Don't Blame the Virus for Cirque du Soleil's Trouble

June 30, 2020, 4:35 PM · You might have heard that Cirque du Soleil filed bankruptcy yesterday. The financial collapse of the wildly popular entertainment company affects both the Walt Disney World and Universal Orlando resorts, as each hosts a Cirque production. Cirque's Drawn to Life was set to debut at Disney Springs before the pandemic shut down everything, and Universal CityWalk long has hosted a Blue Man Group show. (Cirque bought Blue Man in 2017.)

As you might expect, the company blamed those shutdowns for its troubles. The first bullet point in Cirque's announcement of the filing said, "Company files to restructure under the Companies’ Creditors Arrangement Act in response to immense disruption and forced show closures as a result of the COVID-19 pandemic."

The filing should not have surprised anyone who's been watching the industry. Heck, we warned you about it back in March. But Cirque was in trouble since long before "coronavirus" entered everyone's vocabulary.

Cirque's troubles began in 2015, when it was taken over in a leveraged buyout by a private equity firm. It's a story that's been repeated too many times around the world in recent years. The Atlantic told the Toys R Us version a couple of years ago, if you're looking for the details.

Whatever the company involved, the main plot points are often the same. A private equity firms borrows a ton of money to buy a company. But instead of paying back the money itself - as you would if you bought a car or a home - the equity firm assigns the debt to the company it just bought. That's how Cirque ended up a billion dollars in debt despite running some of the most popular live theater productions in the world.

Companies bought under these deals end up having to make huge debt payments, as well as often paying management fees to the private equity firm that bought them, forcing the company to cut operating costs in order to stay in business. The private equity firm might also saddle the company with more debt to buy additional businesses - as happened when Cirque bought Blue Man Productions. Or the private equity firm might sell off some of the company's assets to raise cash for itself - but never to cover the debt used to buy the company in the first place.

So what's the end game? The private equity firm either sells the company to another buyer, spins off the company to the stock market... or sends the company to bankruptcy to discharge the debt. No matter what, it's all reward and no risk to the private equity partners. And if thousands of people lose their jobs in the process, well that's a sacrifice they are willing to make, as Lord Farquaad once said.

The fact that this legal - and no one in Washington is talking seriously about changing that - illustrates just how the economy can be rigged in favor of Wall Street and against people and companies that do things that the public actually wants.

Like, you know, the people who actually create Cirque and Blue Man shows — of which nearly 3,500 are now laid off due to this bankruptcy.

Replies (12)

June 30, 2020 at 5:21 PM

I never understood how private equity firms work until I read this article. Very informative and helpful. Thanks for posting this, Robert.

June 30, 2020 at 5:43 PM

Thank you Robert. I am disgusted. I wish the politicians were as well.

June 30, 2020 at 7:19 PM

That's why there is a saying, "The house never loses". I believe recently there's been a lot of grocery chains that also suffered this faith. It's really sad considering not only people lose their job, they lose their pension as well i believe.

June 30, 2020 at 8:10 PM

Wow, I didn't know that's how things go. Seems awfully unfair and downright should be illegal. This is a white collar crime were some people make some money while many, many more lose their jobs. Thank you for bringing awareness to this injustice.

June 30, 2020 at 10:49 PM

Go watch Oliver Stone's classic "Wall Street" if you'd like to see the story dramatized.

Seems like the American deck is always stacked firmly in favor of big business, and against the working man. This place is really, truly sucking lately.

July 1, 2020 at 5:59 AM

Privatise the profit... socialise the debt.

July 1, 2020 at 7:25 AM

Yeah capitalism in a banana republic.
Sad for all the amazing performers who worked so hard all these years and sad for all the companies who worked hard and never got their rightful money for the services they provided.

July 1, 2020 at 7:58 AM

Let's not absolve Cirque's founders, creators, and artists of all blame here. In the end, a company like Cirque sees the prospect of rapid growth and cash infusion brought by private equity firms, and leverages it just like anyone else would. Like moths to the flame, companies all over the world cannot resist a pile of money dropped off at their doorstep, and many take that cash, and walk away, allowing private equity firms to run their supposed precious creations into the ground.

Don't get me wrong, the destructive wake wrought by private equity firms is like an eF5 tornado tearing through the central plains. However, owners and companies do not have to sell to these blood-suckers, especially given the long standing track record that exists on what they do to companies they purchase. If owners and originators loved their businesses so much, they would never sell instead of taking the quick buck or foolishly believing that their company would be treated differently.

For all of the artists and performers, it's a tough pill to swallow, because they are pretty much powerless to control the fate of their industry. However, without the infusion of cash and expansion of the business brought by private equity firms, it would have left thousands of artists without jobs or outlets for their talents. There's no doubt that private equity firms are generally bad for any industry in the long run, but in the short term, they can bring about prosperity and opportunities that would never had materialized under sole, private ownership. Cirque experienced years of remarkable growth and expansion that was well beyond what could have been expected without private equity. This isn't the first time a company has gone under because of this crude business practice, and it won't be the last, but let's not ignore the benefits that industries reap because of rapid and immediate infusions of cash.

July 1, 2020 at 8:49 AM

So, Cirque and Blue Man shows are basically no more? Correct?

July 1, 2020 at 8:59 AM

@NB - No, they've just declared bankruptcy so they can reorganize their debt (i.e. get out of paying certain creditors) and sell assets. Companies go through this cycle all the time and never actually close up shop. Obviously given the current economic climate, going completely out of business is a possibility, but it's more likely that this filing will allow the company to defer debt payments, have certain debts completely absolved, and renegotiate contracts with contractors and employees so they can resume business when the economy turns back around.

July 1, 2020 at 10:15 AM

Just to echo Russel. Typically the job of those handling a corporate bankruptcy is to maximise the return to creditors. Sometimes that does involve liquidating, but frequently it is more about saving a business, as a business is typically worth more than the sum of its parts. If we consider this specific example, you can’t exactly sell a blue man if you liquidate the business - it’s the blue man performance that has value, so you might sell that part of the business (and the employees contracts) or try to get it in a position where it can make money.

As a more practical example, look at legacy airlines in the US. They have frequent stops to the bankruptcy courts. Sometimes they come out of bankruptcy bigger and better (Delta), sometimes Bankruptcy is the tool that allows them to shed routes that can’t make money.

July 3, 2020 at 8:15 AM

Wow. Private Equity firms are about the only groups in the world worse than the Blue Man Group.

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