Risk manager of the Year: Bob “Kid Rock” Ritchie

When Rap-metal-rocker “Kid Rock” launched his album Devil Without a Cause fifteen years ago, he became an instant success, after years of toiling in obscurity.

Now, the man is shooting to superstardom in finance, by tackling the high costs of attending rock concerts. If he succeeds (and I hope he does) he will turn the music industry on its head!

Singers are paid an agreed fee per concert (say $200,000), with the rest going to the organizers of the event. Organizers are the residual claimants and bear all the risks. Sometimes they win, other times they lose. To protect themselves, organizers charge high ticket prices and control a large concentration of the concert venues.

Egg head Kid Rock figured this might not be an optimal arrangement. So he is willing to give up the big upfront fee and instead share in the net income and the risks with the concert organizers. What’s really daring about this proposal of a self-confident singer turned entrepreneur, is that Kid Rock wants to lower ticket prices to just $20 (instead of $80+). Wow!

Some think that Kid Rock is motivated by an ego that thrives in exhilaration with a house packed with fans, who otherwise would not be able to afford a memorable night out. Others say that low concert ticket prices are used as a mechanism to boost sales of his records afterwards. Others venture that seeing the man perform makes you a lasting fan. Perhaps, but I don’t believe this is the whole story, simply because Kid Rock’s idea had to pass mustard with the concert organizers.

What Kid Rock seems to understand is that there are a lot of other things that people buy when they attend a concert, from drinks, food, parking, to all the paraphernalia that is stimulated by the overwhelming emotions experienced in such events. All of these can bring big bucks that are directly related to what’s going on stage! In fact, listening to Kid Rock’ Bawitdaba makes people so excited, with all the lights shining, the bodies in constant motion and the collective singing, that one feels the instant desire to gulp down another beer, even if it costs three times more than at a local liquor store. The lyrics anesthesiate any remaining sense of frugality.

The Wall Street Journal calls the deal with Live Nation Entertainment “unorthodox”. Really? This is optimal risk sharing and the right alignment of interests between the parties involved. In the process, monopoly rents might get cut a bit. And when all this happens at once, there are truly big welfare gains.

“They can’t read your brain, but they can read your lips”, Kid Rock, but “they get scared when they hear that you were coming with hits”. Big Hit, indeed!

One Trackback

  1. By Links & comment | Rhymes With Cars & Girls on June 13, 2013 at 10:31 am

    […] Kid Rock, Risk Manager. […]

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