Managing Currency Fluctuations for International Music Festivals.

Many large-scale music festivals will have an international element to them primarily because performance artists are usually curated from around the world. Global currency exchange rates have been volatile in recent years driven by government actions to protect economies. How can festival organisers manage the risk associated with fluctuating exchange rates.

For a festival to curate the best artists it is impossible to operate only within the confines of their country of operation. International artists are now common, and this invariably generates interest from potential ticket buyers from overseas too. Organisers must decide what currency is used for artist contracts and ticket purchases at an early phase of the planning process because changes in currency exchange rates can have a negative impact on fees being paid and revenue received.

Impact of Currency Fluctuations.
If currency fluctuations are not monitored and managed organisers can quickly get caught out with a 5% or 10% currency swing quickly wiping out profit margins. Most operational costs will be in local currencies because locally based contractors are used. However, artists curated form overseas can incur fees and expenses in other currencies. In addition, ticket sales to overseas festival-goers can be unpredictable with the bulk of sales coming in the final 30 days before live event dates. For overseas transactions most organisers, irrespective of where they are based, will use USD, EUR or GBP when agreeing fees and prices.

Contracts.
Curated artists will sign agreements and contracts once booked and these always include payment terms expressing how much should be paid and when. For overseas artists organisers can include clauses that help to share any burden from currency risks. Options can include deposits made in the organiser’s own currency with final payments being made in the artist’s preferred currency, but this needs to be stipulated clearly in the contract terms. Alternatives can include pegging the exchange rate within an agreed range (+/- 3% for example) and if rates move outside the agreed range, it triggers a renegotiation of fees, or they can decide to split the difference. Some artists may demand a ‘gross-up’ clause where they demand a specific amount after all taxes and exchange fees, organisers should be wary of such clauses and preferably should calculate the "landed cost" in the local currency.

Hedging Options.
There are a variety of financial tools available that can help to manage currency fluctuations which organisers can use to minimise any exposure. A common tool is the ‘Forward Contract’ where organisers agree with a broker to buy a specific amount of a currency at today's rate for delivery on a future date. This ensures that the actual spend will remain exactly as budgeted. Alternatively, organisers can arrange a ‘Limit Order’ where a favourable target rate is agreed and when this is reached the broker automatically buys that currency. If reasonable volumes of overseas ticket buyers are expected organisers can also consider natural hedging using a ‘Match-Fund’ strategy where the currency coming (ticket sales) in matches the currency going out (artist fees). Overseas ticket sales may be offered in USD or EUR for example, and this revenue goes directly into the organiser's foreign currency account. Foreign currencies held can be used to pay artists in their preferred currency which avoids exchange rates completely. For festival organisers based outside Europe and north America it is common practice for ticket prices and fees to be pegged to the USD which also avoids having to deal with volatile exchange rates.

FX Brokers.
Organisers who will need to deal in different currencies should use specialist FX brokers who can offer a range of financial tools with minimal charges. Using a traditional bank can expose the organising entity to high charges and unfavourable rates along with complex processes and time delays. A specialist FX broker will try to find the best rate with lower fees and will offer numerous options for currency exchanges. Some brokers can also offer specialist experience and dedicated tools for the entertainment sector making them the preferred option in most cases.

Managing Risk.
Where artists are curated from overseas that also attract ticket buyers from other counties festival organisers should create an assessment of their currency exposure risk in the financial planning phase. This should include expected currency usage along with critical dates and a plan of how this will be managed. As festivals get larger and more international the focus on currency fluctuation risk should increase, without a plan an organiser can quickly be exposed to significant financial losses.

For festival organisers planning their next event using a software management platform like Festival Pro gives them all the functionality they need manage every aspect of their event logistics. The guys who are responsible for this software have been in the front line of event management for many years and the features are built from that experience and are performance artists themselves. The Festival Pro platform is easy to use and has comprehensive features with specific modules for managing artists, contractors, venues/stages, vendors, volunteers, sponsors, guestlists, ticketing, site planning, cashless payments and contactless ordering.

Image by PublicDomainPictures via Pixabay

<< Back to articles