Our company strategy is to first establish a brand that is unmatched in the region with regard to public profile and prestige. We are achieving this objective with Fortress Festival, a major music festival. Music festivals of this nature are very cost intensive and therefore the first step in our company strategy is cost intensive. As a result, this stage in our business, with high up front costs and proportionally lower revenues, is high risk. Industry history shows a similar progression with similar events. Usually it takes three years for an event such as Fortress Festival to become profitable. During that time we will be relying on capital and revenues from other activities such as event services to fund ongoing operations.
Weather is always a risk to any outdoor event and can have a severe adverse impact on ticket sales and on-site spending. This could effect the pace of our company's projected growth. In the first year of Fortress Festival, we encountered weather forecasts that put a significant strain on sales even though the weather during the event allowed for a successful festival. Spring tornadoes are common for our region and often have a more adverse effect on ticket sales since dangerous weather is more prohibitive than simply unpleasant weather. We do purchase event cancellation insurance (in addition to requisite liability insurance) for the festival. This means that if the event or any part of the event has to be cancelled or truncated for reasons beyond our control, we are compensated for the greater of either loss in revenue or costs.
There is a credible industry concern that a rapid proliferation of major U.S. music festivals is spreading thin the total number of artists that can attract ticket buyers, attention span of audiences and therefore audiences themselves. We are betting that while it is likely that there is little to no room left for festivals on the scale of ACL Fest, Coachella and others within the U.S., there is room for slightly smaller (30K-50K total attendees vs. 100-200K attendees), more niche festivals in large, unsaturated markets such as North Texas. This hypothesis is supported by the fact that U.S. live music revenues continue to grow year over year as does the overall population and millenial population of North Texas. Our belief is that well executed live music events of any kind should be able to prosper with his trend. There is a possibility as with any business, that available demand for live music and/or music festivals does begin to decrease as a result of over-saturation. Naturally, this would adversely impact our business. We are attempting to manage this risk by diversifying our business model to include events in non-music verticals (ex: food and wine) and generate a significant amount of no-risk revenue from event and experiential marketing services.
We may not be able to diversify enough across industries outside of music festivals to ensure consistent revenues. As a company, we are betting that by searching across a diverse set of geographic markets in this area of the country and keeping in mind a diverse set of event types (music, food, health & fitness, etc.) we can identify and pursue opportunities similar in nature to that of Fortress Festival and North Texas. Non of these opportunities may pan out leaving us in a highly leveraged position.
We may not be able to maintain a consistent brand across a diverse set of event and experience verticals. Inability to differentiate from other companies operating in a similar space will put Fortress at risk.
B2B sales are crucial to success as a festival - we need to augment ticket sales with B2B sales. We are competing for business sponsorships with many festivals and this dependency without guarantee is risky.
The trend toward experiences over possessions may reverse at any time putting the entire festival industry and Fortress in jeopardy.
The Company may never receive a future equity financing or elect to convert the Securities upon such future financing. In addition, the Company may never undergo a liquidity event such as a sale of the Company or an IPO. If neither the conversion of the Securities nor a liquidity event occurs, the Purchasers could be left holding the Securities in perpetuity. The Securities have numerous transfer restrictions and will likely be highly illiquid, with no secondary market on which to sell them. The Securities are not equity interests, have no ownership rights, have no rights to the Company’s assets or profits and have no voting rights or ability to direct the Company or its actions.