This year’s KAABOO festival in San Diego came dangerously close to cancellation before it was rescued through a last-minute sale, just one day before the event was scheduled to take place. Now, the festival’s founders are suing the man who saved the show.
Since launching in 2015, KAABOO had received more than $60 million in investment, but didnt have “enough cash to pay all of the artists, staff, and vendors,” for this years festival, according to a recently filed civil complaint in Delaware superior court. Jason Felts, a former KAABOO partner and executive, raised $10 million through his company Virgin Fest LLC to buy the fest on Sept. 12 from founders Bryan Gordon and Seth Wolkov. As part of the sale, Felts contracted to hire the founders and their festival’s staff to produce the 2020 festival as part of a seven-figure deal that would partially pay back $9.7 million still owed creditors and vendors.
But days after closing the sale, Felts learned the founders had fired more than half of the staff he had just agreed to bring on to produce next year’s event. When his attorney sent the men a breach letter, they responded by suing Virgin Fest and accusing him of “pursuing a Trojan Horse strategy” to “infiltrate KAABOO” and “and take possession of its most valuable assets,” according to the complaint.
The lawsuit against Virgin Fest is the fifth against entities controlled by Gordon, the 58-year-old chairman of the Madison Companies, a Denver real estate investment firm. In one case Gordon sued a former business partner for defamation after his lawyers obtained an email from the partner complaining about how much he had lost in a deal made with Gordon.
In 2009, Gordon led the purchase of Napa’s Kirkland Ranch Winery out of foreclosure, property records show, paving the way for Gordon to petition the Napa Expo board of directors for the right to bid on the BottleRock festival in late 2013 as it dealt with its own insolvency crisis.
Gordon didn’t prevail on Bottlerock but seemingly never gave up on the idea for for a high-end festival, and two years later launched KAABOO at the Del Mar fairgrounds with Madison Companies president Seth Wolkov as partner.
In 2015, festivals were still seen as a way for an entrepreneur to gain a foothold in an otherwise difficult-to-break-through marketplace. Festival promoters like Insomniac, C3 Presents and AC Entertainment were being acquired by companies like Live Nation, which listed building its “portfolio of festivals globally” as its top priority for growth in its 2015 annual report.
No region was better suited for outdoor music events than Southern California, with its nearly year-round warm weather and customer base of tens of millions of people. While promoters like Live Nation and AEG/Goldenvoice were battling for festival supremacy in Los Angeles, San Diego County’s 3.3 million residents were the perfect test market for the high-end festival concept that catered to an older, affluent demographic interested in a high-end culinary experience, art and even spa services.
But festivals are a tricky business — they take millions of dollars in investment to launch, require top-tier talent to be successful and often endure seven-figure losses in their first few years. In order for KAABOO to succeed long term, organizers believed it had to scale and expand. In 2016, Gordon attempted develop a KAABOO event for the Colorado ski town Vail, according to city records. After initial positive reception, but a lack of overall community support, KAABOO’s partner on the proposed festival, the Vail Valley Foundation, issued a release announcing the application for the Colorado festival had been withdrawn.
Gordon and Wolkov did eventually achieve their expansion plans in 2019, launching KAABOO Cayman, Feb 15-16, followed by KAABOO Texas at the Dallas Cowboys’ AT&T Stadium, May 10-12. While Gordon’s Caribean adventure faired moderately, with 20,000 tickets sold over two days and about $7.5 million in revenue including $1 million from corporate partners, KAABOO Texas lost millions more than organizers had forecast, according to an investor update obtained by Billboard sent to KAABOO shareholders on Oct. 11.
The event headlined by Lynyrd Skynyrd, The Killers and Kid Rock sold less than half the tickets organizers had forecast, despite a $1.4 million marketing budget and a partnership with the state’s biggest sports franchise, according to the investor update. The no-show rate among paying customers hovered over 30%, more than triple that of the Del Mar event.
As expenses budgeted at $11 million ballooned to $19 million,KAABOO organizers agreed to split the difference with an entity controlled by the Cowboys and owner Jerry Jones’ family, according to the update Because KAABOO “did not have adequate liquidity,” Jones’ group agreed to cover KAABOO’s half of $8 million funding shortfall in a two-year loan to be repaid by 2021.
Making matters worse, on June 2, the festival’s KAABOO Cayman partners — the Dart Companies led by billionaire and Dart Container Corporation heir Kenneth Dart — decided to “discontinue their investment” in the festival partnership, according to the Oct. 11 investor report. An August deal to sell KAABOO’s stake in the festival ultimately failed, wiping out millions in forecast revenue and adding another $1 million in debt to KAABOO’s books, according to the report.
Facing a liquidity crisis just weeks before the Del Mar anchor event was set to kick off, KAABOO entered into a letter of intent to sell the festival to Felts and Virgin Fest. In return for transferring Gordon’s rights to the festival and several KAABOO development deals, he received a right to bid on and match offers to produce Virgin Fest’s new events and retain the management production contract for KAABOO San Diego.
About a month after closing the sale, Gordon and Wolkov sent a letter to investors, offering few specifics how the $10 million from that deal was spent, with three line items for how the funds were allocated: $1.8 million to Gemini Finance to cover a loan to pay artist deposits, $150,000 in closing costs and $8 million listed as “KAABOO Del Mar 2019 Event costs.”
“Unfortunately there were not any distributions to provide to investors as part of this transaction,” the Oct. 11 reads, before going on to explain the company’s plan to “restructure its obligations” with the “ultimate objective to achieve future capital recovery for stakeholders.”
No longer able to use the name KAABOO, Gordon’s company change its name to EventPro LLC and shifted it’s model to focus on event production with contracts in place produce KAABOO San Diego and a new event for Virgin Fest, worth a combined $3.2 million in revenue.
The letter also explained that to cut costs, EventPro terminated nearly 50% of its 57-person staff, including high level managers who had produced the festival for a number of years. The layoffs came as a surprise to the employees, many of whom then reached out to Felts and Virgin Fest to express their dismay at being let go.
The news surprised Felts, who sent over a default letter to Gordon on Oct. 18 warning that the termination of longtime employees with “institutional knowledge” of the festival was a breach of their agreement. Felts also said he had recently become aware that Gordon’s group was “suffering substantial financial difficulties” and “may need to file for bankruptcy protection.”
Attorneys for Gordon say the letter constituted “breached the Transaction Contracts by, among other things, purporting to terminate its relationship with KAABOO abruptly only four weeks after the Transaction closed,” according to the civil complaint, “failing to transfer the shares of Virgin Fest Investco stock, and failing to pay amounts due under the Transaction Contracts in excess of $300,000.”
In a statement to Billboard, attorneys for Gordon and Wolkov’s new company, EventPro, told Billboard “No amount of spin can change the facts about the underhanded ways in which Virgin Fest pursued a Trojan Horse strategy to infiltrate KAABOO and take possession of its most valuable assets, before cutting off its cash flow and driving it out of business,” later adding, “We look forward to holding them accountable for those unseemly and illegal actions.”
Felts’ attorneys contend they never terminated the agreement and merely “gave formal notice of serious concerns,” writes wrote Virgin Fest attorney Jessica Stebbins Bina, partner in the litigation department of Latham & Watkins, in a statement to Billboard..“Virgin Fest bought the Kaaboo brand expecting to use Eventpro to continue to use their team to produce great events. But days later, Eventpro made that impossible, terminating long-term employees and contractors and replacing them with inexperienced staff (or no one at all). Nonetheless, and contrary to Eventpro’s claims, Virgin did not terminate the contract.”
Sources close to Felts say the lawsuits have become a difficult distraction as his team are pushing ahead with plans to stage KAABOO San Diego at its new home at San Diego’s Petco Park and are developing a new festival in Los Angeles for Summer 2020. While he feels confident his are well capitalized for success, negative perceptions can sink festivals in today’s crowded landscape, which has seen a number of marquee brands and indie promoters succumb to slow ticket sales and increasing costs to do business. While his lawyers feel confident about his case against the founders, it’s the time spent fighting the partners and dealing with negative headlines that expose his a vulnerability as a festival promoter when he needs good will more than ever.