How U2's $25 Million Payday from Live Nation Will Affect the Company

Dec.23.08 | About: Live Nation (LYV)

Rock band U2 brought home $25 million this past week, cashing in its Live Nation (NYSE:LYV) stock as part of the 12-year deal it made with the concert promoter in March. The band sold 1.6 million shares for about $6 million, putting Live Nation on the hook to pay the remaining $19 million in cash.

U2 may have needed the funds for holiday shopping, but it wasn't exactly ideal timing for Live Nation, which surely would have much preferred the band wait until their stock was worth more.

A "360" agreement gives Live Nation control over the whole range of U2's revenues in exchange for some significant payments, including $25 million in stock. When this deal was first struck, U2's agreement to accept stock instead of cash was seen as a sign of confidence in Live Nation's business, though the company tells me, it always promised the full $25 million.

Still, this looks pretty bad, especially considering the fact that LYV hasn't yet started to recoup its investment in U2 and won't until the band goes on tour next year. Live Nation had the cash on hand to pay, no problem. But critics are drawing attention that other artists like Madonna will similarly be able to sell the cash components of their deals.

Live Nation defends its "360" model, regardless of where its stock is trading now. The company sent me the following statement: "This payment is the down payment on our 12 year agreement with one of the world’s most successful global artists that we will begin to monetize next year. We believe U2’s 2009 tour will be one of their biggest yet and the driver for monetizing the expanded rights under our deal resulting in a higher margin for Live Nation."