The Hottest New Investment: Raves?

Alden Wicker
Posted

The idea of investors calls to mind business suits, private jets and champagne. But this year, the deep pockets on Wall Street are more interested in tutus, pacifiers and neon.

Say what? We’re talking about electronic dance music festivals.

You read that right: The hottest new investment is the product of what used to be a drug-saturated, underground culture.

In the same way previous generations of 20-somethings turned to rock n’ roll, millennials are flocking toward the pulsing beats of D.J.s with names like Afrojack, Avicii and Deadmau5—and paying prices equivalent to seeing Madonna at Madison Square Garden. In fact, in December, Swedish House Mafia became the first D.J. to headline at MSG. For better or worse, electronic dance music, or E.D.M., as it’s called, has arrived.

And according to The New York Times, that has investors rubbing their hands in anticipation of big returns.

The Money in Turntables and Apple Laptops

Party-goer at Electric Zoo FestivalThink E.D.M. is an obscure phenomenon? Think again. You’ve already heard the influence of E.D.M. inside the music of Katy Perry and Rihanna (and even saw D.J. Calvin Harris in her music video). If you watched the Grammys this year, you witnessed one of its most prominent musicians, Skrillex, win three prizes, and David Guetta and Deadmau5 (in his signature mouse head) perform. And Refinery29 reports that Ralph Lauren is making Swedish D.J. Avicii the face of its new campaign.

Investors are betting it’s only a matter of time before you (or your daughter or son) are also donning neon fanny packs and shelling out hundreds for a three-day festival, plus paying for concessions and merchandise … if you haven’t already.

To give you a taste of how successful a typical E.D.M. promoter is, Ultra, which throws a three-day music festival in Miami attended by over 165,000 people, is debt-free and profitable, and has expanded around the world to Brazil, Argentina and Poland, according to Adam Russakoff, director of business affairs. It even has the money to pay several D.J.s more than $1 million for appearances. Revenue rolls in from tickets, sponsorships and the thousands of bottles of water sold to thirsty fans. That’s a tasty investment for those looking to grab a piece of a burgeoning industry.

To that end, investors have been offering from $20 million to $60 million to snap up these companies. The hope is that someone can consolidate the various promoters—such as Ultra, Insomniac of Los Angeles’s Electric Daisy Carnival and Made Event of New York City’s Electric Zoo—into an enormously profitable empire, like Live Nation did for various rock promoters in the ’90s.

To give you an idea of the dollar signs in investors’ eyes, Live Nation, the world’s largest concert promoter, made a gross profit of $1.59 billion in the last 12 months. Not coincidentally, Live Nation is also one of the biggest investors in the E.D.M. scene, which many are calling a bubble or gold rush.

Not a Sure Investment Bet

As you can imagine, there are drawbacks to investing in what is essentially a modern-day Woodstock (less mud, more lightshows). It’s difficult to value promoters accurately, drug overdoses by festival goers are common (raising questions of liability, not to mention bad publicity), pricing tickets too high or low can torpedo profits and allegations of corruption recently erupted around the chief executive of the promoter Insomniac.  

Promoters are equally suspicious of the corporate culture invading what is usually a free-wheeling spectacle, fearing that these concerts will be corralled into conventionality like the Rolling Stones and U2 have been. (Who wants to sit down for a dance music festival?) Finally, it’s unclear if promoters even need outside investments.

As for you, because these aren’t publicly traded companies, you should know that individuals can’t invest in E.D.M. festivals. But given the drug overdoses and allegations of corruption, perhaps it’s best to just buy a ticket—or stick to your mutual funds.

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Photo credit: Alden Wicker