In August, Robert F.X. Sillerman, a music industry veteran and CEO of SFX Entertainment called FORBES to discuss the prospects of his embattled electronic dance music events company. In less then two years, SFX, which was valued at more than $1 billion when it went public in Oct. 2013, had lost more than 90% of its value on the Nasdaq. By late August, the company's shares were under a dollar apiece, and Sillerman was trying to save face after reneging on a potential deal to take the company private a month earlier.
Despite the turbulence, Sillerman remained adamant about one thing.
"There is a zero-percent chance," he said when asked if SFX could go bankrupt.
On Monday, the New York-based company filed for Chapter 11 bankruptcy, defying its CEO's earlier assessment and, more importantly, confirming what many in the burgeoning EDM industry knew for months: something was rotten inside SFX.
"I think it was a little too much, too fast," said James "Disco Donnie" Estopinal, the head of Disco Donnie Presents, who was one of the first promoters to sell their company to SFX. "In the end, a lot of mistakes were made. I made mistakes. Corporate made mistakes."
While that echoes a statement that Sillerman made during his interview with FORBES in August, identifying the exact "mistakes" that brought down SFX, which throws events like TomorrowWorld, Rock In Rio and Electric Zoo, is another challenge. There wasn't one cause or event that led to its undoing, but rather a multitude of issues, said industry observers, some of whom believed the company's lack of authenticity and brash approach to acquire $1 billion-worth of dance music companies doomed it from the outset.
"From the start, it felt corporate and it felt like people were acquiring these guys in an almost inorganic way," said Neil Jacobson, an executive vice president at Interscope Records who has signed EDM artists like Avicii and DJ Snake. "It didn't feel like it was a guy that was coming from the scene."
That scene originated from events like the Pasquale Rotella's early 90's Los Angeles warehouse parties, which began in illegal fashion, but later evolved into the wildly successful Electric Daisy Carnival festivals. Rotella, who sold half of his business to Live Nation in 2013 in a deal that valued it at $100 million, stands in stark contrast to Sillerman, who admitted when he first started SFX that he knew "nothing about EDM" in a 2012 interview with Billboard. According to sources, Rotella's company Insomniac Events was a major acquisition target for Sillerman, and SFX's loud entry into the space allowed the Electric Daisy Carnival creator to negotiate for better terms with his eventual partner.
"When SFX started, AEG and Live Nation were kicking the tires for EDM but they weren't offering anyone life-changing money," said Estopinal, who sold his company in 2012 for about $5 million in SFX shares and $4 million in cash. "When they got involved it started a feeding frenzy."
Based on financial results, however, SFX's frenzy--highlighted by the more than $300 million in cash and stock it committed to buy companies in 2013--was unsustainable. For its third quarter in 2015, SFX's revenue fell 3% year-over-year to $133 million, evidencing a plateau in EDM festival and event attendance. Even more damaging was a quarterly net loss $54 million, compared to a profit of about $5 million in the same period for 2014. In the nine months of 2015, the company had lost $144 million, compared to a loss of $86 million for the same period the year prior.
In the face of all that, Sillerman remained defiant. He teased investors over a period of 10 months with multiple bids to take the company private--though he lacked the financing to ever pull a deal off--and contributed to SFX's toxic public reputation. The missteps, including alleged founder lawsuits, festival closures and missed debt payments, weighed heavily on the company's shares, which Wall Street turned into a penny stock in less than a year. Last month, whispers of bankruptcy got a little louder when the company missed a $3 million payment owed on a $10.8 million loan.
Monday's Chapter 11 filing came as little surprise and will erase more than $300 million in obligations from its balance sheet. The company will also get a fresh $115 million from its debtors, allowing it to continue operations or what music distribution subsidiary Beatport termed "business as usual" in a press statement.
Thanks to the lifeline from creditors the bankruptcy won't cost Sillerman his grip on the company, only his title. Sillerman, who controlled more than 40% of the company prior to the bankruptcy filing, said in a statement the company is looking for a CEO but that he will remain executive chairman. "Of course this was not where we thought we’d be but with this restructuring we have the opportunity to achieve all that SFX can and will be," he said in a statement.
Indeed, business as usual.
With reporting from Antoine Gara in Jersey City, New Jersey.
Update on Feb. 2, 2016 at 2:00 p.m. in New York: The above story has been updated to reflect the full amount SFX paid to James Estopinal for his company Disco Donnie Presents.
