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Rocking the boat - A lesson in investing from an unlikely source

05/07/2013

Nick Kirrage

Nick Kirrage

Fund Manager, Equity Value

Kid Rock, the multi-million album-selling US musician, has already made a successful transition from rapper to country rocker but The Value Perspective now wonders if he could be considering a whole new career – as a fund manager. If his plan to turn the business model of concert promotion on its head is anything to go by, he certainly would appear to understand a key difference between debt and equity.

The way rock concerts usually operate is an artist receives a flat fee from a promoter, which then takes any profits generated by ticket sales, merchandising and so forth. With the artist certain what they will make in advance, regardless of how many tickets are sold, and the promoter potentially able to make or lose significant money, there are distinct parallels here with the debt and equity issued by a company.

What Mr Rock has done, however, is to agree with Live Nation, the promoter that owns most of the venues he is playing on his tour, that he will forego his guaranteed upfront fee in return for sharing in the tour’s profits. In other words, he has completely flipped the traditional business model by taking on more risk in the hope – or perhaps, given his career so far, the expectation – of a much greater reward.

Here on The Value Perspective, we are well aware of the upside potential of equities just so long as the investment is made at the right price and so it is interesting to note Mr Rock has capped the price of the great majority of the tickets for his concerts at, these days, an almost unheard-of $20 (£13.15), with T-shirts set at the same price and beers at $4 each.

“Even at $20 a ticket, there’s plenty of money there,” the musician said in an interview with the Wall Street Journal, no less. “I said to Live Nation, look at these past tours that I’ve done. Some nights you make a lot of money, some nights you lose a lot of money. Why don’t we just be on the up and up and divide the money fairly? Then the profit is going to be in the number of people who turn out.”

Clearly Mr Rock has backed himself to sell out what he has named his ‘$20 Best Night Ever Tour’ – an alignment of interests that has not gone unnoticed here on The Value Perspective. Should he decide to bring it to the UK, we might drop by one evening – not just for the value but also to keep an eye on the potential competition.

Author

Nick Kirrage

Nick Kirrage

Fund Manager, Equity Value

I joined Schroders in 2001, initially working as part of the Pan European research team providing insight and analysis on a broad range of sectors from Transport and Aerospace to Mining and Chemicals. In 2006, Kevin Murphy and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Kevin and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.

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