Fyre Festival – 4 lessons of a fraudster 💸

June 4th, 2019 Posted by alastair, blog, Uncategorized 0 comments on “Fyre Festival – 4 lessons of a fraudster 💸”

written by alastair barlow [blog]

If you haven’t come across Fyre Festival (where have you been for the last 2 weeks?) it was an event (or a disaster) that was to be held on Pablo Escobar’s island Great Exuma in the Bahamas in April 2017. 

Read: 4 minutes

If you haven’t come across Fyre Festival (where have you been for the last 2 weeks?) it was an event (or a disaster) that was to be held on Pablo Escobar’s island Great Exuma in the Bahamas in April 2017. 
The festival itself was organised by Billy McFarland and Ja Rule to promote the Fyre music booking app.
A huge number of social media influencers were used to promote the event on Instagram which promised to be “an immersive music festival…two transformative weekends…on the boundaries of the impossible”. With VIP prices from $12,000 festival goers were promised meals from celebrity chefs and luxury tent accommodation (more expensive VVIP villa tickets were also available).
The organisation of the event was beyond poor to completely incompetent. The event experienced problems related to security, food, accommodations and artist relations.

Some key points include:

  • Celebrity chef meals, beach BBQs and Champagne turned out to be cheese sandwiches
  • Luxury villas and tents turned out to be disaster relief tents
  • Over 50% of guests had no accommodation ready
  • Festival was cancelled with a huge number of suppliers and staff not getting paid
  • Over 100 investors lost $27.4m
  • Multiple investor documents are faked
  • Billy McFarland and Ja Rule were sued for $100 million in a class action lawsuit

Ultimately, the ‘mastermind’ behind the Fyre app and Fyre Festival, Billy McFarland, was convicted for defrauding investors out of $27.4m and sentenced to 6 years in federal prison. In addition to the obvious lesson on fraud, there are a few other lessons to be learnt from the Fyre debacle.

See my 4 key ones below…

1. Control & governance 🏦
The Netflix documentary shows a number of what appear to be management meetings where the team are huddled around a table and on conference calls discussing the festival. However, throughout the documentary there are many references to the autocratic style and nature of the CEO. I tend to think, if there was any real governance in place, then it would never have got to the stage of festival goers arriving on the island.
Those involved, whether it’s investors or others on the management team should be asking questions; there should be monthly management accounts, variance to forecast, risks & issues, some challenge, scrutiny and segregation between preparer, reviewer and Board.

2. Planning & forecasting 🔮
In court, Billy McFarland admitted “While my intention and effort was directed to organizing a legitimate festival, I grossly underestimated the resources that would be necessary to hold an event of this magnitude.” In the Netflix documentary, there were a number of references to the huge costs which were continually spiralling out of control; while Billy McFarland is a convicted fraudster, he clearly hadn’t thought through or budgeted for the festival – even on a high-level. Neither, seemingly, had anyone independently challenged the budget!Planning and forecasting go hand in hand like love and marriage – well, maybe even a little better than love and marriage. I’ve seen a lot of forecasts that are so financially focused and have very little linkage to operational drivers in the business. Operational drivers and business operations are fundamental when forecasting – another example of how finance and the business need to partner together to get the best of one another.

3. Know your customers and get paid regularly! 💰
There were Bahamians that worked for weeks and even months on location that were never paid. There were companies i.e. suppliers, that were owed huge sums of money that never received it – all on a promise, or a wing and a prayer! The lesson here is know who you are working with, do your due diligence and credit checks on the company, and the people, if necessary. Make sure you have appropriate payment terms set up and be prepared to stop working if your debt isn’t paid!If it wasn’t for the fraudulent motives behind it, one of the actions was pretty smart: Fyre encouraged attendees to load cash in advance on to their digital Fyre bands to cover incidentals. If this was to be legitimate then from a cashflow perspective this would have been a smart move.

4. Investor due diligence 💼
While it’s sometimes very hard to identify fraud in the short-term; it normally reveals itself naturally over a period of time when the fraudster runs out of ways to hide the growing hole. According to reports, over 100 investors were defrauded of $27.4m. Allegedly, Billy McFarland manipulated investor documents showing that Fyre was already earning millions from talent bookings, falsified documents showing significantly higher number of artist bookings, falsified stock ownership documents in publicly traded companies and forged bank documents citing loan approvals which were in fact declined. Do your due diligence and don’t take things on face value – dig a little deeper and verify what you’ve been told!