NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1—BASIS OF PRESENTATION AND OTHER INFORMATION
Preparation of Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, they include all normal and recurring accruals and adjustments necessary to present fairly the results of the interim periods shown. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2021 Annual Report on Form 10-K filed with the SEC on February 23, 2022.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes including, but not limited to, legal, tax and insurance accruals, acquisition accounting and impairments. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Seasonality
Our Concerts and Sponsorship & Advertising segments typically experience higher revenue and operating income in the second and third quarters as our outdoor venue concerts and festivals primarily occur from May through October in most major markets. In addition, the timing of when tickets are sold and the tours of top-grossing acts can impact comparability of quarterly results year over year, although annual results may not be impacted. Our Ticketing segment revenue is impacted by fluctuations in the availability and timing of events for sale to the public, which vary depending upon scheduling by our clients.
Cash flows from our Concerts segment typically have a slightly different seasonality as payments are often made for artist performance fees and production costs for tours in advance of the date the related event tickets go on sale. These artist fees and production costs are expensed when the event occurs. Once tickets for an event go on sale, we generally begin to receive payments from ticket sales in advance of when the event occurs. In the United States, this cash is largely associated with events in our owned or operated venues, notably amphitheaters, festivals, theaters and clubs. Internationally, this cash is from a combination of both events in our owned or operated venues, as well as events in third-party venues associated with our promoter’s share of tickets in allocation markets. We record these ticket sales as revenue when the event occurs. Our seasonality also results in higher balances in cash and cash equivalents, accounts receivable, prepaid expenses, accrued expenses and deferred revenue at different times in the year.
We expect our seasonality trends to return to normal in 2022 as events in our major markets resumed late in the second quarter of 2021.
Cash and Cash Equivalents
Included in the June 30, 2022 and December 31, 2021 cash and cash equivalents balance is $1.4 billion and $1.3 billion, respectively, of cash received that includes the face value of tickets sold on behalf of our ticketing clients and their share of service charges (“client cash”), which amounts are to be remitted to these clients. We generally do not utilize client cash for our own financing or investing activities as the amounts are payable to our clients on a regular basis. These amounts due to our clients are included in accounts payable, client accounts.
Income Taxes
Each reporting period, we evaluate the realizability of our deferred tax assets in each tax jurisdiction. As of June 30, 2022, we continued to maintain a full valuation allowance against our net deferred tax assets in certain jurisdictions due to cumulative pre-tax losses. As a result of the valuation allowances, no tax benefits have been recognized for losses incurred, if any, in those tax jurisdictions for the first six months of 2022.
Accounting Pronouncements - Adopted
In August 2020, the FASB issued guidance that simplifies the accounting for convertible instruments and its application of the derivatives scope exception for contracts in an entity’s own equity. The new guidance reduces the number of accounting models that require separating embedded conversion features from convertible instruments. As a result, only conversion features accounted for under the substantial premium model and those that require bifurcation will be accounted for separately. For contracts in an entity’s own equity, the new guidance eliminates some of the current requirements for equity classification. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. We adopted this guidance on January 1, 2022, using the modified retrospective method and recorded a cumulative-effect adjustment of $60.5 million as a reduction to accumulated deficit in the consolidated balance sheets. The impact of adoption also resulted in a reduction of additional paid-in capital of $96.0 million and increased our current portion of long-term debt, net and long-term debt, net by $14.7 million and $20.8 million, respectively, as a result of reversal of the separation of the convertible debt between debt and equity. The adoption did not have a material effect on our consolidated statements of operations or consolidated statements of cash flows.
NOTE 2—BUSINESS ACQUISITIONS
During December 2021, we completed the acquisition of an aggregate 51% interest in OCESA. This acquisition was accounted for as a business combination under the acquisition method of accounting. With the exception of OCESA, all other acquisitions were not material on an individual basis or in the aggregate.
OCESA Acquisition
Description of Transaction
On December 6, 2021, we completed our acquisition of an aggregate 51% of the capital stock of OCESA (the “Acquisition”) for $431.9 million, subject to certain adjustments. Upon closing of the Acquisition, we and Corporación Interamericana de Entretenimiento, S.A.B. de C.V. terminated the then pending International Chamber of Commerce arbitration in connection with the earlier termination of the purchase agreements, and any related litigation was also dismissed.
OCESA is one of the most prominent live event businesses globally with a robust business portfolio in ticketing, sponsorship, concession, merchandise, and venue operation across Mexico and Latin America. We expect the Acquisition to add value and growth to all of our reporting segments.
Recording of Assets Acquired and Liabilities Assumed
The following table summarizes the preliminary acquisition-date fair value of the identifiable assets acquired, liabilities assumed and noncontrolling interests including goodwill:
| | | | | |
| Initial Allocation |
| (in thousands) |
| Fair value of consideration transferred | $ | 431,943 | |
| Adjustments for working capital | 2,269 | |
| Fair value of redeemable noncontrolling interests | 280,000 | |
| Fair value of noncontrolling interests | 7,000 | |
| Fair value of pre-existing investment in nonconsolidated affiliates | 50,000 | |
| |
Less: Preliminary recognized amounts of identifiable assets acquired and liabilities assumed | |
| Cash and cash equivalents | 105,118 | |
| Accounts receivable | 90,575 | |
| Prepaid expenses | 33,060 | |
| Other current assets | 658 | |
| Property, plant and equipment | 25,221 | |
| Operating lease assets | 67,193 | |
| Intangible assets | 340,000 | |
| Investments in nonconsolidated affiliates | 30,000 | |
| Other long-term assets | 36,525 | |
| Accounts payable, client accounts | (12,566) | |
| Accounts payable | (13,344) | |
| Accrued expenses | (65,026) | |
| Deferred revenue | (144,557) | |
| Current portion of operating lease liabilities | (9,209) | |
| |
| Long-term operating lease liabilities | (57,984) | |
| Long-term deferred income taxes | (102,279) | |
| |
| Goodwill | $ | 447,827 | |
Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Acquisition consists largely of cost savings and new opportunities expected from combining the operations of Live Nation and OCESA. The anticipated synergies primarily relate to growth in promotion and festivals as well as sponsorship opportunities. Of the total amount of preliminary goodwill recognized in connection with the Acquisition, none will be deductible for tax purposes. Preliminary goodwill of $45.9 million, $162.0 million and $239.9 million has been allocated to the Concerts, Ticketing and Sponsorship & Advertising segments, respectively, as a result of the Acquisition.
Below is a summary of the methodologies and significant assumptions used in estimating the fair value of intangible assets and noncontrolling interests.
Intangible assets — the preliminary fair value of the acquired intangible assets is currently being evaluated using commonly used valuation techniques. In estimating the fair value of the acquired intangible assets, we utilized the valuation
methodology determined to be most appropriate for the individual intangible asset being valued. The acquired definite-lived intangible assets include the following:
| | | | | | | | |
| Preliminary Estimated Fair Value | Preliminary Estimated Useful Lives (1) |
| (in thousands) | (years) |
| Client/vendor relationships | $ | 102,000 | | 5 to 10 |
| Revenue-generating contracts | 90,000 | | 4 to 10 |
| Venue management and leaseholds | 107,000 | | 10 |
| Trademarks and naming rights | 41,000 | | 5 to 10 |
| Total acquired intangible assets | $ | 340,000 | | |
_____________________
(1) Determination of the preliminary estimated useful lives of the individual categories of intangible assets was based on the nature of the applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with definite lives is recognized over the shorter of the respective lives of the agreement or the period of time the assets are expected to contribute to future cash flows.
Some of the more significant estimates and assumptions inherent in determining the fair value of the identifiable intangible assets are associated with forecasting cash flows and profitability. The primary assumptions used were generally based upon the present value of anticipated cash flows discounted at rates ranging from 12% to 13%. Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class.
Noncontrolling interests — The preliminary fair value of the redeemable noncontrolling interests and noncontrolling interests of $280.0 million and $7.0 million, respectively, were estimated by applying the market approach. The fair value estimates are based on fair value of consideration transferred, adjustment of 20% to account for acquisition premium and adjustments of 10% to 20% to account for lack of marketability that market participants would consider when estimating the fair value of the individual noncontrolling interests.
Actual and Pro Forma Impact of Acquisition
The revenue, loss from continuing operations and net loss of OCESA that are included in our consolidated statements of operations were not material for the year ended December 31, 2021 since the Acquisition closed on December 6, 2021. Pro forma results of operations, assuming that OCESA had been acquired on January 1, 2020, for the years ended December 31, 2021 and 2020 were not material to our consolidated statements of operations.
We incurred a cumulative total of $13.1 million of acquisition transaction expenses relating to the Acquisition, of which $0.8 million and $0.7 million are included in selling, general and administrative expenses within our consolidated statements of operations for the six months ended June 30, 2022 and 2021, respectively.
We are in the process of completing our purchase accounting in accordance with GAAP, whereby the purchase price is allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. As we completed the Acquisition in the last month of the year ended December 31, 2021 and given the size of the Acquisition, the purchase accounting should be considered preliminary and is subject to revision based on final determinations of fair value and allocations of purchase price to the identifiable assets and liabilities acquired.
NOTE 3—LONG-LIVED ASSETS
Property, Plant and Equipment, Net
Property, plant and equipment, net, consisted of the following: | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| | (in thousands) |
| Land, buildings and improvements | | $ | 1,329,657 | | | $ | 1,324,278 | |
| Computer equipment and capitalized software | | 888,750 | | | 910,581 | |
| Furniture and other equipment | | 427,276 | | | 411,403 | |
| Construction in progress | | 191,272 | | | 173,865 | |
| | 2,836,955 | | | 2,820,127 | |
| Less: accumulated depreciation | | 1,747,534 | | | 1,728,198 | |
| | $ | 1,089,421 | | | $ | 1,091,929 | |
Definite-lived Intangible Assets
The following table presents the changes in the gross carrying amount and accumulated amortization of definite-lived intangible assets for the six months ended June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Client /
vendor
relationships | | Revenue-
generating
contracts | | Venue management and leaseholds | | Trademarks
and
naming
rights | | Technology | | Other (1) | | Total |
| (in thousands) |
| Balance as of December 31, 2021: | | | | | | | | | | | | |
Gross carrying amount | $ | 576,930 | | | $ | 593,258 | | | $ | 232,856 | | | $ | 180,865 | | | $ | 37,335 | | | $ | 10,414 | | | $ | 1,631,658 | |
Accumulated amortization | (178,725) | | | (275,909) | | | (46,929) | | | (79,349) | | | (18,375) | | | (6,033) | | | (605,320) | |
| Net | 398,205 | | | 317,349 | | | 185,927 | | | 101,516 | | | 18,960 | | | 4,381 | | | 1,026,338 | |
| Gross carrying amount: | | | | | | | | | | |
Acquisitions—current year | 17,811 | | | 11,529 | | | 9,978 | | | — | | | — | | | — | | | 39,318 | |
Acquisitions—prior year | — | | | 3,300 | | | — | | | — | | | — | | | — | | | 3,300 | |
| | | | | | | | | | | | | |
| Foreign exchange | (6,626) | | | (8,455) | | | (2,022) | | | 841 | | | (10) | | | (453) | | | (16,725) | |
Other (2) | (540) | | | (10,821) | | | — | | | — | | | (4,501) | | | 3,465 | | | (12,397) | |
| Net change | 10,645 | | | (4,447) | | | 7,956 | | | 841 | | | (4,511) | | | 3,012 | | | 13,496 | |
| Accumulated amortization: | | | | | | | | | | |
Amortization | (36,619) | | | (34,910) | | | (12,203) | | | (9,159) | | | (5,276) | | | (4,110) | | | (102,277) | |
| | | | | | | | | | | | | |
| Foreign exchange | 3,918 | | | 6,298 | | | 1,858 | | | 160 | | | 7 | | | 190 | | | 12,431 | |
Other (2) | 547 | | | 7,694 | | | 189 | | | (50) | | | 5,231 | | | 807 | | | 14,418 | |
| Net change | (32,154) | | | (20,918) | | | (10,156) | | | (9,049) | | | (38) | | | (3,113) | | | (75,428) | |
| Balance as of June 30, 2022: | | | | | | | | | | | | |
Gross carrying amount | 587,575 | | | 588,811 | | | 240,812 | | | 181,706 | | | 32,824 | | | 13,426 | | | 1,645,154 | |
Accumulated amortization | (210,879) | | | (296,827) | | | (57,085) | | | (88,398) | | | (18,413) | | | (9,146) | | | (680,748) | |
| Net | $ | 376,696 | | | $ | 291,984 | | | $ | 183,727 | | | $ | 93,308 | | | $ | 14,411 | | | $ | 4,280 | | | $ | 964,406 | |
(1) Other primarily includes intangible assets for non-compete agreements.
(2) Other primarily includes netdowns of fully amortized or impaired assets.
Included in the current year acquisitions amounts above are definite-lived intangible assets primarily associated with the acquisitions of a sports management business and a venue management business, both located in the United States, as well as a festival promotion business located in Australia.
The 2022 additions to definite-lived intangible assets from acquisitions have weighted-average lives as follows:
| | | | | |
| Weighted-
Average
Life (years) |
| Revenue-generating contracts | 4 |
| Client/vendor relationships | 4 |
| |
| |
| Venue management and leaseholds | 30 |
| |
| |
| All categories | 11 |
Amortization of definite-lived intangible assets for the three months ended June 30, 2022 and 2021 was $52.6 million and $48.6 million, and for the six months ended June 30, 2022 and 2021 was $102.3 million and $100.5 million, respectively. As acquisitions and dispositions occur in the future and the valuations of intangible assets for recent acquisitions are completed, amortization will vary.
Goodwill
The following table presents the changes in the carrying amount of goodwill in each of our reportable segments for the six months ended June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Concerts | | Ticketing | | Sponsorship
& Advertising | | | | Total |
| (in thousands) |
| Balance as of December 31, 2021: | | | | | | | | | |
| Goodwill | $ | 1,390,451 | | | $ | 930,064 | | | $ | 705,717 | | | | | $ | 3,026,232 | |
| Accumulated impairment losses | (435,363) | | | — | | | — | | | | | (435,363) | |
| Net | 955,088 | | | 930,064 | | | 705,717 | | | | | 2,590,869 | |
| | | | | | | | | |
| Acquisitions—current year | 17,054 | | | — | | | — | | | | | 17,054 | |
| Acquisitions—prior year | (7,178) | | | 5,864 | | | (9,788) | | | | | (11,102) | |
| | | | | | | | | |
| Dispositions | (1,792) | | | — | | | — | | | | | (1,792) | |
| Foreign exchange | (25,039) | | | (5,000) | | | (1,871) | | | | | (31,910) | |
| | | | | | | | | |
| Balance as of June 30, 2022: | | | | | | | | | |
| Goodwill | 1,373,496 | | | 930,928 | | | 694,058 | | | | | 2,998,482 | |
| Accumulated impairment losses | (435,363) | | | — | | | — | | | | | (435,363) | |
| Net | $ | 938,133 | | | $ | 930,928 | | | $ | 694,058 | | | | | $ | 2,563,119 | |
We are in various stages of finalizing our acquisition accounting for recent acquisitions, which may include the use of external valuation consultants, and the completion of this accounting could result in a change to the associated purchase price allocations, including goodwill and our allocation between segments.
Investments in Nonconsolidated Affiliates
At June 30, 2022 and December 31, 2021, we had investments in nonconsolidated affiliates of $327.5 million and $293.6 million, respectively, included in other long-term assets on our consolidated balance sheets.
During the six months ended June 30, 2021, we sold certain investments in nonconsolidated affiliates for $61.6 million in cash plus $6.2 million in deferred purchase price consideration resulting in a gain on sale of investments in nonconsolidated affiliates of $52.9 million. During the six months ended June 30, 2022, there were no significant sales of investments in nonconsolidated affiliates.
We entered into certain agreements whereby we received equity in the counterparty to those agreements primarily in exchange for providing sponsorship and marketing programs and support. We recognized $3.8 million and $25.0 million of noncash additions to investments in nonconsolidated affiliates for the six months ended June 30, 2022 and 2021, respectively, which are included in other long-term assets on our consolidated balance sheets associated with these agreements.
NOTE 4—LEASES
The significant components of operating lease expense are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
| Operating lease cost | $ | 71,750 | | | $ | 56,577 | | | $ | 135,511 | | | $ | 111,876 | |
| Variable and short-term lease cost | 34,861 | | | 3,543 | | | 52,893 | | | 12,996 | |
| Sublease income | (1,304) | | | (1,236) | | | (2,274) | | | (3,518) | |
| Net lease cost | $ | 105,307 | | | $ | 58,884 | | | $ | 186,130 | | | $ | 121,354 | |
Many of our leases contain contingent rent obligations based on revenue, tickets sold or other variables, while others include periodic adjustments to rent obligations based on the prevailing inflationary index or market rental rates. Contingent rent obligations are not included in the initial measurement of the lease asset or liability and are recorded as rent expense in the period that the contingency is resolved.
Supplemental cash flow information for our operating leases is as follows:
| | | | | | | | | | | |
| Six Months Ended
June 30, |
| 2022 | | 2021 |
| (in thousands) |
| Cash paid for amounts included in the measurement of lease liabilities | $ | 121,953 | | | $ | 99,449 | |
| Lease assets obtained in exchange for lease obligations, net of terminations | $ | 185,119 | | | $ | 41,005 | |
Future maturities of our operating lease liabilities at June 30, 2022 are as follows:
| | | | | |
| (in thousands) |
| July 1 - December 31, 2022 | $ | 120,991 | |
| 2023 | 247,211 | |
| 2024 | 233,033 | |
| 2025 | 217,204 | |
| 2026 | 205,155 | |
| Thereafter | 1,637,720 | |
| Total lease payments | 2,661,314 | |
| Less: Interest | 858,239 | |
| Present value of lease liabilities | $ | 1,803,075 | |
The weighted average remaining lease term and weighted average discount rate for our operating leases are as follows:
| | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 | |
| Weighted average remaining lease term (in years) | 13.3 | | 13.2 | |
| Weighted average discount rate | 5.97 | % | | 6.10 | % | |
As of June 30, 2022, we have additional operating leases that have not yet commenced, with total lease payments of $219.8 million. These operating leases, which are not included on our consolidated balance sheets, have commencement dates ranging from July 2022 to June 2030, with lease terms ranging from 1 to 27 years.
NOTE 5—FAIR VALUE MEASUREMENTS
Recurring
The following table shows the fair value of our significant financial assets that are required to be measured at fair value on a recurring basis, which are classified on the consolidated balance sheets as cash and cash equivalents.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Estimated Fair Value |
| June 30, 2022 | | December 31, 2021 |
| Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 | | Total |
| (in thousands) |
| Assets: | | | | | | | | | | | |
| Cash equivalents | $ | 1,023,325 | | | $ | — | | | $ | 1,023,325 | | | $ | 620,980 | | | $ | — | | | $ | 620,980 | |
| Interest rate swap | — | | | 26,247 | | | 26,247 | | | — | | | — | | | — | |
| | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | |
| Interest rate swap | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 8,558 | | | $ | 8,558 | |
Cash equivalents consist of money market funds. Fair values for cash equivalents are based on quoted prices in an active market. The fair value for our interest rate swap is based upon inputs corroborated by observable market data with similar tenors.
Our outstanding debt held by third-party financial institutions is carried at cost, adjusted for any discounts or debt issuance costs. Our debt is not publicly traded and the carrying amounts typically approximate fair value for debt that accrues interest at a variable rate, which are considered to be Level 2 inputs as defined in the FASB guidance.
The following table presents the estimated fair values of our senior secured notes, senior notes and convertible senior notes:
| | | | | | | | | | | |
| Estimated Fair Value at |
| June 30, 2022 | | December 31, 2021 |
| Level 2 |
| (in thousands) |
| 6.5% Senior Secured Notes due 2027 | $ | 1,179,192 | | | $ | 1,315,284 | |
| 3.75% Senior Secured Notes due 2028 | $ | 433,170 | | | $ | 498,380 | |
| 4.75% Senior Notes due 2027 | $ | 850,849 | | | $ | 978,358 | |
| 4.875% Senior Notes due 2024 | $ | 550,528 | | | $ | 582,952 | |
| 5.625% Senior Notes due 2026 | $ | 287,766 | | | $ | 310,284 | |
| 2.5% Convertible Senior Notes due 2023 | $ | 707,223 | | | $ | 996,369 | |
| 2.0% Convertible Senior Notes due 2025 | $ | 420,984 | | | $ | 531,040 | |
The estimated fair value of our third-party fixed-rate debt is based on quoted market prices in active markets for the same or similar debt, which are considered to be Level 2 inputs.
NOTE 6—COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
As of June 30, 2022, we have non-cancelable contracts related to minimum performance payments with various artists, other event-related costs and nonrecoupable ticketing contract advances of approximately $3.9 billion.
Litigation
Consumer Class Actions
The following putative class action lawsuits were filed against Live Nation and/or Ticketmaster in Canada: Thompson-Marcial and Smith v. Ticketmaster Canada Holdings ULC (Ontario Superior Court of Justice, filed September 2018); McPhee v. Live Nation Entertainment, Inc., et al. (Superior Court of Quebec, District of Montreal, filed September 2018); Crystal Watch v. Live Nation Entertainment, Inc., et al. (Court of Queen’s Bench for Saskatchewan, by amendments filed September 2018); and Gomel v. Live Nation Entertainment, Inc., et al. (Supreme Court of British Columbia, Vancouver Registry, filed October 2018). Similar putative class actions were filed in the United States during the same time period, but as of November 2020, each of the lawsuits filed in the United States has been dismissed with prejudice.
The Canadian lawsuits make similar factual allegations that Live Nation and/or Ticketmaster engage in conduct that is intended to encourage the resale of tickets on secondary ticket exchanges at elevated prices. Based on these allegations, each plaintiff asserts violations of different provincial and federal laws. Each plaintiff also seeks to represent a class of individuals who purchased tickets on a secondary ticket exchange, as defined in each plaintiff’s complaint. The Watch complaint also makes claims related to Ticketmaster’s fee display practices on the primary market. The complaints seek a variety of remedies, including unspecified compensatory damages, punitive damages, restitution, injunctive relief and attorneys’ fees and costs.
The McPhee matter is stayed pending the outcome of the Watch matter, and the Thompson-Marcial, Watch, and Gomel cases are in the class certification phase. In April 2021, the court in the Gomel lawsuit refused to certify all claims other than those pled under British Columbia’s Business Practices and Consumer Protection Act and claims for punitive damages, but the court did certify a class of British Columbia residents who purchased tickets to an event in Canada on any secondary market exchange from June 30, 2015 through April 15, 2021 that were initially purchased on Ticketmaster.ca. We filed a notice of appeal of the class certification ruling in May 2021, and the plaintiff filed a cross-appeal shortly thereafter. The hearing on the appeal will take place in November 2022.
Based on information presently known to management, we do not believe that a loss is probable of occurring at this time, and we believe that the potential liability, if any, will not have a material adverse effect on our financial position, cash flows or results of operations. Further, we do not currently believe that the claims asserted in these lawsuits have merit, and considerable uncertainty exists regarding any monetary damages that will be asserted against us. We continue to vigorously defend these actions.
Astroworld Litigation
On November 5, 2021, the Astroworld music festival was held in Houston, Texas. During the course of the festival, ten members of the audience sustained fatal injuries and others suffered non-fatal injuries. Following these events, approximately 450 civil lawsuits have been filed against Live Nation Entertainment, Inc. and related entities, asserting insufficient crowd control and other theories, seeking compensatory and punitive damages. Pursuant to a February 14, 2022 order of the state Multidistrict Litigation Panel, matter 21-1033, the civil cases have been assigned to Judge Kristen Hawkins of the 11th District Court of Harris County, Texas, for oversight of pretrial matters under Texas’s rules governing multidistrict litigation.
We are currently unable to reliably predict the developments in, outcome of, and economic costs and other consequences of pending or future litigation related to these matters. We will continue to investigate the factual and legal defenses, and evaluate these matters based on subsequent events, new information and future circumstances. We currently expect that liability insurance can provide sufficient coverage, but at this time there are no assurances of such coverage. Given that these cases are in the early stages and in light of the uncertainties surrounding them, we do not currently possess sufficient information to determine a range of reasonably possible liability. Notwithstanding the foregoing, and without admitting liability or wrongdoing, we may incur material liabilities from the 2021 Astroworld event, which could have a material impact on our business, financial condition, results of operations and/or cash flows.
NOTE 7—EQUITY
Accumulated Other Comprehensive Income (Loss)
The following table presents changes in the components of AOCI, net of taxes, for the six months ended June 30, 2022: | | | | | | | | | | | | | | | | | |
| Cash Flow Hedge | | Foreign Currency Items | | Total |
| (in thousands) |
| Balance at December 31, 2021 | $ | (8,558) | | | $ | (139,406) | | | $ | (147,964) | |
Other comprehensive income before reclassifications | 31,656 | | | (16,412) | | | 15,244 | |
| Amount reclassified from AOCI | 3,149 | | | — | | | 3,149 | |
| Net other comprehensive income | 34,805 | | | (16,412) | | | 18,393 | |
| Balance at June 30, 2022 | $ | 26,247 | | | $ | (155,818) | | | $ | (129,571) | |
Earnings Per Share
Basic net income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. The calculation of diluted net income (loss) per common share includes the effects of the assumed exercise of any outstanding stock options, the assumed vesting of shares of restricted and deferred stock awards and the assumed conversion of our convertible senior notes, where dilutive.
The following table sets forth the computation of weighted average common shares outstanding:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Weighted average common shares—basic | 224,674,447 | | | 215,702,508 | | | 223,290,226 | | | 215,120,467 | |
| Effect of dilutive securities: | | | | | | | |
| Stock options and restricted stock | 7,096,282 | | | — | | | 8,077,448 | | | — | |
| Convertible senior notes | 11,864,035 | | | — | | | — | | | — | |
| Weighted average common shares—diluted | 243,634,764 | | | 215,702,508 | | | 231,367,674 | | | 215,120,467 | |
The following table shows securities excluded from the calculation of diluted net income (loss) per common share because such securities are anti-dilutive:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Options to purchase shares of common stock | 3,750 | | | 7,797,075 | | | 3,750 | | | 7,797,075 | |
| Restricted stock and deferred stock—unvested | 259,200 | | | 3,007,032 | | | 211,922 | | | 3,007,032 | |
| | | | | | | |
| Conversion shares related to the convertible senior notes | — | | | 11,864,035 | | | 11,864,035 | | | 11,864,035 | |
| Number of anti-dilutive potentially issuable shares excluded from diluted common shares outstanding | 262,950 | | | 22,668,142 | | | 12,079,707 | | | 22,668,142 | |
Restricted Stock
Subsequent to June 30, 2022, we granted 1.1 million shares of performance-based awards, which will vest and be settled in restricted shares under the Company’s stock incentive plan during the performance period. The actual number of restricted shares earned will vest within three years if the performance criteria are met.
NOTE 8—REVENUE RECOGNITION
The global COVID-19 pandemic significantly impacted revenue for our Concerts, Ticketing and Sponsorship & Advertising segments for the three and six ended June 30, 2021. As we moved into 2022, more of our larger markets resumed shows and beginning in the second quarter of 2022, all markets re-opened without restrictions, with the exception of certain Asia-Pacific markets who continue to experience disruptions from COVID-19 variants.
Concerts
Concerts revenue, including intersegment revenue, for the three and six months ended June 30, 2022 and 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
| Total Concerts Revenue | $ | 3,597,761 | | | $ | 286,958 | | | $ | 4,805,586 | | | $ | 526,374 | |
| Percentage of consolidated revenue | 81.1 | % | | 49.8 | % | | 77.0 | % | | 60.7 | % |
Our Concerts segment generates revenue from the promotion or production of live music events and festivals in our owned or operated venues and in rented third-party venues, artist management commissions and the sale of merchandise for music artists at events. As a promoter and venue operator, we earn revenue primarily from the sale of tickets, concessions, merchandise, parking, ticket rebates or service charges on tickets sold by Ticketmaster or third-party ticketing agreements, and rental of our owned or operated venues. As an artist manager, we earn commissions on the earnings of the artists and other clients we represent, primarily derived from clients’ earnings for concert tours. Over 95% of Concerts’ revenue, whether related to promotion, venue operations, artist management or artist event merchandising, is recognized on the day of the related event. The majority of consideration for our Concerts segment is collected in advance of, or on the day, of the event. Consideration received in advance of the event is recorded as deferred revenue or in other long-term liabilities if the event is more than twelve months from the balance sheet date. Any consideration not collected by the day of the event is typically received within three months after the event date.
Ticketing
Ticketing revenue, including intersegment revenue, for the three and six months ended June 30, 2022 and 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
| Total Ticketing Revenue | $ | 575,305 | | | $ | 244,001 | | | $ | 1,055,704 | | | $ | 272,323 | |
| Percentage of consolidated revenue | 13.0 | % | | 42.4 | % | | 16.9 | % | | 31.4 | % |
Ticket fee revenue is generated from convenience and order processing fees, or service charges, charged at the time a ticket for an event is sold in either the primary or secondary markets. Our Ticketing segment is primarily an agency business that sells tickets for events on behalf of its clients, which include venues, concert promoters, professional sports franchises and leagues, college sports teams, theater producers and museums. Our Ticketing segment records revenue arising from the portion of convenience and order processing fees it retains, regardless of whether these fees are related to tickets sold in the primary or secondary market, and regardless of whether these fees are associated with our concert events or third-party clients’ concert events. Our Ticketing segment does not record the face value of the tickets as revenue. Ticket fee revenue is recognized when the ticket is sold for third-party clients and secondary market sales, as we have no further obligation to our client’s customers following the sale of the ticket. For our concert events where our concert promoters control ticketing, ticket fee revenue is recognized when the event occurs because we also have the obligation to deliver the event to the fan. The delivery of the ticket to the fan is not considered a distinct performance obligation for our concert events because the fan cannot receive the benefits of the ticket unless we also fulfill our obligation to deliver the event. The majority of ticket fee revenue is collected within the month of the ticket sale. Revenue received from the sale of tickets in advance of our concert events is recorded as deferred revenue or in other long-term liabilities if the date of the event is more than twelve months from the balance sheet date. Reported revenue is net of any refunds made or committed to and also the impact of any cancellations of events that occurred during the period.
Ticketing contract advances, which can be either recoupable or non-recoupable, represent amounts paid in advance to our clients pursuant to ticketing agreements and are reflected in prepaid expenses or in long-term advances if the amount is expected to be recouped or recognized over a period of more than twelve months. Recoupable ticketing contract advances are generally recoupable against future royalties earned by the client, based on the contract terms, over the life of the contract. Royalties are typically earned by the client when tickets are sold. Royalties paid to clients are recorded as a reduction to revenue when the tickets are sold and the corresponding service charge revenue is recognized. Non-recoupable ticketing contract advances, excluding those amounts paid to support clients’ advertising costs, are fixed additional incentives occasionally paid by us to certain clients to secure the contract and are typically amortized over the life of the contract on a straight-line basis as a reduction to revenue.
At June 30, 2022 and December 31, 2021, we had ticketing contract advances of $76.7 million and $90.5 million, respectively, recorded in prepaid expenses and $92.7 million and $86.5 million, respectively, recorded in long-term advances on the consolidated balance sheets. We amortized $21.9 million and $18.1 million for the three months ended June 30, 2022 and 2021, respectively, and $40.4 million and $28.7 million for the six months ended June 30, 2022 and 2021, respectively, related to non-recoupable ticketing contract advances.
Sponsorship & Advertising
Sponsorship & Advertising revenue, including intersegment revenue, for the three and six months ended June 30, 2022 and 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
| Total Sponsorship & Advertising Revenue | $ | 263,786 | | | $ | 44,561 | | | $ | 379,475 | | | $ | 67,208 | |
| Percentage of consolidated revenue | 5.9 | % | | 7.7 | % | | 6.1 | % | | 7.8 | % |
Our Sponsorship & Advertising segment generates revenue from sponsorship and marketing programs that provide its sponsors with strategic, international, national and local opportunities to reach customers through our venue, concert and ticketing assets, including advertising on our websites. These programs can also include custom events or programs for the sponsors’ specific brands, which are typically experienced exclusively by the sponsors’ customers. Sponsorship agreements may contain multiple elements, which provide several distinct benefits to the sponsor over the term of the agreement, and can be for a single or multi-year term. We also earn revenue from exclusive access rights provided to sponsors in various categories such as ticket pre-sales, beverage pouring rights, venue naming rights, media campaigns, signage within our venues, and advertising on our websites. Revenue from sponsorship agreements is allocated to the multiple elements based on the relative stand-alone selling price of each separate element, which are determined using vendor-specific evidence, third-party evidence or our best estimate of the fair value. Revenue is recognized over the term of the agreement or operating season as the benefits are provided to the sponsor unless the revenue is associated with a specific event, in which case it is recognized when the event occurs. Revenue is collected in installment payments during the year, typically in advance of providing the benefit or the event. Revenue received in advance of the event or the sponsor receiving the benefit is recorded as deferred revenue or in other long-term liabilities if the date of the event is more than twelve months from the balance sheet date.
At June 30, 2022, we had contracted sponsorship agreements with terms greater than one year that had approximately $1.5 billion of revenue related to future benefits to be provided by us. We expect to recognize, based on current projections, approximately 22%, 27%, 20% and 31% of this revenue in the remainder of 2022, 2023, 2024 and thereafter, respectively.
Deferred Revenue
The majority of our deferred revenue is typically classified as current and is shown as a separate line item on the consolidated balance sheets. Deferred revenue that is not expected to be recognized within the next twelve months is classified as long-term and reflected in other long-term liabilities on the consolidated balance sheets. We had current deferred revenue of $2.8 billion and $1.8 billion at December 31, 2021 and 2020, respectively.
The table below summarizes the amount of the preceding December 31 current deferred revenue recognized during the three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
| Concerts | $ | 1,031,758 | | | $ | 14,471 | | | $ | 1,310,304 | | | $ | 52,295 | |
| Ticketing | 56,110 | | | 3,370 | | | 79,153 | | | 7,791 | |
| Sponsorship & Advertising | 57,059 | | | 9,050 | | | 91,298 | | | 14,633 | |
| | | | | | | |
| $ | 1,144,927 | | | $ | 26,891 | | | $ | 1,480,755 | | | $ | 74,719 | |
NOTE 9—SEGMENT DATA
Our reportable segments are Concerts, Ticketing and Sponsorship & Advertising. Our Concerts segment involves the promotion of live music events globally in our owned or operated venues and in rented third-party venues, the production of music festivals, the operation and management of music venues, the creation or streaming of associated content and the provision of management and other services to artists. Our Ticketing segment involves the management of our global ticketing operations, including providing ticketing software and services to clients, and consumers with a marketplace, both online and mobile, for tickets and event information, and is responsible for our primary ticketing website, www.ticketmaster.com. Our Sponsorship & Advertising segment manages the development of strategic sponsorship programs in addition to the sale of international, national and local sponsorships and placement of advertising such as signage, promotional programs, rich media offerings, including advertising associated with live streaming and music-related content, and ads across our distribution network of venues, events and websites.
Revenue and expenses earned and charged between segments are eliminated in consolidation.
We use AOI to evaluate the performance of our operating segments and define AOI as operating income (loss) before certain stock-based compensation expense, loss (gain) on disposal of operating assets, depreciation and amortization (including goodwill impairment), amortization of non-recoupable ticketing contract advances and acquisition expenses (including transaction costs, changes in the fair value of accrued acquisition-related contingent consideration obligations, and acquisition-related severance and compensation). AOI assists investors by allowing them to evaluate changes in the operating results of our portfolio of businesses separate from non-operational factors that affect net income (loss), thus providing insights into both operations and the other factors that affect reported results.
We manage our working capital on a consolidated basis. Accordingly, segment assets are not reported to, or used by, our management to allocate resources to or assess performance of our segments, and therefore, total segment assets and related depreciation and amortization have not been presented.
The following table presents the results of operations for our reportable segments for the three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Concerts | | Ticketing | | Sponsorship
& Advertising | | Other & Eliminations | | Corporate | | | Consolidated |
| (in thousands) |
| Three Months Ended June 30, 2022 | | | | | | |
| Revenue | $ | 3,597,761 | | | $ | 575,305 | | | $ | 263,786 | | | $ | (2,678) | | | $ | — | | | | $ | 4,434,174 | |
| Intersegment revenue | $ | 1,575 | | | $ | 1,646 | | | $ | — | | | $ | (3,221) | | | $ | — | | | | $ | — | |
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| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| AOI | $ | 122,944 | | | $ | 230,759 | | | $ | 178,304 | | | $ | (2,027) | | | $ | (50,381) | | | | $ | 479,599 | |
| | | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | | | | | |
| Revenue | $ | 286,958 | | | $ | 244,001 | | | $ | 44,561 | | | $ | 426 | | | $ | — | | | | $ | 575,946 | |
| Intersegment revenue | $ | (591) | | | $ | 980 | | | $ | — | | | $ | (389) | | | $ | — | | | | $ | — | |
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| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| AOI | $ | (84,049) | | | $ | 99,416 | | | $ | 13,028 | | | $ | (1,223) | | | $ | (17,520) | | | | $ | 9,652 | |
| | | | | | | | | | | | |
| Six Months Ended June 30, 2022 | | | | | | |
| Revenue | $ | 4,805,586 | | | $ | 1,055,704 | | | $ | 379,475 | | | $ | (3,783) | | | $ | — | | | | $ | 6,236,982 | |
| Intersegment revenue | $ | 2,227 | | | $ | 2,912 | | | $ | — | | | $ | (5,139) | | | $ | — | | | | $ | — | |
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| | | | | | | | | | | | |
| AOI | $ | 73,778 | | | $ | 436,979 | | | $ | 248,004 | | | $ | (6,407) | | | $ | (63,716) | | | | $ | 688,638 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Six Months Ended June 30, 2021 | | | | | | |
| Revenue | $ | 526,374 | | | $ | 272,323 | | | $ | 67,208 | | | $ | 650 | | | $ | — | | | | $ | 866,555 | |
| Intersegment revenue | $ | — | | | $ | 980 | | | $ | — | | | $ | (980) | | | $ | — | | | | $ | — | |
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| | | | | | | | | | | | |
| AOI | $ | (158,588) | | | $ | 36,664 | | | $ | 16,544 | | | $ | (3,445) | | | $ | (33,267) | | | | $ | (142,092) | |
| | | | | | | | | | | | |
The following table sets forth the reconciliation of consolidated AOI to operating income (loss) for the three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | 2021 | | 2022 | 2021 |
| (in thousands) |
| AOI | $ | 479,599 | | $ | 9,652 | | | $ | 688,638 | | $ | (142,092) | |
| Acquisition expenses | 9,543 | | 2,381 | | | 21,620 | | (5,843) | |
| Amortization of non-recoupable ticketing contract advance | 21,865 | | 18,107 | | | 40,392 | | 28,728 | |
| Depreciation and amortization | 115,927 | | 103,647 | | | 216,396 | | 212,523 | |
| Loss (gain) on sale of operating assets | 1,065 | | (28) | | | 2,730 | | 110 | |
| Stock-based compensation expense | 12,500 | | 12,830 | | | 61,741 | | 52,847 | |
| Operating income (loss) | $ | 318,699 | | $ | (127,285) | | | $ | 345,759 | | $ | (430,457) | |