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"We haven’t been able to grow as fast as we’ve wanted to, and it is as frustrating to me as it probably is for others in the company. [But] we’re a significant competitor, and our staff has been doing a great job."
——Greg Trojan
HOUSE OF BLUES EYES GREEN
SFX May Have More Cash To Throw Toward The Touring Biz, But HOB's Got Better Chicken Wings
On the heels of a failed buyout by SFX, a merger with John Scher that went south and massive losses in its Internet ventures, House of Blues requires a serious cash infusion. The company needs the money to realize a planned expansion and to compete again in the touring business.

HOB’s woes are indicative of the overall consolidation of the live-entertainment business and what many call SFX’s attempt to "squeeze its competitors into submission" by offering touring acts large sums of money that most of its rivals cannot match.

Market leader SFX recently promised $1.4 million per stadium show to NSYNC, as well as guarantees of $1 million to the Backstreet Boys (down to about $700,000 now that the boy band has moved its gigs indoors), more than $660,000 to Aerosmith and $550,000 to Janet Jackson.

Cash-poor HOB is not even in the game. Because of its inability to compete and its failed attempts to merge with other promoters, HOB has experienced growing frustration within its ranks. This problem, coupled with disappointment among the company’s initial venture capitalists, has put added pressure on HOB leaders Greg Trojan and David Ferguson to devise a plan that would be attractive to investors and take the company to the next level.

Trojan and Ferguson are taking heat internally for some of their business decisions, particularly the large sums they’ve sunk into what many see as a failed Internet model.

Thus, House of Blues finds itself at a crossroads.

Insiders say HOB is seeking a $70-$100 million cash boost so that it can build new venues and close mergers with other concert promoters, allowing it to better compete with SFX.

"We haven’t been able to grow as fast as we’ve wanted to, and it is as frustrating to me as it probably is for others in the company," Trojan told HITS. "However, we have been successful, and the company is doing well. Because of the marketplace, we’ve been able to do this with one, sometimes two, hands tied behind our backs. We are not just limping along; we’re a significant competitor, and our staff has been doing a great job."

According to analysts, HOB can function profitably in its current incarnation, despite a shrinking marketshare, but if it intends to expand, HOB needs to alter its business model. HOB’s concert division reportedly grosses about $250 million a year, with a profit of around $20 million, while its club division grosses about $110 million annually, with a profit in the $10 million range. HOB says its concert business grew 20% and its club business grew 30% last year. The company, however, has spent up to $10 million a year on its troubled online ventures, which to date (including start-up fees) have sucked up around $30 million. HOB also has about $10 million in payroll and other overhead costs, leaving approximately $10 million for expansion; in the last two years, only one of three planned clubs has been built.

Recently, HOB attempted to sell its assets to SFX, asking for about $450 million, HOB insiders said, adding that their asking price was $75-$100 million more than its worth. It’s believed that SFX was willing to pay only about $350 million, so talks eventually broke down. Even if the two managed to come to terms, the merger would most likely face Federal Trade Commission antitrust scrutiny.

Trojan and Ferguson have been meeting with bankers Chase Capital and Whitney Financial—who already have hundreds of millions invested in the company—and Germany’s Deutsche Bank. They’ve also met with other promoters, including Philip Anshutz’s Concerts West, Scher’s Metropolitan and SFX, about possible future joint ventures.

Sources said that HOB is talking with Concerts West principals Anshultz and Irving Azoff, who have reportedly offered in the neighborhood of $70 million to build new venues in exchange for 50% of a new joint-venture company. Insiders say HOB bigwigs only want to give up 15-20% of the new amphitheaters in exchange for a $100 million investment. Also at issue is who would run such a venture.

"House of Blues hasn’t been able to raise money because those they’ve approached simply don’t believe in their business plan," one insider said. "People are still interested in the company, but [HOB] is not willing to give up any control and has unrealistic beliefs about the value of the company."

Responding to critics, Trojan said: "We hired Merrill Lynch as financial advisors, and discussions with potential investors have occurred and are ongoing. We want to raise capital and grow our business more rapidly. We are at a competitive disadvantage, not having access to the funds we’d like to have. We would entertain thoughts of joint ventures with other promoters. I am not averse to revising our business model."

Last year, veteran music player Scher was in advanced discussions to sell at least 50% of his Metropolitan organization to the House of Blues. But when it was time to close, HOB couldn’t come up with the money needed for expansion, a key deal point in Scher’s selling of his company.

Unlike some of his competitors, Scher says HOB is on the right track. "Their business plan is a great one, a healthy one, which includes putting a lot into the investment in clubs, building baby acts and taking them to the next level," Scher said. "They’ve proven they can make a profit on a club level, which, in my experience, is not easy. I’m still interested in being in business with the House of Blues."

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