SMG is for sale again and Amplify has confirmed that Live Nation has made a bid for the 40-year-old Philadelphia-based firm which holds the management contracts for marquee buildings like U.S. Bank Stadium in Minneapolis, Soldier Field in Chicago, New Orlean’s Mercedes-Benz Superdome and the BOK Center in Tulsa, as well as hundreds of other sports facilities, concert venues and convention centers.
While SMG would certainly be an attractive acquisition for Live Nation as a means to further monetize the 85 million fans who attend Live Nation concerts annually, a sale could present several challenges that would complicate an acquisition. The purchase of the world’s largest venue operator by the world’s largest concert promoter would likely prompt a Department of Justice inquiry that could bring new scrutiny to Live Nation and possibly force a selloff of other assets. Vertical mergers such as Live Nation (content) and SMG (venue management) have generally received the blessing of regulators, although recent DOJ opposition to stop AT&T from merging with Time-Warner has created uncertainty for entertainment companies under the Trump administration.
Scrutiny of the deal by the DOJ gives critics of Live Nation and Ticketmaster — everyone from AEG to Eventbrite and Amazon — a national platform to criticize the concert promoter giant and extract concessions. But imagining that this deal does get past the DOJ — unlike the 2010 Ticketmaster merger, few Americans care about venue management — there’s still a larger question about whether a merged Live Nation and SMG make sense.
Does Live Nation really want to get into building operations? In a way it’s already there — Live Nation has 45 buildings under management (some owned, others simply through booking contracts). A sale could mean greater scrutiny from SMG’s large client base, which is mainly municipal governments that own venues and have contracted their management out to SMG. Most client agreements have a clause that would allow city governments to renegotiate their contract if SMG was sold, and many city leaders might ask themselves if it makes sense to align their tax-payer funded facilities with Live Nation. Many municipal leaders chose SMG because the company had a long-standing relationship with Live Nation but operated as a neutral third-party that also bought shows from AEG Presents and other independents.
That might change if SMG is now owned by Live Nation. Take the Greek Theatre in Los Angeles for example — in 2015 city leaders chose SMG to manage the iconic amphitheater after a years-long fight between Live Nation, Nederlander Concerts and AEG. Can SMG really operate the facility as an open venue if it is owned by Live Nation? What’s to stop Live Nation from taking control of the booking calendar after it closes the sale and waiving the holds of its competitors?
There’s also a question about how Live Nation shareholders would react to a large purchase of a non-core business, although SMG is said to be profitable with dependable cash flow and contracts that generally get resigned every five to ten years with a 90-percent renewal rate. SMG has 239 venues under management in eight countries, with 5,000 customers serving 65 million customers annually. It has marquee venues that would be attractive to Live Nation and is one of the largest private operators of NFL facilities with clients that include the University of Phoenix Stadium, NRG Stadium in Houston and EverBank Field in Jacksonville.
It also operates dozens of arenas around the world — including the Manchester Arena which was attacked last May by a suicide bomber during an Ariana Grande concert. Founded by Aramark and Hyatt in 1977, SMG was originally created to manage the Superdome and had backers that included Philadelphia Flyers founder Ed Snider, who sold his interest in the company back to Hyatt and Aramark in 1997. SMG was sold to American Capital in 2007 and then sold again to Ares Capital in 2016.
Today SMG’s core business is mostly venue management contracts, along with some food and beverage offerings. SMG already has a long-term deal with Ticketmaster for many of its facilities, so there’s not much room to expand Live Nation’s ticketing operations under the deal although some insiders tell Amplify there might be some revenue to capture by clawing back the ticketing rebates Live Nation pays SMG. It’s also difficult to see why Live Nation would want to get into the business of managing convention centers and smaller civic centers. One theory — Live Nation could spin off some of its smaller venue contracts to companies like Pinnacle Venue Services, which was purchased by Oak View Group earlier this year.
OVG would be an obvious bidder for SMG, but founder Tim Leiweke said his company has been barred from bidding on SMG because of hurt feelings over employee poaching during the 2007 sale when Leiweke was running AEG. That seems implausible to many industry watchers who say it’s unlikely that personal grudges would get in the way of a $750 million deal — more likely, either Leiweke and OVG don’t actually have the capital on hand to execute a deal (although they could probably get it) or SMG executives are driving the sale and are worried that a purchase by Leiweke could mean many would lose their jobs.
That’s less likely to happen under Live Nation — while there would certainly be some cuts, Live Nation would likely initially retain most of its current staff as it gets its arms around SMG’s huge client base. What happens next is unclear — according to Don Muret at Sports Business Journal, which broke the story, bids were due Tuesday and a sale announcement is expected soon.