Ticketmaster takes stake in Front Line
Live Nation getting new rival in Ticketmaster EntertainmentNASHVILLE -- Ticketmaster's blockbuster agreement to acquire a controlling equity interest in Front Line Management Group is the latest nuke in the ongoing struggle for supremacy between Live Nation and what will be known as Ticketmaster Entertainment.
Under the deal unveiled Thursday, Ticketmaster will acquire the minority equity stake in management powerhouse Front Line, currently held by Warner Music Group, for about $123 million in cash and Irving Azoff, founder and CEO of Front Line, will become CEO of Ticketmaster Entertainment.
Following Azoff, the new top organization of Ticketmaster will be as follows: Sean Moriarty, president of Ticketmaster Entertainment Inc. and CEO of Ticketmaster; Terry Barnes, chairman of Ticketmaster; Eric Korman, president of Ticketmaster; and Howard Kaufman, special adviser to Azoff.
With master strategist Azoff as CEO of Ticketmaster Entertainment -- and all the leverage as manager of some of the top touring acts in the world -- the battle between titan rivals Live Nation and Ticketmaster has become infinitely more interesting.
Also in connection with the transaction, Ticketmaster will issue restricted stock awards to Azoff representing about 4.5% of Ticketmaster's stock, though a portion of the equity stake in Front Line currently held by Azoff will be canceled and Azoff will retain a "sizable" equity stake in Front Line and will continue to serve as its CEO.
Since being founded by Irving Azoff and Howard Kaufman in 2004, Front Line has developed into the most powerful management company in the world, with nearly 200 clients and more than 80 executive managers. Front Line represents a wide range of major touring artists, including the Eagles, Jimmy Buffett, Neil Diamond, Van Halen, Fleetwood Mac, Christina Aguilera, Stevie Nicks, Aerosmith, Steely Dan, Chicago, Journey, and Guns N' Roses. Many of these acts, if not most, frequently tour and play concerts promoted by Live Nation, although Azoff has always maintained a close relationship with LN competitor AEG Live, a division of Anschutz Entertainment Group.
Within the Front Line network, individual managers have always maintained the autonomy to choose how their artists tour and, within that, how their shows are ticketed, at least as the freedom of existing ticketing contracts allows. TM contracts primarily with venues and is the dominant player in this critical space. But Live Nation, which launches its own ticketing company next year, has made inroads into TM's business, most recently by signing a deal with facility management firm SMG. And, as the world's largest promoter, LN has major leverage of its own with its wealth of content, leverage the company has already shown it intends to use.
The question going forward is whether an act in the Front Line family should be considered as part of the Ticketmaster family now. It is worth noting that managers work for the act, not vice versa, and managers are beholden to making the best deals for their clients, regardless of affiliation. But, LN's primary selling point in striking its multirights deals with acts such as Madonna, U2, Nickelback and others has been the synergy brought by vertical integration.
Ticketmaster Entertainment will no doubt tout and seek to expand its own diversification into merchandising, branding, licensing, etc., and Azoff already has shown he can release a record without a record company with the multiplatinum success of the Eagles Wal-Mart exclusive. And, increasingly, ticketing has become the critical touchpoint and the keys to the kingdom in interaction between fans and artists. Ticketmaster and Live Nation both want to hold those keys, but ultimately they are in the artists' pocket. The highest stakes going forward will be won and lost in artist relationships.
The transaction, which is subject to customary closing conditions, is expected to close in the fourth quarter of 2008.
Under NASDAQ's inducement grant exception, Ticketmaster has agreed to grant to Azoff an award of Ticketmaster restricted equity in exchange for Front Line equity awards that he has agreed to forfeit. The grant includes $35 million of restricted Ticketmaster preferred stock that is convertible at Azoff's election into 1.75 million shares of Ticketmaster common stock, and 1 million shares of restricted Ticketmaster common stock.
The Ticketmaster equity awards generally vest on the five-year anniversary of the grant date, but may vest sooner upon certain qualifying terminations of employment. Ticketmaster has also agreed to grant Azoff options to purchase 2 million shares of Ticketmaster common stock at an exercise price of $20 per share.