The now-bankrupt Pemberton Music Festival lost millions when Huka Entertainment revived the Canadian brand in 2014 and continued to lose millions, despite constant shakeups that included new board members, investors and producers.
A 20-page report by bankruptcy trustee Kevin Brennan offers up new details on the failed festival’s history, including these morsels:
- The investors who controlled the festival have backed off their claims as secured creditors, paving the way for Ticketfly to claw back part of the ticketing money and initiate refunds. Ticketfly is facing up to $6 million in refunds and with only $2.5 million left in the festival’s bank accounts, it’s unclear how the money will be allocated or if withdrawing it will make it impossible to fund the bankruptcy.
- Just one day before the 2016 festival, Huka officials approached their investors and told them that unless they injected another $3.6 million into the festival, the event would be cancelled. With 20,000 campers on the festival site, the investors agreed to to cover cost overruns and “safeguard the welfare of festival patrons.”
- Despite significant losses totaling almost $40 million, Huka received $3.5 million in producer fees despite protests from the investors who controlled the event.
According to the report, Pemberton lost money from the get go, missing cash and profit projections by tens of millions of dollars starting in 2014 when Huka’s AJ Niland was brought on to revive the festival brand for the site’s landowners, represented by Janspec Holdings Limited. In its first year, Pemberton was forecast to generate a profit of $2.4 million – but instead lost $12.5 million.
In its second year, the festival was projected to lose $4 million, but a month before it took place, Huka asked for an additional $6 million in emergency funding. Despite the cash infusion, the 2015 event was also a money loser, raising the total amount of money lost in the festival’s first two years to $25 million.
“With continued losses funded exclusively by the Canadian Investors, their further involvement with the (Pemberton Music Festival) was uncertain,” the report reads. “On October 29, 2015, HUKA assured the Canadian Investors that the PMF brand was growing, that the 2016 PMF would, at a minimum, break even financially and that HUKA was making progress in discussions with other potential investors.”
The 2016 festival appeared to be strong out the gate, only requiring a $3.1 million investment with strong ticket sales one week after the lineup was announced. But logistical challenges, cost overruns and permitting issues meant an operating loss of $10.4 million and additional losses from $2 million in bridge loans, pushing the total three-year loss on the event close to $40 million.
Frustrated by the mounting losses, investors brought on an unnamed Canadian festival producer who “made numerous recommendations to improve future PMF financial results,” and even unsuccessfully tried to bring on new producers to take over the festival.
At this point, frustration over festival direction between the investors and Huka began to boil over and eventually, the investors tried unsuccessfully to buy Huka out of their stake in the event. Huka agreed that it would work to attract new investors to share the cost of the festival and after submitting a $20.8 million budget for the 2017 festival, Huka began selling presale tickets in early February.
Two weeks later, for reasons unexplained, tensions between the investors and Huka Entertainment reached a crescendo.
“After nuemerous verbal demands, the Canadian Investors advised HUKA, in writing, that, they were not prepared to move forward with the 2017 PMF if HUKA was to continue its role as PMF producer and general partner.”
On March 24, the investors sent a letter to Huka claiming breach of the land licensing agreement and dissatisfaction over the event and that Huka was drawing producer payments despite significant cost overruns. Eventually, a deal was reached that removed Huka from the general partnership and two new entities controlled by the investors were formed to take control of the event.
Between April 19 and 28, about $3 million in presale money was released by Ticketfly to bank accounts controlled by Huka — Ticketfly officials later said they weren’t made aware of Huka’s diminished role at the company until after the bankruptcy filing. According to the report, $2.4 million was paid out to artists as advances while the rest was forwarded to bank accounts controlled by the festival — “the Canadian Investors did not receive any of these funds,” the report reads.
Despite the ownership change and constant worries about losses, the lineup for the festival was announced April 27 and tickets went on sale May 2. Sales were lower than expected and the Canadian investors approached the accounting firm Ernst & Young for advice on how they could avoid another eight-figure loss on Pemberton 2017.
Officials with the accounting firm advised that the investor’s inability to raise capital meant the festival was likely insolvent, “and therefore it would be impossible to hold a safe and successful festival,” the report reads. “It was equally apparent that ticket sales proceeds would run out quickly and the festival would thereafter be unable to be held safely.”
Going against the protests of Huka management, and “knowing there were still a significant amount of funds being held,” by the limited partnership that controlled the festival, “the Canadian Investors decided that rather than erode what funds were remaining, the festival was not sustainable and putting all of the funds and other assets (the festival) into the hands of the Trustee was the prudent and responsible course of action.”
That decision sent shockwaves through the music community. Pemberton organizers put a bankruptcy notice on the festival’s site and told fans who had forked out hundreds of dollars on tickets that they would have to apply for a refund as unsecured creditors and weren’t guaranteed any money back. WME Head of Music Marc Geiger threatened to pursue legal action against the festival owners while Ticketfly hired litigators to try and get back the $6 million it had advanced the festival organizers.
In bankruptcy, the festival has approximately $2.5 million in cash on hand and is trying secure the $260,000 paid to Huka and another $1.4 million paid in artist deposits.
“The Trustee has requested the talent agencies provide executed performance agreements to assist the Trustee in determining the contractual obligations with respect to the deposits and remaining payments,” the report reads. “The Trustee is currently awaiting receipt of the executed contracts.”
The investors are listed as senior creditors and are owed $2.5 million; essentially the bulk of the cash available in the trustee account. Both have since withdrawn their claims as senior creditors, paving the way for Ticketfly to obtain a portion of the money they advanced to the festival.
On May 25, lawyers for Ticketfly, argued that the estate funds being held in trust accounts are subject to a quistclose trust — a legal mechanism that allows a creditor to go after money that was misallocated by debtors.
“If a court of competent jurisdiction makes a final determination that this is the case, the Estate funds held by the Trustee would not form property of the estate divisible amongst the creditors,” according to the report. “Rather, it would be the property of the ticketing agent, Ticketfly.”
If Ticketfly is able to withdraw the bulk of the remaining funds to initiate refunds, that will have “significant ramifications on the administration of the Estate,” the report reads. “The Estate funds are required to, among other things, pay the costs of administration and pay any dividend for the benefit of the unsecured creditors. In addition, absent the Estate funds, or funds sourced from a third party, the Trustee will be unable to pursue alternative paths of asset recovery for the benefit of the unsecured creditors, including pursuing recovery of the fees, deposits and other amounts noted above, including as against HUKA, as appropriate.”
On June 5, the trustees met with Ticketfly to discuss the company’s claims and “legal counsel to TicketFly has undertaken to determine if this circumstance alters the position of Ticketfly in respect of their assertive constructive trust claim,” according to the report. “The Trustee will be consulting with the Inspectors to the Estate, appointed at the first meeting of creditors, and engaging legal counsel to determine the merits of Ticketfly claims.”
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