senate hearing examination, Joe Berchtold mentioned that the Taylor Swift debacle was mostly a result from industrial scale ticket scalping, a $5B annual business in concerts alone in the U.S. Referring to the recent on-sale experience with Taylor Swift, Berchtold said,
“…we knew bots would attack that sale (Taylor Swift) and had 3x the bot traffic that we had ever experienced, and for the first time in 400 verified fan on-sales, they came after our verified fan password sales, the attack required us to slow down and even halt sales.”
CNBC feature piece on the Taylor Swift saga:
State of Affairs:
The Justice Department approved the merger of Live Nation and Ticketmaster in a 2010 settlement that required Ticketmaster to license its ticketing software and divest some ticketing assets. In 2019, the DOJ’s antitrust division found that Live Nation and Ticketmaster violated the terms of that settlement and imposed new conditions, including an ongoing monitor.
Six total issues formed the violation and a consent decree in 2019, that was amended in 2020 with Live Nation’s compliance monitored by a former federal judge.
In 2022, Live music was a $12B industry, approximately 4x what it was in 2005; that significant growth has led to sometimes overwhelming demand for some of the top acts such as Taylor Swift and Beyonce. That exponential growth has put pressure on the systems and ecosystem supporting artists with more advanced bots and scalping techniques. Industrial scale ticket scalping is a $5B per year in the United States in concerts alone, and the recent on-sale experience with Taylor Swift had 3x the Bot traffic. Industrial scalping is a real problem in the industry, as it is estimated that 20-30% of overall ticket sales are comprised solely of bots and scalpers. Bot activity is so prevalent that the BOTS ACT was signed into federal law in 2016, in an effort to thwart attempts by individuals and organizations trying to automate the process of purchasing tickets through ticketing bots. Even though the BOTS ACT was signed into place in 2016, the FTC has only used their “BOTS Authority” once in January 2021; they fined 3 New York based brokers more than $31m after revealing a scheme that was sucking up tens of thousands of tickets before selling them on the secondary markets (Stubhub, Seatgeek, and Live nation etc…)
Some of the most recent concerns have been primary ticket pricing, and some false claims that ticket prices are set by the ticketing companies and promoters. Primary ticketing companies do not set the ticket prices and do not determine the volume of tickets and/or set service fees. For the most part, pricing and distribution strategies are determined by the artist and their teams; service fees are retained by the venues and their portion of the fees have been falling steadily over time. Primary service charges were previously roughly a 50/50 mix between the venue and ticket company; now, that is roughly 60/40, in favor of the venue. The interesting caveat to all this is that approximately 40% of all events in the Live Nation ecosystem took place at Live Nation “owned” events.
On a DCF basis with 11.5% adj. EBITDA CAGR, we get a fair value of around $115, on a multiple valuation approach, 2023 Adj. operating income w/ a 10% growth rate and a 17.5x EV/EBITDA multiple we get around a $95 target.
Given the debate around a potential break-up of Live Nation and Ticketmaster a sum-of-the-parts valuation -- $15.5B for the promotion and sponsorship business, $12B for TicketMaster, and 19x for the remainco gives an implied value of ~ $100.
A private comp, AEG (Anschutz Entertainment Group) is rumored to be valued at ~ 21x and likely gives some valuation support at these depressed multiples for LiveNation.
Overall, there is a high-quality pipeline of activity driving tailwinds at Live Nation and the supply driven nature of the concerts markets appears to be robust over a multiple year timeframe. Live Nation is a global leader in live ticketing, and talent management services and we believe that Live Nation is a long-term double-digit cash flow CAGR story. The stock is trading at a reasonable discount given the macro uncertainty and questions about a potential break-up of the company. The company has a dominant quasi monopoly business across the concert value chain which creates high barriers to entry, and low risk of disintermediation.
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