How to make money out of Glastonbury

Heath Reidy investigates the investment potential of music festivals.

Glastonbury, Britain’s biggest celebration of music was a total sell-out, tickets for Reading are in high demand, while those for Creamfields, the UK’s dance event of the summer, are being snapped up by the thousand.

With the popularity of British festivals soaring, does the space offer an investment opportunity?

David Glick, founder of Edge Group, an investment boutique for the entertainment industry, thinks so.

He said over the last decade there has been a cultural shift, proving people value experience over product.

Research from the Performing Rights Society for Music, the UK association of composers, songwriters and music publishers, found in 2008 revenue from live music overtook recorded music for the first time in history. According to Glick, because of the digital music age people do not care about the ownership of music anymore; now it is all about the experience of going to a live music event.

Chris Mayo, investment director at Fund Intelligence, can see the upside. 
“Festivals are growing and are in demand, so I imagine they would have a lot of upside potential. The number of festivals around the country has been growing over the years, advertising and the internet is involved and you see festivals like Glastonbury being sold out every year. So I can see why people would want to look into them as an asset class,” he said.

How to invest?

Paul Bedford is the investment director of UK investment and advisory group Ingenious, which offers two VCTs that invest in live music, including some of the UK’s biggest music festivals. He said music festivals have good investment potential, more so than concerts and tours.

“With touring you can make money, but you do not have an asset. We make good profits on the festivals every year, but we have this asset we own and there is a very liquid market there,” he said.

The Ingenious Live VCTs, which were launched in 2006 and are now called Ingenious Entertainment VCTs, allow investors to invest in a whole portfolio of music festivals, including Creamfields and Oxfordshire’s 1980s music festival, Rewind.

Bedford said the festivals in the Live and Entertainment VCT’s made net trading profits of £2.3m in 2009, £3.2m in 2010 and are anticipated to make profits in excess of £4m this year. The VCTs have varying equity interests in live events, but typically have an interest representing 20% to 30% of profits and/or losses.

He said: “Profits are strong and we are building up a significant ‘back end’ asset value in terms of our ownership of these brands, which can ultimately be sold for significant multiples of earnings.”

Bedford said Ingenious is targeting returns of between £1.15 and £1.20 from a £1 investment. With the inclusion of the 30p tax relief for coming in to the VCT, this works as a projected return of 13% per annum, or 64% over the five year minimum holding period for a VCT.

The minimum investment is £3,000 and the maximum you can put in is £200,000 in any one year.

There are two investment offerings for Ingenious’s Entertainment VCTs: E Shares and F Shares.

The E Share class will make non-qualifying investments in low risk cash funds and Bedford said it has a target return of 115p.  The F Share class will place its non-qualifying investments in a balanced, multi-asset portfolio managed by Ingenious’s Asset Management arm, which has historically achieved returns of between 5%-6% per annum for such funds. This would deliver an enhanced overall return of £1.20 on the F Share, although there is some small additional risk in terms of the slightly more aggressive strategy for the non-qualifying monies.

The non-qualifying investments therefore are targeting higher returns than cash, and while managed conservatively, will not have the same risk profile as cash equivalent investments. Bedford said Ingenious also focuses very strongly on downside protection for its investors through receiving minimum revenue commitments from its commercial partners, so that even if the investment portfolio performs badly, the aim is to give investors the minimum of their capital back intact with the tax relief taken into account.

The current E&F shares are available until 30 July 2011 and a new iteration is set for September.

Raising the bar

Bedford said the two most important factors when investing in festivals are genre and location. It is also important the festivals have a good pool of talent to attract punters and are value for money.

He said: “It is a crowded marketplace out there, so you have to know something has its own unique identity and attracts its own unique audience.

“A festival is a mini holiday. People will not accept what was offered five years ago. If you raise the bar people are willing to pay.”

Bedford said the best festivals to invest in are those where there is potential for growth and where a brand can be extended. This could be internationally or through a product, such as DVDs, CD compilations and merchandise.