Saturday, May 6, 2017

And don’tcha feel all warm and cozy, watching people out in the rain!

If you’re like me, you’ve been absolutely riveted by the disaster that was Fyrefest.  For anyone who somehow missed the news, the basic recap is that a destination music festival – sold as a luxury getaway in the Bahamas featuring sandy beaches, rock stars, five-star accommodations, and gourmet meals turned out to be, well –

 

Instead of luxury villas, guests found soggy tents, port-o-potties, and a bank of lockers (without locks).  They had to hunt for their luggage in a large shipping container – with flashlights.  And so forth.

There have been a number of news articles attempting to deconstruct how things went so horribly wrong, but the focus of my particular interest is – incompetence or fraud?  There are already two class action lawsuits pending, so we’ll have more information soon enough, but reports so far indicate a rather stunning willful-blindness on the part of the promoter – 25-year-old Billy McFarland – coupled with the somewhat-contradictory fact that he’s still around, apologizing to disappointed ticketbuyers, and generally not, you know, running off to a country with no U.S. extradition treaty.

[More under the jump]

McFarland is a “tech entrepreneur” who previously founded Magnises, a social club for millennials.  That effort was also plagued by problems: members complained that the benefits they were promised never materialized, workers complained that simple things like payroll were haphazard and unprofessional.  McFarland excused the difficulties as the growing pains of a new business.  It’s hard to tell from anecdotal reports how widespread the problems were, but it appears that the club is largely defunct now, so it can’t have been that successful. 

In October 2016, McFarland hit upon the idea of the Fyre Festival.  It would be a luxury music festival on a tropical island, featuring famous stars and “treasure hunts” for valuable prizes buried in the sand.  In particular, Fyre Festival would be marketed specifically to millennials, intended to “capture those Instagram moments” in an “offline experience.” (I am not a millennial, so I do not understand what those words mean).

McFarland hoped to fund the festival through ticket sales, including upgraded “luxury” packages, but he also sought outside investors.  Vanity Fair got hold of a pitch book he used; it’s described as a “private placement memorandum,” and mostly it consists of glossy photos highlighting the Instagram-celebrities who agreed to promote the event (more on that below).  There’s a note about financial information being in an appendix; however, the appendix is not appended to the Vanity Fair version. My favorite part of the pitch book is the chart that explains that the organizers have a “360 methodology” for “captur[ing] brand revenue in a unique manner” from sponsors.  The methodology is illustrated in a diagram of the process: the first step is to “Understand brand goals,” then to “Ideate,” next to “Conceptualize,” and finally to “Execute.” After that, there’s a list of pending partners like Samsung.  Confirmed partners include, well, Magnises, and Snapchat.  The pitch book opens by asking “What if we reimagined what it means to attend a music festival?” and, to be fair, I think they did.

Anyway, I don’t know how persuasive the book was in raising money, but according to Vice, McFarland was friends with one wealthy woman who had previously invested in Magnises, and she also helped bankroll Fyre, but had no idea of the logistical problems.

As planning got underway, McFarland repeatedly failed to pay suppliers, staffers, and talent – though according to the Wall Street Journal, at least some of the acts eventually received the fees they were promised.  Warned that toilets and showers could not clear customs in time – especially without loading docks to hold the equipment – McFarland simply announced that no one should worry about customs.  Which turned out rather badly for him; the Bahamian Ministry of Tourism is now one of his creditors

So if it wasn’t spent on the festival, where did the money go?

Well, it turns out, there may not have been that much to begin with.  Though some reports breathlessly describe ticket packages in the four to six digits, and the Wall Street Journal reported (apparently based on information from Fyre’s promoters) that tickets sold out early, Vice claims– and I find this to be more credible – that thousands of tickets were unsold, and many others were heavily discounted.  This was not a festival popular with the idle rich; it was popular with people who were not rich and were hoping to rub shoulders with people who were.

What money did come in was used to pay huge sums to “influencers” – namely, glamorous people famous for being famous, who promoted the event on Instagram (without, allegedly, required FTC disclosures, which is the subject of one of the lawsuits).  And the rest?  Well, Vice has this description:

Fyre Festival employees said planning for the event took on the feel of an extended Spring Break frat party. McFarland and members of his team would fly down “every other weekend for lavish vacations” on nearby islands, but only male employees and models were allowed to go. “Billy would take all the boys down there, it would be boys only,” the employee said. “They talk about f—ing bitches and hoes in conference meetings.”

 

The employee said McFarland would often urinate in the office with the door open for employees to see.  [NB: I think they mean McFarland was using a urinal, and not  his actual office, but it’s hard to be sure.]

 

“It’s a boys club,” the employee said. “They laugh about it.” Another former contractor called the environment “low-key sexist and racist.” [NB: I have a different understanding of the phrase “low-key.”]

 

Someone who briefly worked on the festival and asked to remain anonymous agreed: “They were just stoked on getting vacation homes there. I didn’t feel like they were taking it seriously at all.”

Warned of the impending disaster, one Fyre marketing exec was (now famously) quoted as saying, “Let’s just do it and be legends man.”

At the same time, though, McFarland was apparently walking around paying people with his own cash, trying to keep things running up until the end– which, despite the allegations in one of the lawsuits, doesn’t sound like a “get-rich-quick scheme.” But then, I suppose fraudsters aren’t known for their long-term planning.

So, incompetence or fraud?  Or that frustrating in-between state of grandiosity coupled with willful denial of reality? - or maybe that’s just what fraud often looks like, from the fraudster’s point of view?  I suppose we'll find out as litigation unfolds.

In the meantime, though, I'm off to Jazzfest, where I'm confident of the quality of the food and the musical acts (though, sadly, the port-o-potties are unavoidable).

http://lawprofessors.typepad.com/business_law/2017/05/and-dontcha-feel-all-warm-and-cozy-watching-people-out-in-the-rain.html

Ann Lipton | Permalink

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