SXSW, Coachella Called Off: COVID-19 Cancellations Hit US Festival Circuit

Pollstar: So South By Southwest, as you well know, is canceled and according to reports they didn’t have insurance for this situation, a disease outbreak, which I would think think would be very uncommon.
Paul Bassman: It’s an incredibly small additional fee on some policies. On some policies they don’t even exclude it. It just depends on the policy forms you’re offered. But generally speaking, communicable disease buyback is like a tenth of a percent to get. If the policy you’re getting has an exclusion for communicable disease, to get an exclusion buyback or an endorsement, is relatively cheap, so why on earth would you not?

I guess to save money, but it was such an unlikely occurrence before now.
Everything’s unlikely with insurance, because anything that’s likely is uninsurable. You’re insuring the unknown, the unforeseen, the hidden demons under the bed, whatever it may be.

And how much might that translate to, do you have a ballpark?
Let’s just say for every million of gross revenue, they would pay $1,000 to include communicable disease.

The Coronavirus Impact: Global Live Business Takes Precautions, Keeps Watchful Eye

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So what will festivals be faced with this summer and this fall and next year?
They’re going to go without it as there’s no way to get it. They’re hopefully going to move forward and if it cancels because of the coronavirus, they’re saved by the force majeure provision. “Saved” is a strong word because they’ll still be hurting. But the force majeure provision will allow them to not have to cover their financial obligations to the third parties that they’ve contracted with. So, let’s say you’re a festival and you have a multimillion dollar budget and most of that budget is probably for talent then that would go away. If the vendors haven’t started setting up yet there may be a clause maybe that you have to pay the vendors a little bit, like a deposit, but much of that cost would go away. So a lot of these expenses would just go away and you’d be stuck with the marketing costs that you incurred for that year and the labor that you’ve paid already for the planning and the lost profit that you would have made otherwise.

So that would mitigate a festival’s losses?
Yes, it wouldn’t be catastrophic for the festivals, but it’s not good. They won’t be able to be made whole, and the point of cancellation insurance is to make you whole.

And if a festival proceeded without the insurance and God forbid somebody came down with it, would the festival be liable?
There’s no way of knowing, man. Zero. It would have to go to court. You’d have to find a lawyer who’s going to sue and say that because of your event my client was taken ill by coronavirus. That would be rather difficult to prove.

Would this fall under a force majeure, an act of God kind of thing?
That’s more of a contractual issue. For an event like Coachella, for example, the contracts with the artists will have a force majeure clause in there which allows them to walk away from each other without obligation. So if Coachella  gets canceled by civil authorities due to a pandemic, then the artists won’t get paid… unless of course AEG chooses to pay.

Same with South By Southwest?
Well not necessarily. I don’t know what the refund policy is for the badge holders. I mean that’s a huge economic driver for South By Southwest, the thousand-dollar badges that they sell and they sell thousands of them. And then you have all the vendors, the booths at the trade show people spend a fortune on and the activations that South By Southwest does deals with venue and then corporate sponsors come in and do these activations. Now that it’s canceled, I would think they’re obligated to give them money back.

And what about the promoters and the clubs and the bands?
They’re probably scrambling now to book them. That’s what I would do if I were a venue in Austin, I would be like, “Alright. Come play.”

Despite all that’s happened?
Just because South By Southwest is canceled doesn’t mean you can’t have shows. There’s still going to be an ad hoc South By Southwest. It won’t be the exact same, but I don’t think it’s going to just go away.

It’s interesting that both the Ultra Festival in Miami and Austin for SXSW were canceled by the municipalities.  Is there any way the festival can continue and have all liability transfer over to the event organizers?
I think the cities are saying it’s unsafe and it can’t happen. I didn’t see if the city issued an edict pulling the permit I didn’t read any filings in that regard.

So is South By Southwest off the hook for all that’s happened?
They’re not necessarily on the hook, it depends on their refund policy. They could be on the hook for refunding thousands and thousands of badge holders. If the hotels were booked through South By Southwest, they may be on the hook for the hotel refunds. Again, without knowing what the terms and conditions are, which is probably public record, they may not have to refund. They may just say, “We have a no refund policy. Too bad.”

Or they may credit it to next year?
They may credit to next year. That’s what sometimes happens. Races, like marathons, will cancel on occasion and they’ll say, “Oh, we’ll give you registration for next year, but no refunds.”

What’s so astonishing is I looked at The New York Times today (March 7) and there are 312 cases so far. It’s minuscule still and for most people there’s no real tangible threat. Yes, there’s a small chance you could get it, but it’s incredibly minuscule and even then you have to be part of an older or vulnerable population to where it’s life threatening. Is canceling this just a liability thing? It’s doesn’t seem to be about rational thought.
It’s hard to imagine but they’re so worried about liability that they’re blowing up their financial future. This could really hurt the city,  there’s hundreds of millions of dollars of economic damage done to Austin by canceling this thing over a little bit of potential liability that frankly I don’t think would get to first base in a court of law. I mean, who’s going to win a case saying, “I have coronavirus because you had South By Southwest?” There’s no way you could prove that.

That must have been a calculation in the decision making, right? The municipalities, both Miami and Austin must’ve thought the losses were going to outweigh the benefits. The $350 million Austin might have gotten for this year’s South by Southwest may have been outweighed by the liability and the possibility or someone getting the virus.
I would think Austin has sovereign immunity, however it may not apply in this instance.

So how much do you think is born out of liability and fear? How much do you think is rational policy making?
I think much of it is out of liability and fear. Fear of the unknown, it’s very little to do with reality. I mean, again, reality is 350 people. I mean more people get into car wrecks every day. There’s so many things that kill. The flu kills far more people than this thing has or probably ever will and you don’t shut things down to the flu outbreak. It’s crazy.

It’s interesting that corporations were the first to pull out of Austin: It was Twitter, Apple, Facebook,  Amazon, Netflix which usually have these big parties and events. And Universal Music Group, the largest music company in the world, told their employees not to go.
They said, “You’re not required to go.” They did it the right way. You don’t have to go if you don’t want to, but not saying you can’t.

So are there considerations beyond liability?
Maybe it’s a moral thing. Imagine if you had an event and all of a sudden 50,000 people came down with coronavirus and then all of a sudden those people’s grandparents were dropping like flies because of it, the guilt would be overwhelming. So possibly it’s someone who couldn’t justify that loss and thought “I can’t live with myself by allowing this to go on.”

It seems so incredibly early in this process to be thinking like that, though perhaps that informed the decision making. But again with the numbers so low and the population too that attends these kinds of things being so young and active.
Yeah, but they can carry it. And again, they can carry it to grandma and grandpa who are of that age. I’m just playing devil’s advocate. I’m not saying I agree with it because eventually I think this thing’s going to spread around and everyone’s going to be exposed to it one way or the other. And most of us are going to be fine.

It’s interesting that the corporations/sponsors and municipalities are leading the charge. 
I think with Apple and Twitter and all those companies, it’s fairly easy. They don’t make any money from this. It’s more like marketing and fun. So it’s absolutely not essential to the core businesses that they have. So why not pull out?

And then the risk is high enough to them where that if something were to happen, it could be an ethical, moral decision, but they could be helping to facilitate a larger financial loss.
Well that and you could impact your workforce. If you’re Apple and you’re bringing in hundreds of people and they all get sick and they’re out and that kind of thing and it’s just so nonessential to them.

Since this has started, we’ve had hundreds of stadium events, sporting events, concerts at arenas and far beyond it still hasn’t spread in the wildfire way that some people are assuming it will. And now they’re talking about Coachella, which is unfortunate because it’s the festival leader in terms of revenue and perhaps cultural impact, too. What can Coachella do at this point, especially if it’s a municipal decision?
I don’t know if they have insurance. Coachella may not but I can’t tell you factually that’s the case.

It’s just so early for all this, it really feels like we’re jumping the gun. 
It’s a bit premature in my opinion. Because again, the flu is far more deadly, far more widespread and they’re not canceling events because of flu. You get the flu, you get sick, you recover.

From an insurance perspective, is there a precedent for this?
Years ago when avian flu and SARS happened, the insurance carriers started excluding that as well. But it never impacted the social fabric like this is.