SXSW reeling from cancellation as company assesses losses

SXSW LLC, the company behind the South by Southwest festival held in Austin each year since 1987, is reeling financially from the city’s decision to cancel the 2020 event over coronavirus fears, apparently putting its future in jeopardy as it scrambles to ascertain how much money it stands to lose.

SXSW said Monday it has laid off about a third of its 175 year-round employees.

The company “has been rigorously reviewing our operations, and we are in the unimaginable position of reducing our workforce,” a SXSW spokesperson said in a written statement. “We are planning for the future and this was a necessary, but heartbreaking, step.”

SXSW co-founder and CEO Roland Swenson told the Wall Street Journal in an interview that SXSW is “planning to carry on and do another event in 2021.”

But “how we’re going to do that I’m not entirely sure,” Swenson said.

SXSW is concerned its losses could run into the “tens of millions of dollars,” he said, and it will be out of money by this summer if it doesn’t find additional sources of income, such as grants.

Swenson previously told the American-Statesman that SXSW didn’t have insurance coverage for cancellations triggered by “bacterial infections, communicable diseases, viruses, and pandemics,” and he told the Wall Street Journal that the coverage it does have “will likely not cover” the cancellation.

Austin Mayor Steve Adler, whose coronavirus-related emergency declaration last week effectively called off SXSW this year, said Monday that he has spoken with the company and is confident it will be able to hold the event again.

“They told me they fully intend to come back next year,” Adler said, although he was speaking to the Statesman prior the announcement that SXSW had laid off employees. “They haven’t quite figured out the path yet. But they fully intend to come back. It is part of who we are — it’s part of our brand — and I think this city wants to help them and the (hospitality) industry” overall.

If SXSW isn’t able to rebound, however, the impact on Austin’s international profile and tourism industry will be significant, according to economists. Restaurants, bars, hotels, and other businesses in downtown Austin stand to suffer big financial blows this year, but the economic hit of a one-time cancellation is small in the context of the metro area’s overall annual economy.

“It’s one thing if a global health situation prompts the cancellation of an event (once) — it’s another thing if the event goes out of business,” said Jon Hockenyos, president of Austin economic consulting firm TXP Inc. “SXSW has become one of the flagship events, if not the flagship event” for the regional tourism sector.

Swenson’s interview with the Wall Street Journal was published on its website late Sunday. He didn’t respond to emailed questions from the Statesman on Saturday regarding the impact of the cancellation on SXSW’s future viability, and he declined to discuss the issue Monday, despite his published interview in the Journal.

“I don’t know enough to offer definitive comments on these subjects, so I won’t be making any public statements,” Swenson told the Statesman in an email Monday. “I’m buried in the minutia of dealing with our customers and vendors.

The 10-day event — which had been scheduled to start this Friday — was effectively called off by the city last week when Adler preemptively declared a public disaster regarding the coronavirus, even though there have been no confirmed cases of the virus in the Austin area.

Prior to the cancellation, SXSW organizers faced significant public pressure to scrap it this year as fears about a potential global pandemic mounted, as well as the prospect of a substantially diminished event after a lengthy list of companies and speakers dropped out.

SXSW, an internationally known event, attracts more than 100,000 music fans, technology buffs and pop culture enthusiasts to the city’s downtown each March, and many businesses in the area have come to count on the free-spending attendees.

Peter Rodriguez, dean of Rice University’s Jones Graduate School of Business, said the annual festival has “a significant impact on the standing of the city and on the perception of Austin as a regional hub of technology and creativity,” benefits that will be difficult to reproduce if the event can’t continue.

“Anytime you lose a brand, that’s costly,” Rodriguez said. “That would be a big loss for Austin and for Texas.”

It’s also likely that some downtown Austin businesses would close, he said, because the hospitality sector in the area probably has too much capacity without the annual tide of SXSW visitors.

“For an event that goes on year after year, there’s a little more entertainment and hospitality infrastructure than you really need” otherwise, Rodriguez said. “Either they will fold or you will see future growth curtailed (if SXSW ceases to take place). That’s too bad.”

Swenson said during his recent interview with the Wall Street Journal that SXSW organizers intend to continue the festival. But he also said the company is in the process of determining how much debt it can take on, and he said it’s poring over the fine print of hundreds of contracts with vendors, sponsors and others.

An economic study commissioned by SXSW after the 2019 event pegged its “operational impact” on the Austin area at $157 million last year, a figure that includes the company’s spending on year-round planning operations and employees. SXSW’s direct spending on those things likely are substantially lower, however, because economic impact studies are inflated by multipliers.

Both Rodriguez and Hockenyos said they think vendors and others owed money by SXSW as a result of this year’s cancellation will be open to negotiations overpayment — since the alternative might be that the high-exposure event goes the way of the Dodo bird.

“People benefit on all sides (from the festival), so those who would impose liabilities on the company also want to see it go on,” Rodriguez said. “So I imagine there is room for negotiation to spread out the cost of this cancellation.”

Hockenyos agreed. “At the end of the day, (creditors might say), let’s try to not be short-sighted, let’s not be penny-wise and pound-foolish,” he said. “That’s what one would hope would happen.”

American-Statesman writer Heather Osbourne contributed to this report.