Explosive New Documents Unearthed On Live Nation/Ticketmaster
Congressman Bill Pascrell released a report today on precisely how Live Nation/Ticketmaster 'essentially defrauds' artists, consumers, and promoters. It's all about the rebates, baby.
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Earlier this month, antitrust attorney Dan Wall wrote a blog post on behalf of his client, Live Nation/Ticketmaster, trying to rebut the scrutiny on his firm. And the tack he took was a bit surprising. “Concert promotion,” he wrote, “is not a highly profitable business, even for Live Nation.” Sure, Live Nation charges consumers a lot of money, and doesn’t pay much to artists. But they don’t, he wrote, set the ticket price. And even worse, for Live Nation shareholders at least, it’s just not a very good business, with the middleman giant affecting at most 2% of the price of a ticket for its trouble. “The narrative that Ticketmaster fees are responsible for high ticket prices makes no sense,” he added. “There is no way that’s true.”
It was a weird statement, considering Live Nation CEO Michael Rapino made $139 million in 2022. And according to new documents released by Congressman Bill Pascrell today from litigation in 2019, it’s flatly untrue. The allegations in the documents are “based upon Live Nation/Ticketmaster’s own financial data, documentation, and correspondence provided by Live Nation/Ticketmaster as part of discovery in a lawsuit that has been ongoing for well over a decade.” Live Nation, according to a lawyer facing the firm, “instituted a scheme which essentially defrauds everyone involved, from the artists to the ticket purchasers.”
Now, for starters, it’s important to recognize that accounting in the entertainment industry is as creative as any part of the business. Hollywood studios historically ‘lose’ money on even wildly popular movies, because the compensation they owe to talent is often tied to the profit of the film. I heard a story that gets to this dynamic. Once, a high-profile director asked for a compensation package that included a Rolls Royce. The studio said no. So during filming, the director sent over a budget with complex cost accounting lines, and a note attached that said “Find the Rolls.”
Wall’s blog post is essentially, “Yeah sure ticket prices are high and artists are unhappy at the low take. Now find the Rolls.” Ok, so what do Congressman Pascrell’s documents say?
The story starts with a concert at the New Jersey state fair in 2011 when the head of the fair, Al Dorso, asked Live Nation to produce a music event. Live Nation, according to Dorso, ‘yawned’ at the offer, and declined. So Dorso turned to a corporation called Juice Entertainment, run by two experienced promoters of electronic dance music. Once Juice got traction in planning the event, Live Nation reversed course and demanded to co-produce the show. Dorso tried to get them to cooperate. As he later put it, "They were the 800-pound gorilla. I said, ‘Go see if you can work out a deal.’”
They couldn’t work out a deal, and Live Nation got Juice fired. The smaller firm sued Live Nation, claiming that the entertainment giant “coerced performers into not signing with Juice to appear at the fair and threatened to withhold its ticketing services to the venue — the state-owned Meadowlands sports complex — if it were not allowed to be a partner.” In other words, Live Nation used dominance in other lines of business - artist promotion and ticketing software - to thwart a rival.
But this situation leaves a question. Why didn’t Juice consent to let Live Nation co-produce the event? I mean, half the profit is still better than no profit, right? The reason, as Richard Barnet, a professor who specializes in entertainment business concert promotion noted in the expert report, is Live Nation offered a deal that would have saddled Juice and artists with the costs, while it took the profits.
In this purported arrangement, Live Nation and Juice would have split the costs of putting on the event, like renting the venue, the sound stage, and so forth. They would also share profits from ticket sales with artists and each other. That sounds good so far. The problem is what came next. Live Nation had secret side deals with vendors to inflate costs by overpaying venues, which meant any profit from the event would evaporate. Co-promoters and artists, who share in profits, would lose out, but would be told that the show just wasn’t profitable.
But what they were told wasn’t true.
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And those vendors who had gotten extra money by being paid inflated costs would in turn remit that money back to Live Nation in the form of secret rebates. In other words, Juice would pay inflated costs that would get furtively funneled to Live Nation, along with profits from the show. Here’s Barnet:
Live Nation also negotiated so it got a flat rebate on every single ticket from the venue, regardless of the price of the ticket. This rebate was considered an ‘expense’ and deducted from profits to be shared with the artist and co-promoters. Live Nation didn’t disclose any of this revenue diversion with the artists to whom it had a legal obligation, which is why Juice’s lawyer said that the corporation “essentially defrauds everyone involved.” The winners are Live Nation (and to a lesser extent the venues), the losers are everyone else.
Here’s the chart Barnet included in his expert report describing Live Nation’s violation of its duty of care to musicians.
These kinds of secret kickbacks ensured what Juice’s lawyer called the ‘financial ruin’ of co-promoters. Of course, Live Nation claimed it was losing money or not making very much on any particular event, and it wasn’t. Because the profit was coming in through rebates, which according to Barnet, went onto a line in the accounting statement called ‘contribution margin.’ Juice’s expert found the Rolls.
Interestingly, Barnet even found that Live Nation kept two sets of books.
So how much was this ‘contribution margin’ across all of Live Nation? I don’t precisely know, and since the Juice-Live Nation fracas happened in 2011, the corporation is no doubt different today. But it’s not that different; in 2019, Live Nation had to sign another consent decree with the Department of Justice because it allegedly kept violating the one it signed in 2010 when it merged with Ticketmaster. And since the case went on for years, with Live Nation supposedly refusing to turn over documents it was legally obligated to turn over, it seems that the imperious culture and strategy of the firm has remained the same.
But there are hints of amounts. Live Nation executives and investor documents used to use the term ‘contribution margin’ quite frequently, but I can’t find the term much beyond Live Nation’s investor results in the third quarter of 2021 (which is around the time Democratic members of Congress began calling for antitrust investigations and the Antitrust Division amped up antitrust scrutiny.) Here’s what Live Nation said that quarter.
From July to September of 2021, ‘operational contribution margin’ for Live Nation was $747 million dollars. The net income of that quarter for the whole company for that same time was just $47 million, so these kickbacks represent a little over 15 times the profit of Live Nation. If you do it by cash flow, that’s 116% of the increase in cash balance for the quarter. Are these numbers correct? I don’t know. I’m sure Live Nation would say ‘operational contribution margin’ means something different, as they aren’t going to confirm they’ve been taking secret kickbacks by exploiting their market power. But rebates do probably represent a fair amount of cash.
It’s easy to believe the worst about Live Nation, they have a bad reputation. But the reason I buy this particular story is because it is consistent with the behavior of many dominant middlemen firms in our economy, from pharmacy benefit managers to Amazon to big banks securitizing mortgages in the financial crisis. As monopoly scholar Kate Judge noted, such dominant middlemen use fees and kickbacks, hidden via a complex maze of subsidiaries and overlapping lines of business, to extract in ways that are hard to see. In Live Nation’s case, it’s clear they are generating a great deal of revenue, but somehow show low margins for many of their products. Hiding the price hikes is important, because monopolization is harder to prove that way.
But in addition, this scheme creates an incentive system for venues and third party vendors, not all of whom are owned by Live Nation. Basically, Live Nation can present venues with a choice. If you cooperate, you’ll get extra hidden revenue, but if you refuse to cooperate, Live Nation will work with your rival, or may just buy into the market to compete with you directly. At any point, Live Nation can dial up or down rebates, to reward or punish. And that’s increasingly true as Live Nation buys more and more corporations in and around the live event space, with each one presenting additional options for fees and rebates.
And that’s why Live Nation needs to be broken up, and more broadly, why we need to get rid of secret rebates throughout the economy.
UPDATE: On March 29 at 11:45 a.m., I added a sentence about Live Nation keeping two sets of books, as well as the expert report paragraph showing that.)
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cheers,
Matt Stoller
No wonder Americans think poorly of their robust economy. Secret rebates. Hidden fees. Shrinkflation. Price gouging. Fighting unions. Income tax breaks for fat cats. No wonder Americans believe everyone else is on the take except those being questioned by posters.
One massive monopoly that is self destructing right now that you might want to look into is the toy company Hasbro. Things get really stupid and really entertaining. It's not as important in the grand scheme of things as defense contractors or industrial multinationals but monopolies can piss off even kids and nerds.