AEG Facilities (UK) Limited and Wembley Arena A report on the completed acquisition by AEG Facilities (UK) Limited, a subsidiary of Anschutz Entertainment Group Inc, of the contract to manage Wembley Arena 2 September 2013 Competition Commission 2013 Website: www.competition-commission.org.uk Members of the Competition Commission who conducted this inquiry Martin Cave (Chairman of the Group) Roger Finbow Andrew Popham Anthony Stern Chief Executive and Secretary of the Competition Commission David Saunders The Competition Commission has excluded from this published version of the final report information which the Inquiry Group considers should be excluded having regard to the three considerations set out in section 244 of the Enterprise Act 2002 (specified information: considerations relevant to disclosure). The omissions are indicated by []. Non-sensitive wording is also indicated in square brackets. iii Contents Page Summary .............................................................................................................................. 2 Findings ................................................................................................................................ 6 Appendices A. Terms of reference and conduct of the inquiry B. Financial background C. The management agreements D. AEG business plan for Wembley Arena E. Counterfactual F. The live entertainment supply chain G. Evidence of switching H. Analysis of venue hire fees I. Spillover effects—constraints on price and non-price factors J. Vertical foreclosure K. Sponsorship L Countervailing factors and barriers to entry M. Multiple promoter interactions N. The O2 Complex O. Wembley complex Glossary iv Table of contents Page Summary .............................................................................................................................. 2 Findings ................................................................................................................................ 6 1. The reference .................................................................................................................. 6 2. Industry background ........................................................................................................ 6 Venue owners and operators .......................................................................................... 7 Revenue streams and customers .................................................................................... 7 Vertical integration .......................................................................................................... 8 3. The businesses ............................................................................................................... 9 AEG operations ............................................................................................................... 9 The O2 Complex ............................................................................................................. 9 The O2 .......................................................................................................................... 10 Hammersmith Apollo ..................................................................................................... 10 AEG’s business model .................................................................................................. 10 Wembley ....................................................................................................................... 10 Ownership and management ................................................................................... 10 4. The merger ................................................................................................................... 11 Outline of merger situation ............................................................................................ 11 The rationale for the merger .......................................................................................... 12 AEG’s rationale for the transaction ................................................................................ 12 5. Relevant merger situation ............................................................................................. 13 Enterprises ceasing to be distinct .................................................................................. 13 Turnover test ................................................................................................................. 14 Share of supply test....................................................................................................... 14 Conclusion on the relevant merger situation .................................................................. 16 6. Counterfactual ............................................................................................................... 16 Who would have operated Wembley? ........................................................................... 16 Would Quintain have retained Live Nation under its existing contract? .................... 16 Were there other credible managers for Wembley? ................................................. 17 The minimum rental guarantee ................................................................................ 17 Would Wembley have been redeveloped for an alternative use? .................................. 17 Quintain’s incentives to change the use of Wembley ............................................... 17 Quintain’s ability to effect a change ......................................................................... 17 Conclusion .................................................................................................................... 17 7. Market definition ............................................................................................................ 18 Horizontally affected markets ........................................................................................ 19 The supply of venue space to promoters in London................................................. 19 The supply of sponsorship opportunities .................................................................. 25 Supply of ancillary service space at venues ............................................................ 27 Are the markets multi-sided? ................................................................................... 28 Vertically-affected markets ............................................................................................ 28 Promotion of live entertainment events .................................................................... 28 Ticketing services .................................................................................................... 29 8. Assessment of the competitive effects of the merger ..................................................... 30 Horizontal effects .......................................................................................................... 30 Pre-merger competition ........................................................................................... 30 The effect of the merger .......................................................................................... 37 Ticket prices to consumers ...................................................................................... 43 Vertical effects ............................................................................................................... 44 Promotion services .................................................................................................. 44 Ticketing services .................................................................................................... 45 9. Barriers to entry or expansion ....................................................................................... 45 10. Findings ........................................................................................................................ 46 1 Summary 1. On 22 March 2013, the Office of Fair Trading (OFT) referred the acquisition by AEG Facilities (UK) Limited (AEG UK) of the contract to manage Wembley Arena (Wembley) to the Competition Commission (CC) for investigation and report. We published our provisional findings on 23 July 2013. We were required to publish our final report by 5 September 2013. 2. Anschutz Entertainment Group Inc (AEG) is a leading provider of live entertainment services around the world. It manages a number of entertainment venues in London (through wholly-owned subsidiaries) including The O2 Arena (The O2). AEG is also vertically integrated as a promoter, AEG Live (UK) Limited (AEG Live), and a ticketing service, AXS.com (AXS), as well as offering other events-related ancillary services. 3. Quintain Estates and Development PLC (Quintain) is a UK-listed property company. Through Wembley City Estates Limited (WCEL), a wholly-owned subsidiary, it owns Wembley, a live music entertainment venue in north-west London. 4. In 2006, WCEL appointed Live Nation, another leading provider of live entertainment services worldwide, to manage Wembley on its behalf. On 10 December 2012, Quintain served a termination notice to Live Nation and, on 11 February 2013, terminated the contract with Live Nation. 5. AEG UK operates venues and provides venue management consultancy services. It entered into an agreement with WCEL in 2012 to manage Wembley (the Agreement). AEG UK started to manage Wembley on 12 February 2013 under an interim management agreement (the