Item 1A. Risk Factors
Item 1A. Risk Factors
While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Part I—Item 1A.—Risk Factors of our 2019 Annual Report on Form 10-K filed with the SEC on February 27, 2020, describes some of the risks and uncertainties associated with our business which could materially and adversely affect our business, financial condition, cash flows and results of operations, and the trading price of our common stock could decline as a result. In addition to our discussion in our consolidated financial statements and the related notes, management’s discussion and analysis of financial condition and results of operations, and other sections of this report to address effects of the global COVID-19 pandemic, we have provided an additional risk factor regarding the global COVID-19 pandemic below. As discussed below, the impact of the global COVID-19 pandemic can also exacerbate other risks discussed in the Risk Factors section of our 2019 Form 10-K and this report, which could in turn have a material negative effect on us. These risk factors do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.
The global COVID-19 pandemic has had, and is likely to continue to have, a material negative impact on our business and operating results. The ultimate magnitude of this impact will depend on a variety of factors, including the duration of the pandemic, restrictions or new operational requirements in place or that result as our operations recommence on a jurisdiction by jurisdiction basis, the state of the global economy as a result of the pandemic, and the public’s willingness to attend events with large numbers of people, all of which are unknowable at this time.
In mid-March 2020, as the unprecedented impact of the global COVID-19 pandemic became clearer, we ceased all Live Nation tours and closed our venues to support global efforts at social distancing and mitigating the spread of the virus, and to comply with restrictions put in place by various governmental entities. Other concert promoters, venue operators and sports leagues around the globe similarly shut down. Each of our segments—Concerts, Ticketing and Sponsorship & Advertising—depends on live music and sporting events in order to generate most of its revenue, whether through promotion of music tours or the operation of venues that host concerts, sales of sponsorship and advertising for such venues or show activity, or ticketing of concerts and sporting events. As of the date of this report, certain sports leagues have recommenced, but they have largely done so without fans or at greatly reduced capacity, and thus without the typical need for ticketing. There has also been extremely limited concert activity, largely outside of the United States, at reduced capacity. Until such time as fans are allowed at sporting events at capacity and concerts recommence in a meaningful way, our revenue will be minimal; the possibility exists that these circumstances might continue for a longer period of time than current expectations.
We have never previously experienced a complete cessation of our live music operations, and as a result, our ability to gauge the impact of such a cessation on our company and its future prospects is uncertain. Due to the unprecedented nature of the global COVID-19 pandemic and its impacts on our business, our ability to forecast our cash inflows is hampered, and therefore our focus is on forecasting and managing operating costs and cash outflows against our overall liquidity position. At this time, it is impossible to know or predict when events will once again be held at a meaningful scope and scale, as at the outset of the pandemic national and local governments around the world placed various restrictions on gatherings of people and implemented social distancing requirements that prohibit the holding of these events, and have largely not relaxed these restrictions in a way that would again allow such events. In addition, it is currently unclear as to what restrictions will be placed on events once they recommence at various points in time in the 40 countries in which we operate.
The company faces ancillary risks and uncertainties arising from the global COVID-19 pandemic in addition to the current shutdown of its revenue-generating operations. Many of these risks and uncertainties are more fully described in Part I—Item 1A.—Risk Factors of our 2019 Annual Report on Form 10-K filed with the SEC on February 27, 2020, whether or not such risk factors identify the global COVID-19 pandemic as the underlying cause, and many extend beyond the duration of the current shutdown due to the uncertainty as to how the live music and sporting industries, and the world in general, will change in the short and long term as a result of the pandemic. The risks and uncertainties described herein should be read in conjunction with those set forth in the 10-K. Such additional or attendant risks and uncertainties include, among other things:
• the impact of any lingering economic downturn or recession resulting from the pandemic, including without limitation any reduction in discretionary spending or confidence for both consumers and sponsors/advertisers, such as a decline
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in ticket sales, attendance and revenue that the company has generally avoided in prior economic slowdowns but experienced during and after the global financial crisis in 2010;
• the increased risk of litigation in the current and future environment, such as pending lawsuits challenging aspects of the company’s ticket refund policies and procedures;
• a reduction in the profitability of our operations when concerts resume, whether due to increased operating costs of complying with governmental restrictions or safety precautions and protocols voluntarily undertaken, such as the need to supply personal protective equipment or conduct health screenings at points of ingress, or due to a reduction in revenue arising from such precautions, such as the potential that venues may not be able to be filled to capacity due to spacing and social distancing limitations in place at such time;
• the impact on our workforce, including as a result of employee furloughs as part of our cost-savings initiatives, which may include loss of key personnel as furloughed employees find other employment or choose not to return to the company, lowered employee morale, inability to replace hourly/seasonal workforce, or loss of important subcontractors, all of which may negatively impact our ability to quickly capitalize on opportunities as pandemic restrictions are eased or to conduct our operations in the future;
• potential decreased willingness of artists to tour, or impracticability of touring due to varying restrictions from jurisdiction to jurisdiction, including the possibility that national or sub-national borders are closed to travel;
• potential changes to consumer preferences for consumption of live music or sporting events due to fears of, or restrictions on, large gatherings;
• some customers of our ticketing business may not receive refunds for ticket purchases if the venue/client hosting the impacted event is unable or unwilling to return the funds;
• loss of ticketing clients due to the economic impacts of the pandemic whereby they are no longer in operation, reducing the number of events to which our ticketing business can sell tickets;
• the inability to pursue expansion opportunities or acquisitions due to capital constraints;
• the future availability or increased cost of insurance coverage;
• a potential shift away from live events by sponsors and advertisers; and
• the incurrence of additional expenses related to compliance, precautions and management of our company during and after this period.
The likelihood of the realization or intensification of these risks and uncertainties and the ultimate magnitude of their impact on the company are not knowable or quantifiable at this time. The global COVID-19 pandemic may endure for an unknown period of time, and the after-effects could linger. In addition, as has already occurred in various locations, the potential exists for further waves of the pandemic after the current wave of infections subsides, which may lead to stronger restrictions being put into place for a greater duration of time. Different jurisdictions will lift social distancing guidelines and restrictions on gatherings of people at different times, and will have different rules in place thereafter. The longer the duration of the global COVID-19 pandemic, and the greater the ancillary and lingering effects, the greater the material negative impact on the company and its results of operations will be.
In addition, due to the reduction in cash flows we have experienced and are likely to experience in the future from the global COVID-19 pandemic, we have proactively taken a number of steps to enhance our liquidity position, including our cost-savings and cash management programs described in Item 1.—Financial Statements—Note 2—Impact of the Global COVID-19 Pandemic, the additional debt issuances and the amendments we made to our senior secured credit facility described in Item 1.—Financial Statements—Note 5—Long-Term Debt.
Our decreased cash flows have heightened and intensified the risks described under the “Risks Relating to Our Leverage” section of the risk factors in our 10-K. While the amendments to our senior secured credit facility relieved some of the pressure on the consolidated net leverage covenant therein, which requires us to maintain a ratio of consolidated total net debt to consolidated EBITDA (both as defined in the credit agreement), there can be no assurances that we will remain in compliance with this or other covenants in our debt and credit instruments, or that we would be able to obtain waivers or amendments in order to avoid default.
We will continue to evaluate and explore additional mechanisms to attempt to ensure that we have adequate capital to fund our business, including through the issuance and sale of additional debt or equity securities. The terms of future debt agreements could include more restrictive covenants, or require incremental collateral, which may further restrict our business operations or be unavailable due to our covenant restrictions then in effect. Due to potential liquidity concerns caused by the global COVID-19 pandemic, in March and August 2020, Moody’s downgraded our Corporate Family Ratings and in May 2020, S&P downgraded the company’s credit ratings to B+ with a negative outlook; the likelihood that we may experience further negative credit actions increases the longer the duration of the pandemic and its ancillary effects. There is no guarantee that debt financings will be available in the future to fund our obligations, or that they will be available on terms consistent with our expectations. Additionally, the impact of the global COVID-19 pandemic on the financial markets could adversely impact our ability to raise funds.
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