Why Isn’t SXSW Canceled Yet? It May Come Down to Insurance and the City

With $356 million pumped into the local economy by the fest last year, Austin has a lot to lose by canceling SXSW. And the festival would likely lose out on insurance if it, not the city, did the axing.

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Was the official cancellation of the Ultra Music Festival in Miami Thursday a one-off, for now, for a music industry that’s weighing its options on a case-by-case basis… or an inevitable bellwether for the fate of other upcoming festivals like South by Southwest and Coachella? And if it’s the latter, why wouldn’t SXSW, which begins in a mere week, pull the plug sooner rather than on the eve of thousands of badgeholders getting on a flight?

There’s no wide consensus to the answers to these questions yet, but one element that’s clearly a factor is letting civic and government authorities ultimately make the call, which stands a promoter in much better stead in collecting on insurance policies to cover the massive losses associated with canceling one of the major annual events on their calendars. That — and the knowledge that whatever decision they make, at any point in the process, there’ll be at least some damnation if they do and some if they don’t.

Industry figures Variety spoke with in the wake of the Ultra Festival going away offer mixed-to-negative prognostications for whether the show can go on with SXSW. Sponsors and activations associated with the interactive and film portions of the festival have been dropping out left and right, while the music biz has favored a wait-and-see approach to whether the show can go on.

“I would think that it (SXSW) will likely get canceled,” says Adam Siegel, entertainment manager at American Agents & Brokers, Inc., an insurance company that has the Ultra Festival as a client. “But they’re still waiting to make that determination, because I’m sure that the city (of Austin) is speaking with the promoter and talking about what kind of preventative measures they would be able to offer, as Ultra (did with the city of Miami). I don’t know how you can really prevent that. You can have hand sanitizing stations based all over the place, but when people are that close, and we know they’re saying it could be in a drop of someone’s cough or a sneeze.

“Coachella is still a little bit further out, and they’re certainly waiting to see what’s happening,” Siegel says. “But Ultra will really set the precedent, now that they see: ‘Okay, this is what happened here, so it makes sense to do it, because our situation is similar.’ It’s a matter of protecting people. They certainly don’t want to be the epicenter of an outbreak.”

But he understands the hesitance to cancel — because even if most major promoters probably spent extra to have communicable disease provisions in their cancellation insurance, it wouldn’t likely kick in if they made a unilateral decision to cancel without the city forcing their hand to do so. And almost no artists will have gone the extra mile to have a disease provision in their contracts, when they’re already being compelled to spend extra for other once-unseen add-ons, like terrorism or active shooter insurance, so most of them would lose their advances.

“As far as impact, it’s going to affect the promoter most. Look at every vendor and every advance they’ve put out already and all the investment in marketing. But, I mean, look at what an Uber driver is expecting to make that weekend. It’s going to affect a ton of people in all different segments of the food chain, basically.”

There’s also the very real possibility of lawsuits over a cancellation, even from disgruntled ticket- or badgeholders. In canceling, Siegel says, “there’s still an exposure for (promoters) because they still could potentially receive a lawsuit from one ticketholder or a class action suit, potentially, about the fact that they purchased their tickets and spent all this money and want to recoup from an Ultra what they’ve put out. Is the festival responsible for that? I don’t think so” — but the promoters need an active policy in place to respond to the claims, regardless. And, obviously, that kind of legal exposure would pale against the suits that might come if a festival turns out to be the source of a significant outbreak.

Still, if it’s really up to the city to make the call to cancel, in a situation where the festival couldn’t otherwise collect insurance, Austin may be more motivated than Miami to roll the dice on everything working out fine as a festival proceeds. Because last November, South by Southwest released a study showing that the 10-day SXSW 2019 brought a record $356 million into the local economy. That’s a number that dwarfs any benefit Miami would ever see from the Ultra Festival… and that might also make the figure of 50,000 people who’ve signed a Change.org petition asking for SXSW to be canceled seem puny, too.

James Sammataro, one of the top entertainment attorneys in the music biz and a partner at Pryor Cashman LLP, is located in Miami and has watched the developments with the Ultra Festival as a matter of local interest, even as he, too, wonders whether that cancellation was a tipping point.

“It’s been on everyone’s radar the last couple of weeks, and we’re all trying to straddle the line between prudence and panic,” Sammataro says. “I think this is a pretty fluid situation. It flared up with Ultra canceling, and that has a lot of people looking at whether or not they need to take a little bit more of an aggressive position. It’s a fairly unique situation. There haven’t been too many pandemic viruses that caused real alarm; maybe SARS was the last one we were really concerned about. We’ve been trying to explain to a lot of our clients that it’s really a case-by-case basis” on cancellations.

He points out that, even in Miami, two different calls have been made about two different festivals. “I would note that there is a WinterFest, which is a smaller festival that doesn’t draw from the same four corners of the earth, and to my knowledge, they’re proceeding. So the ripple effect, even locally, is still seen as a little bit of a one-off.”

In the case of Ultra, he says the international pull that the festival once bragged about was the very key to the decision to cancel. “It looks like it was more of a city decision,” Sammataro says. “There’s a relationship between the city of Miami and Ultra in terms of the lease and the property they’re on. And because of the particular uniqueness of the demographic — which is you’re getting people from 100 different countries, which is what they tout and boast — you’re getting such a diverse potential audience base that we’re running a higher risk. Now, the counterargument is, ‘These people (with paid travel arrangements) may still come to Miami anyway, so you just canceled my show for no reason!’ But,” he says, the “every corner of the earth” audience draw “is a distinguishing variable that a lot of them don’t have.”

Going forward, says the attorney, “There are two tipping points in my mind. One is, what does the NCAA do in terms of March Madness? Are they going to really play in empty arenas? If they do that, that’s going to cause a lot of people to rethink their policies. Because that’s obviously a huge money making event, and sure, they still make money from TV, but if they’re going to be canceling essentially 32 games out of the box, that’s going to be a bellwether. And if the NCAA was to proceed, what does Coachella do? Coachella is the industry setter in all things, so if Coachella was even close to canceling, it’s going to have a lot of people rethinking what they’re doing.”

As for the ability of artists to cancel a show — as, for instance, Mariah Carey has done with a Hawaii gig — he says that’s on a case-by-case basis, as well. “When you’re dealing with an A-list artist, their force majeur provisions tend to be broader than your typical force majeure provisions in a contract,” he says. “There’s some wiggle room, including things like artists feel their health may be jeopardized… If you have a broad enough force majeur provision and the artist feels, ‘Listen, I’m not really comfortable going into Seattle right now,’ the artist may have the right to cancel.”

But recovering a guarantee is unlikely for most artists if a festival is canceled, especially with the buck being passed to a decison by local government. Says insurance exec Siegel: “When a touring band would take out a policy for cancellation coverage, the communicable diseases exclusion is automatically included in that. They would have to purchase the coverage as a buy-back from the carrier at the time that they purchased the policy. So for a touring band, (a) terrorism provision is one thing that exists now, but communicable diseases wouldn’t normally be an exposure that we’d be concerned about as an additional cost to incur.”

Until now. If any bands had any thought of suddenly ponying up the extra money to include a communicable disease clause in their insurance, too late. “Now, that buy-back is not even available. It’d be like your car’s been stolen and now you’re like, ‘I want to see if I can get some insurance for my car?’ It (the disease) is already here.”

Siegel’s sympathy is with SXSW as they stare down a tough decision — or, more likely, wait for Austin to make it for them. “They’ve had so many big players pull out already” on the film/TV and corporate side, he says — a tide unlikely to turn back as reports come in from more states that will be sending hundreds or thousands to the festival. “I can’t see how they’re going to go ahead.”

Assuming this particular threat is dealt with or dies out, it’s still going to be a brave new world for insurance in live entertainment. “It’s similar to when terrorism insurance started,” says Siegel. “That was a result of 9/11. It’s not something that existed. So now (artists) are now going to be asking, ‘Are we covered for communicable diseases?’ Promoters would have already considered it, because they have the bigger exposure, but few bands ever had to think about it. There’s no precedent, really, for it to have been a factor. Of course, everything’s different now.”

From last year’s SXSW: