25 Comments
Jun 1Liked by Matt Stoller

So ... when do executives (and perhaps accountants who do double bookeeping) go to prison?

Expand full comment
Jun 3·edited Jun 3

They will go to prison when it is proved that they are screwing someone more powerful than they are.

After all, in America the only real crime is stealing from someone richer than you.

Expand full comment
Jun 1Liked by Matt Stoller

I learned a lot in that essay Matt thanks

Expand full comment
Jun 1Liked by Matt Stoller

Twice as many events in N America as international , yet federal income tax paid is less than 1% of foreign tax pd. Our tax system, like a lot in the country, needs reform so badly! Ugh

Expand full comment
Jun 1Liked by Matt Stoller

Thank you Matt. Always interesting to see thru the fog surrounding these greedy corporations. Have a nice day!

Expand full comment

Matt - Check the reported Free Cash Flow and the Depreciation Expense.

Free Cash Flow can show how much actual cash the company has to pay executives and for other uses.

Depreciation is a non-cash expense, so if the company has a lot of capital investments the depreciation will reduce profit, but not cash flow.

Expand full comment
author

Thanks, that's helpful.

I actually don't trust any of these numbers.

Expand full comment

I wouldn't either.

Expand full comment
Jun 2Liked by Matt Stoller

Matt - Thanks for the article. It sure seems like Live Nation is cooking their books. I'm very interested to see how this shakes out.

To your point about excessive executive pay would you be supportive of legislation limiting the ratio of executive pay compared to full-time salaried workers? Implementing a ratio might encourage companies to actually increase wages for their employees. There could be some limits so that it only goes into effect if a public company has $500M+ revenue, or a $1B market capitalization, or a 1000+ employees. Thoughts?

Expand full comment
Jun 3Liked by Matt Stoller

Been reading the freebies for a few years now, but this one made me take the subscription plunge - great read.

In my humble opinion, whether or not the comments on flawless understanding or lack thereof of the exact workings of the balance sheets are correct, if it looks like a duck etc then it’s certainly worth looking at in greater detail, and my word does this quack.

Expand full comment
Jun 2Liked by Matt Stoller

They're under the microscope now. Could there be investor class action lawsuits, and golden parachutes for suddenly departing executives trying to evade further scrutiny? What else could happen in the next year?

Expand full comment

Right, but if Live Nation gets broken up, how can Taylor Swift make $11 million per concert? I kid, but I get the sense that the small handful of big name artists that completely dominate the increasingly winner-take-all mainstream help enable this entire problem. This was a great article.

Expand full comment
author

Yeah I don't think we know who the good and bad guys are here.

Expand full comment
founding

The accounting practices for the music industry itself, quite a few parallels, may have influenced the schemes the Ticketmaster monopoly has fully embraced.

Expand full comment
author

I had this thought as well.

Expand full comment

This is SO wild

Expand full comment
author

Right? It's crazy.

Expand full comment

I would like to hear a discussion about why concertgoers in North America are willing to pay such high ticket prices, before fees, versus why concertgoers in Europe seemingly are not. LN and TM claim the market sets the price and the artists are getting paid more, rather than scalpers and the secondary market. If this is true, shouldn’t this also be the case in Europe?

Expand full comment
author

No, the secondary market is heavily regulated in Europe.

Expand full comment

Too much ignorance in this essay to fully respond from my phone. I’ll start with one ‘red flag’ to Matt’s interpretations.

Do you know who else is reporting on current and future accounting pronouncements issued by the FASB that could have an impact on reporting in the future? Every publicly traded company! Check out Walmart’s 10-K. They too reference 2023-07. Because it’s a standard disclosure. Not a ‘red flag’.

Expand full comment
author

Thanks, that's helpful. Any other observations?

Expand full comment
Jun 3·edited Jun 3

Sure:

"Live Nation's CEO Michael Rapino in 2022 made $139 million....to put it a different way, 19% of the firm's operating income went to the CEO...".

This is just a really confusing interpretation of financials. Dividing an expense into a number that the expense impacts is using circular logic. Stock-based compensation expense is a component of Selling, general and administrative expenses (SG&A). Using your same logic, 400% of the firm's operating income went to SG&A ($3.0B) / $732M). Even worse...1600% of the firm's operating income went to Direct operating expenses ($12.3B / $732M). Do you see why this is a poor way to frame this?

Expenses are usually compared to each other (e.g., the stock plan expense of $115M represented 0.72% of total operating expenses of $16.0B) or Revenue (0.10% of Revenue).

The other issue is the framing that the CEO/CFO were paid this amount in 2022. I get that you're not an accountant, but just reading the source you cited, $116M of the stated $139M is stock options that could (or importantly, could not) vest over the next 4 years. It's a non-cash expense (hence why it's added back on the Cash Flow Statement) meaning he wasn't literally paid $139M in 2022. Even if I grant you the full amount, you would then have to divide by 4 (through 2027) to compare to a single years of operating income.

There are off hand at least two other issues I see with your understanding (or communication) of financial information in the essay that I don't currently have time to detail out.

I can say one thing that may have led to the tone of my first comment was seeing you comment "I don't trust any of the numbers" in response to someone attempting to explain a basic financial metric (Free Cash Flow). This implies that you believe there is financial fraud that has been signed off on by E&Y because you don't understand how to read financial statements.

Note: None of the above is a defense of the compensation plans or general financial structure of Live Nation/Ticket Master. I don't have time to deep dive into their full financial statements. I'm sure I could find some actual financial red flags if I did. My issue is writing confidently (and projecting malice onto others) about something you either have no fundamental understanding of or are intentionally misrepresenting.

Expand full comment
author

Your first point was helpful, and I realize you are frustrated because you think I don't know how to read a financial statement. I am not an expert, which I made very clear. But I'm trying. I think these other points are a matter of interpretation, though I appreciate your comments. So let me respond.

"Do you see why this is a poor way to frame this?"

Wall Street believes executive compensation is a necessary administrative expense. That's one way to read it, and not necessarily wrong. You need to pay your leaders after all. At the magnitude of Rapino and Berchtold's packages, however, I don't think it's just an administrative expense, but a transfer from shareholders to executives. Shareholders agreed, which is why they voted it down. Money is fungible. As for the 'it's not all cash' bit, my response is... so what? I'm not comparing it to the firm's free cash flow, but to its income.

"Even if I grant you the full amount, you would then have to divide by 4 (through 2027) to compare to a single years of operating income."

According to Rapino's contract, he gets a bonus every single year of at least $17M if they meet their AOI targets, which they always do. And more if they exceed them. Plus he gets a large base salary. The 2022 amount is on top of all of that. And who knows whether he'll sign *another* agreement? This board is clearly captured by Rapino. Putting the 2022 full amount into 2022 is a reasonable choice. I think it's fair of you to account for it the way you do, but it's also fair for me to look at it the way I'm looking at it.

"I can say one thing that may have led to the tone of my first comment was seeing you comment "I don't trust any of the numbers" in response to someone attempting to explain a basic financial metric (Free Cash Flow). This implies that you believe there is financial fraud that has been signed off on by E&Y because you don't understand how to read financial statements."

I appreciate your explanation, and look, I get that it's annoying to have someone bumble around in an area you know well. As I said, I'm trying. Here's my response. I know what free cash flow is. I just don't trust these numbers because of the history of music industry's 'creative accounting' practices and other weird things I've seen about Live Nation. The person making the comment about free cash flow agreed with me on that. And I suspect you do as well.

Anyway, I appreciate the annoyed tone, it speaks to a desire for integrity.

Expand full comment
Jun 4·edited Jun 4

As stated above, I have no opinion one way or the other regarding the CEO/CFO compensation packages. My issue is using a metric that is non-workable (liability* / operating income) for the sake of putting a big number on the page. Would you consider this a useful metric for any other financial items? As an example, 2022 Operating Lease assets are $1.8B. These terms can last anywhere from 1-10 years. Are you concerned that Live Nation is spending 246% of its operating income on leases?

*Stock options don't actually fall under operating expenses and those make up the bulk of the $159M originally cited.

Concerning cooking the books, my brief googling tells me that Live Nation has not restated its financial statements in the past. So again, is it your belief that a) Live Nation's financial statements are not presented in accordance with GAAP and b) That E&Y has not audited these financial statements to the point that they have identified material misstatements? Because that would be the implicit commentary as I read it.

Also related to the above content - cashflow impacts of capital expenditures compared to P&L impacts of depreciation are not a new concept. So what about the original comment above implies cooked books? It's a non-sequitur to me. I honestly don't know what connection you (and maybe the original commentor?) are making.

One more area you may (or may not) be interested is looking at trends over time. From what I can tell, Live Nation is still in the hole compared to the Covid years. So while 2022/2023 looks extra profitable (inflation from the Fed magnifies it), the 5-year total looks a bit different.

https://www.macrotrends.net/stocks/charts/LYV/live-nation-entertainment/financial-statements

Expand full comment
author

"Would you consider this a useful metric for any other financial items?"

I obviously don't consider handing the CEO $150 million in 2022 when he's also getting paid large amounts in subsequent years the same thing as a lease. And I don't think you should either.

"So again, is it your belief that a) Live Nation's financial statements are not presented in accordance with GAAP"

Yes, and so does the SEC and so does Live Nation. See the update.

"That E&Y has not audited these financial statements to the point that they have identified material misstatements? Because that would be the implicit commentary as I read it."

I don't know.

"One more area you may (or may not) be interested is looking at trends over time. From what I can tell, Live Nation is still in the hole compared to the Covid years. So while 2022/2023 looks extra profitable (inflation from the Fed magnifies it), the 5-year total looks a bit different."

Right. That's kind of the point. I don't think that's true. Otherwise why pay the CEO $150M for doing such an awesome job?

Expand full comment