Concert Promoter SFX’s New Rivals: Its Former Execs

When Nashville agent Paul Lohr began mapping out an 88-date concert tour for country stars the Dixie Chicks, he could have finished his job with one phone call, turning the whole package over to promotion behemoth SFX Entertainment.

SFX has dominated the $1.6-billion live entertainment scene for three years, with control of more than 120 clubs and amphitheaters worldwide and annual concert proceeds topping $830 million--more than the next 10 largest promoters combined.

Instead, Lohr split the deal, offering 38 Dixie Chicks shows last year to SFX and 43 to Concerts West, a nascent promotion firm started by former SFX executive John Meglen. (Seven other shows went to an independent Midwest promoter.)

“Any large promoter who takes on too much work might let a date or two fall through the cracks and rationalize that he can make up for the poor date with the 80 others that he has,” said Lohr. “When you have excellent options, you have the luxury to choose the handful of companies you feel will devote the most time and effort.”

SFX, which rapidly swallowed the industry’s established players in a three-year, $2-billion acquisition spree, didn’t count on upstart rivals like Concerts West threatening its plan to rule live entertainment.

But as an increasing number of disaffected employees become SFX competitors, the debt-ridden giant’s grip on the business doesn’t look ironclad.

Surprisingly, a more crowded field could translate to higher ticket prices for music fans. Promoters say a crucial factor in setting prices is the fee paid to artists for their appearances. The more promoters bidding for an act, the higher the fee.

But it’s also a migraine in the making for Clear Channel Communications, the radio conglomerate that purchased SFX in August for $2.9 billion in stock and $1.5 billion in assumed debt. Since the deal was announced, at least four SFX executives have left to open competing live entertainment firms.

So far, none has matched the success of Meglen, who exited three years ago and formed his new firm with partner Paul Gongaware. In December, he secured financial backing from Denver billionaire Philip Anschutz and has lined up with powerful artist manager Irving Azoff, whose clients include the Eagles and Christina Aguilera.

“We believe that there’s a void in the marketplace, especially in North America, where there is no company whose primary focus is to provide concerts 12 months out of the year to [indoor] arenas,” Meglen said. “The message to SFX is, we believe there’s room for us.”

The recent moves come as SFX is still absorbing the huge costs of a rapid buying spree that transformed it from a radio magnate’s side project in 1997 to the world’s biggest concert promotion firm.

The departures by entrepreneurs who sold their businesses to SFX reflect dissatisfaction with the corporate structure being applied to the concert business. The veterans who left were accustomed to managing their own books and legal affairs, but they were stripped of those responsibilities in the merger.

“I left because my job pretty much went away,” said Steve Schankman, who departed in December with two years left on his contract. Under Clear Channel, he said, his staffers “were reporting to people in Indianapolis or Houston or New York or L.A. I didn’t feel like taking their money anymore.”

Schankman now runs a new company, St. Louis-based Contemporary Events, that has lined up entertainment for the Fair St. Louis event and produced inaugural parties for Missouri Gov. Bob Holden.

Other former executives contend SFX created a costly real estate network without ensuring it could successfully bid for enough live events to keep them filled with fans and still turn a profit.

“I don’t believe they can ever produce enough volume to fulfill their own internal needs,” said Lee Marshall, who sold his promotion company to SFX in 1998 for more than $115 million and then left SFX in November. Marshall’s new Cleveland-based company is promoting a tour by former teen heartthrob Donny Osmond.

Aside from Meglen, none of the former SFX executives is saying they’re prepared to go head-to-head against their former employer. Indeed, they would have to raise money, reestablish their relationships with venues in their markets and persuade touring acts to hire them.

It is unclear whether SFX will attempt to enforce non-compete clauses in the contracts of its departing executives. Schankman and others said they believe they can carve out niches in local markets without violating their contracts. A company spokesman declined to comment.

SFX downplays the effect of the recent exits, saying its strategy to promote acts on Clear Channel stations, sign multiyear sponsorship deals and expand internationally will push it past the potentially disruptive effects of the loss of some industry veterans.

“We’ve had to say goodbye to some very talented individuals, but at the same time we’re proud of the fact that we’ve lost fewer executives than most companies that experience similar consolidation,” said spokesman Howard Schacter.

“We believe strongly that competition among event promoters is good for the talent we work with, it’s good for consumers, and it’s also good for SFX in that it keeps us on our toes,” Schacter said.

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Top 10 Concert Promoters

SFX overwhelmingly dominates the live music event business, with Concerts West a distant No. 10 in terms of total gross revenue.

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Promoter Total gross revenue SFX $830.6 House of Blues 194.1 Belkin Productions 62.9 Metropolitan Entertainment 61.0 Jam Productions 58.0 Nederlander Organization 56.6 Beaver Productions 44.0 Marshall Arts 44.0 Ocesa Presents 41.0 Concerts West 40.1

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Source: Amusement Business