Sfx Entertainment, Inc. Business Information, Profile, and History

Company Perspectives:

SFX has established a new model for live entertainment, one built on providing an unparalleled standard of global service and creativity in the industry. SFX's whole is greater than the sum of its parts. Never before has the live entertainment industry been packaged in a manner that makes it so accessible to fans, marketers, and talent. Through synergy and cross-pollination of all aspects of the industry, from venues to content, we have created new strategic business opportunities for our varied constituencies, including marketers who now have unmatched opportunities to showcase their products and services in the most creative, interactive and impacting way.

History of Sfx Entertainment, Inc.

SFX Entertainment, Inc. is the largest owner and operator of venues for live entertainment in the United States. Since its founding in 1997 the company has acquired many of the largest concert promotion companies in the United States and has begun doing the same in Canada and Europe. Two-thirds of its revenues come from this area. SFX companies also manage sports celebrities, promote monster truck shows, and put together touring theatrical productions. To boost revenues, SFX has signed corporate sponsorship contracts, expanded its venues' premium-priced seating, and increased the number of events each venue schedules. The acquisition of the company by media giant Clear Channel Communications could further strengthen its dominance, giving it access to that corporation's network of radio and television stations.

Origins

SFX founder Robert F.X. Sillerman was born in 1948 and grew up in the world of entrepreneurship and entertainment. His father, Michael McKinley Sillerman, had founded the Keystone Radio Network, which ended up going bankrupt when Robert was 13. The younger Sillerman took to the world of business from an early age, founding a greeting card company while still in his teens and a marketing consultation firm while an undergraduate at Brandeis University. Following graduation he worked in the field of marketing, founding National Discount Marketers, Inc. in 1974. In 1978 he formed a business partnership with legendary New York radio personality Bruce 'Cousin Brucie' Morrow. Sillerman-Morrow Broadcasting Group bought eight radio stations and a TV station before selling out in 1985. Sillerman continued investing in radio and founded SFX Broadcasting, Inc. with Steven Hicks in 1992 to acquire the stations owned by Command Communications and Capstar Communications. The company's name was created by scrambling Sillerman's middle and last initials. In 1993, SFX Broadcasting went public.

Sillerman was ahead of the curve in radio consolidation, buying up stations at a time when they were relatively cheap. In the early 1990s the Federal Communications Commission loosened rules forbidding ownership of multiple stations in the same market, which helped make owning a string of stations more profitable. SFX acquired additional stations over the next several years, and when the 1996 Federal Telecommunications Act further lifted ownership restrictions, the company went on a buying spree. Purchases of Multi-Market Radio, Inc., ABS Communications, Prism Radio Partners, Liberty Broadcasting, and Secret Communications soon increased the company's portfolio to more than 70 stations in 20 markets.

In late 1996 SFX made its first foray into the world of concert promotion with the acquisition of Delsener/Slater of New York, one of the top concert promoters in the northeastern United States. The $20 million deal gave SFX a company that staged concerts at a number of different venues and also operated an 11,000-seat amphitheater on Long Island. Within a few months this new line of business was expanded through the $55 million acquisition of Sunshine Promotions, Inc. of Indiana. Sunshine owned two amphitheaters and an indoor theater and held leases on several others. A new division, SFX Concerts, was formed to operate the two companies. SFX's goal was to utilize its chain of radio stations to advertise the events promoted by this division.

In August 1997 SFX announced that it would be acquired by the Capstar unit of Dallas-based Hicks, Muse, Tate & Furst, led by former Sillerman partner Steven Hicks. The deal was put on hold, however, because of scrutiny by the Justice Department's antitrust division. Meanwhile, SFX was expanding its concert promotions division dramatically. In mid-December four major companies were acquired, including top promoters Bill Graham Presents of San Francisco, Contemporary Group of St. Louis, and Concert/Southern Promotions of Atlanta, as well as Network Magazine Group and SJS Entertainment, a radio and concert industry publishing, research, and production firm. The combined cost was more than $230 million. Just two weeks later a $155 million deal to buy PACE Entertainment Corp. and subsidiary Pavilion Partners was announced. The Houston-based PACE was the largest producer of touring theatrical productions outside New York City and also promoted concerts and motorsport events, while Pavilion owned 11 amphitheaters around the country. To support the buying spree, SFX sold $350 million in bonds and made arrangements for $300 million in credit.

SFX Going Solo; Acquisitions Coming Fast and Furious in 1998

In the spring of 1998 SFX Broadcasting received clearance for its acquisition by Hicks, Muse, Tate & Furst, with newly christened SFX Entertainment, Inc. to be spun off as a separate entity. Shortly thereafter, five more major acquisitions were announced. SFX Entertainment would spend $227 million to purchase concert promoters Avalon Attractions of Los Angeles and Don Law's Blackstone Entertainment of New England, souvenir company Event Merchandising, Inc., the Oakdale Theater of Wallingford, Connecticut, and Falk Associates Management Enterprises (FAME), an agency that represented basketball stars such as Michael Jordan and Patrick Ewing. After this batch of acquisitions, SFX asserted that it had gained control of more than 40 percent of the concert market nationwide.

SFX's national buying binge was causing much consternation within both the investment community and the traditionally fragmented, regionally based concert touring business. Some questioned the premium prices being paid for promotion companies, whose take on a typical event was usually only three to four percent of the gross. Others wondered about Sillerman's agenda, insisting that he was merely repeating his radio game plan of consolidating a fragmented industry so that he could drive up prices and sell out when the market peaked. He denied this charge, insisting that he expected his then six-year-old daughter to take over the company from him when she grew up. Entertainment business insiders predicted a negative impact on up-and-coming acts, who would not have the name recognition to be booked into SFX's nationwide circuit of venues. Some talent agents also feared that performers would book tours directly with SFX, eliminating the need for their services in dealing with multiple promoters across the country. Most observers predicted that SFX would ultimately have to raise ticket prices in order to turn a profit, possibly causing a backlash among audiences in the process. The company denied this, too, stating that the best seats would likely become more expensive, but that others in the rear could be reduced in price and the overall balance would remain the same.

In July 1998 SFX purchased sports marketing firm Marquee Group for $100 million. Sillerman had helped launch it in 1994 and owned nine percent of its stock. A month later Magicworks Entertainment, Inc. was acquired, also for $100 million. This Miami-based company promoted concerts and managed touring events such as magician David Copperfield and musicals Jekyll & Hyde and Evita. It had been a partner of PACE unit PACE Theatricals for some time. Also acquired was production company American Artists, which controlled several theaters in the Boston area.

A big coup for SFX came in August, when it made a deal to buy Cellar Door Companies for $105 million. Cellar Door promoted concerts in the Midwest and South, and had been one of the last major holdouts against the SFX onslaught. Jack Boyle, Cellar Door's head, was placed in charge of SFX's music division. The company also formed a new unit, SFX Live, which was to market entertainment events on a national basis.

Controversy Following SFX's Rapid Growth: 1998--99

In late summer the U.S. Justice Department launched an informal inquiry into whether the company was attempting to monopolize the concert promotions business. Several major entertainment industry figures also were criticizing SFX in the press, including top Creative Artists Agency agent Tom Ross and USA Networks CEO Barry Diller, whose company owned Ticketmaster. Each of these sparks soon fizzled, however. The Justice probe was dropped by the end of the year, Ross left CAA in part because of his comments about SFX, and the company suddenly signed a deal with Ticketmaster giving the latter exclusive ticketing rights to all SFX events for seven years. SFX-owned companies Next Ticketing and Capital Ticketing were to be folded into Ticketmaster as part of the arrangement.

In January 1999, SFX spent $18 million for talent agency Integrated Sports International and quickly followed this up with a $100 million deal to acquire interest in seven concert venues. April saw the announcement of a plan to buy TourVen, Inc., a promoter of traveling shows such as 'Barney's Big Surprise.' In the summer SFX stock moved from the NASDAQ to the New York Stock Exchange, and the company acquired Hendricks Management Co., a baseball player representation firm. SFX also launched an online ticketing site, SFX.com, in conjunction with Ticketmaster.

The summer of 1999 saw court approval granted for the $96 million purchase of the bankrupt Livent, a deal that had been initiated a year earlier. Livent, once one of the premier theatrical production companies, owned such touring shows as Ragtime and Fosse, as well as a number of venues in Canada and the United States. Its bankruptcy had been attributed to widespread accounting fraud.

More acquisitions followed, including the purchase of figure skating promoter Candid Productions and SFX's first European company, Apollo Leisure Group of the United Kingdom. The $254 million Apollo deal gave SFX control over more than 25 theaters in the United Kingdom as well as Tickets Direct, a ticketing agency. To keep the ball rolling, SFX arranged for another $1.1 billion in credit and offered 8.6 million new shares of stock at $41 each. A deal with American Express to become SFX's official card also was signed, one of a string of relationships with corporate sponsors such as Levi's, VH1, and Ford that the company had negotiated. One of SFX's goals was to increase the amount of national advertising at each venue it controlled, with the company now running commercials on giant video screens before some performances.

In the face of SFX's increasingly firm grip on the market, 11 of its competitors formed the Independent Promoters Organization (IPO) to collectively bid for the services of major acts. Members of IPO would include number two U.S. concert promoter Universal Concerts, Metropolitan Entertainment, Belkin Productions, and others. Some performers, including Eric Clapton, Celine Dion, and Shania Twain, had avoided SFX venues during the recent summer season at their agents' insistence. The company produced successful tours of its own, however, including those of 'N Sync, Cher, and the Backstreet Boys. Ticket sales in general were up, and SFX claimed $750 million worth had been sold during the year compared with $600 million for 1998.

Entering the 21st Century: A Growing Presence in Europe

European expansion was now on SFX's agenda, and in September Midland Concert Promotions Group Ltd. was acquired. The British company produced concerts, wrestling, and motorsport events and had sizable real estate holdings. SFX also had bought Barry Clayman Corp. of the United Kingdom in August, and EMA Telstar Group of Stockholm in September. A month later SFX acquired 80 percent of Mojo Works of the Netherlands, the leading promoter in that country.

The company also was building its sports business. New purchases included SME Power Branding, a sports brand identity firm whose clients included Major League Baseball, and Tellem and Associates, a baseball talent agency. At year's end SFX consolidated the 14 sports companies it owned into SFX Sports Group, which would be headed by FAME CEO David Falk. The company also was concentrating on building its own brand identity, and over the next few months began to add the initials SFX to the names of its subsidiaries.

SFX was adding to its online presence as well, making a minority investment in David Bowie's Ultra-Star Internet Services LLC, which hosted official web sites for entertainers and sports teams. The company also formed a joint venture in Europe with World Online to create a music, sports, and theater Internet portal.

Early March 2000 saw the predictions of some of Sillerman's detractors come true when it was announced that SFX would be sold to radio giant Clear Channel Communications of Texas. The deal would give SFX stockholders $3 billion, with Clear Channel also taking on $1.1 billion in debt. Clear Channel owned 867 radio stations and 19 television stations in the United States, as well as 550,000 outdoor advertising displays. SFX now owned or operated 120 entertainment venues in 31 markets, offered touring Broadway shows in 55, and was the largest promoter of monster truck shows in the country. SFX Sports represented 650 athletes and sports broadcasters.

While the deal was being finalized, SFX continued its buying spree, picking up Electric Factory Concerts of Philadelphia and Jujamcyn Productions of Minneapolis, a touring theatrical production company. SFX already owned half of Jujamcyn, acquired through PACE Entertainment. Sports Management Group also was purchased by the company in May 2000 and was promptly folded into SFX Sports Group. Shortly thereafter, Canada's second largest concert promoter, Core Audience Entertainment, was acquired.

With the details of its purchase by Clear Channel still being worked out, SFX, Inc. stood unchallenged as the leader of the U.S. live entertainment field. The changes its frenetic buying activity had wrought in the marketplace were still being assessed, however, and SFX was still developing its own identity as a company rather than as merely the sum of many parts. Acquisition by the nation's largest radio conglomerate would create further opportunities for expansion and new marketing synergies, but it would take time before the full impact of this relationship became known.

Principal Subsidiaries: American Artists Limited, Inc.; Apollo Leisure Group Limited (U.K.); Atlanta Concerts, Inc.; Avalon Acquisition Corp.; Barry Clayman Corporation Limited (U.K.); Bill Graham Presents, Inc.; Cellar Door Holding Company; Concert Southern Chastain Promotions; Contemporary Group, Inc.; Core Audience Entertainment (Canada); Delsener/Slater Enterprises, Ltd.; DLC Corp.; Electric Factory Concerts, Inc.; EMA Telstar Gruppen AB (Sweden); Event Merchandising Inc.; Irving Plaza Concerts, Inc.; Jujamcyn Productions Company, LLC; Magicworks Concerts, Inc.; Magicworks Theatricals, Inc.; Midland Concert Promotions Group Limited (U.K.); Mojo Works b.v. (The Netherlands; 80%); NEXT Ticketing, LLC; Oakdale Theater Concerts, Inc.; PACE Entertainment Corporation; Rainbow Concert Productions, Inc.; SFX Broadway, Inc.; SFX Family Entertainment, Inc.; SFX Marketing, Inc.; SFX Rights, Inc.; SFX Sports Group, Inc.; SFX Theatrical Group, Inc.; Sunshine Concerts, LLC; Westbury Music Fair, LLC. The company also owns directly, or through its subsidiaries, several hundred other companies in the United States and Europe.

Principal Competitors: Feld Entertainment, Inc.; HOB Entertainment, Inc.; IMG; Independent Promoters Organization; Jujamcyn Theaters; Manhattan Theatre Club; Nederlander Organization, Inc.; Ogden Corp.; On Stage Entertainment, Inc.; Shubert Organization, Inc.; TBA Entertainment Corporation; The Walt Disney Company; Westwood One, Inc.; William Morris Agency, Inc.; Worldwide Entertainment & Sports Corp.

Chronology

• Key Dates:

• 1996: SFX Broadcasting buys concert promoter Delsener/Slater.
• 1997: SFX Entertainment division is founded; Bill Graham Presents and other properties are acquired.
• 1998: SFX Entertainment, Inc. is spun off; exclusive deal with Ticketmaster is signed.
• 1999: Company completes its first European acquisitions; SFX Sports Group is formed.
• 2000: Clear Channel Communications agrees to buy company.