By Bonnie Wong

Two years ago New Jersey-born, start up entrepreneur and college dropout Billy McFarland created the most “ill-planned music event that never was.” But to label it as just that is an understatement. The music festival, which was scheduled to take place over two weeks in late April 2017 on a private Bahamian island called the Great Exuma, turned into a nightmare for over 8,000 people who had paid anywhere between $1,000 to $100,000 to attend only for it to fall grossly short of expectations.

In October 2018, McFarland pleaded guilty to fraud and was sentenced to six years in prison and ordered to forfeit $26 million, pleading guilty to wire-fraud charges. Fyre Festival co-founder and rapper Ja Rule was dismissed last month from the $100 million class action lawsuit, according to an article by the New York Times. 

But the real question is how did Fyre Festival, like other promises made by grifters, continue to operate even when others both the inside and outside suspected they were destined to fail? Furthermore, what are the implications of large-scale fraud on the overall economy?

Instead of the private, custom Boeing 737 flight, luxurious accommodations and promised VIP experience, Fyre Festival guests were left waiting in the airport, given bread and cheese in Styrofoam containers to eat and left to sleep in makeshift tents scattered around the island with no cellular service or plumbing. Major A-list artists who were scheduled to perform dropped out in the weeks prior to the music festival (there turned out to be no musical acts), businesses who were contracted to provide their services for the event were never paid and guests live-tweeted their nightmare experience for the rest of the world to see.

The 2019 Hulu documentary titled “Fyre Fraud” produced by Jenner Furst and Julia Willoughby Nason opens with a quote by Calvin Wells, venture capitalist who originally exposed the Fyre Festival scam on Twitter. 

“You see these wonderful, beautiful people in places that you’re not, doing things you can’t afford to do, it really didn’t matter that these guys may be waifs, trustafarians, and this guy hosting this party was an obvious fraud, because many of these influencers are people you follow, that you aspire to be and also this rapper, his music you listen to,” Wells said in the documentary. “So when an opportunity presents itself to get out of your parents’ basement and go be part of something that’s culturally relevant, you’re going to absolutely jump at that.”

In America alone, the music festival industry has become a lucrative market. Nielsen Music estimates about 23 percent of the U.S. population has attended a live music festival in 2018. The majority of attendees are millennials, 57 percent of which now say they prioritize traveling and seeing the world over ever owning a home, according to a study by Deloitte.

Music festivals are attractive for artists and attendees alike. The business model is more profitable than ever before. Instead of conducting large scale production tours that take days and require setting up and tearing down at each location, artists simply get paid to fly to the venue, perform and then fly back home all while earning a considerable amount for their performance. Since 1999, 50 percent of U.S. recorded music sales have dropped, according to Vox. To make up for the loss in revenue, live concerts, shows and merchandise compensated for 40 percent of the loss between 1999 and 2009, originally grossing $1.5 billion and then peaking at $4.6 billion. In recent years, streaming services have deflated album sales further, Vox states.

On the consumer end, attendees can enjoy day or weekend-long events with their favorite artists in one place and have something to post on Instagram from the ordeal. For attendees, it’s all about the experience a music festival can provide, fueled by aggressive social media marketing that helps the consumer envision what their life could look like and playing into overall fears of FOMO—fear of missing out. 

Jerry Media, who was charged with promoting the festival spoke of their original strategy of marketing Fyre in the Hulu documentary.
“My whole idea was like stop the internet and so to do that you kind of have to figure out a way, in this time of advertising, to stop somebody’s who’s scrolling at speeds that are less than, like, a second,” Oren Aks, ex-Jerry Media employee said.

Their social media strategy did stop consumers in their tracks. Through their heavy promotion, Fyre Festival easily became a shareable experience through both online and word-of-mouth advertising.

And it’s not just major cities such as Los Angeles and New York that host music festivals anymore. Smaller towns, looking to benefit from the influx of travelers attempt to contract with the hottest artists who hold the promise of bringing in economic revenue. In 2012, the Firefly Music festival hosted in Dover, Delaware saw approximately 30,000 attendees daily and made upwards of $9 million in ticket sales and contributed over $12 million overall into the city’s local economy, in a report by LA Weekly. 

“We’re living in an era in which you can convince millions of people to do anything just on marketing alone,” Wells said.

But to host a music festival, especially one of that scale, takes a lot of planning and effort, two things McFarland did not forsee. According to an article by Vox, instead of planning out the insurance, predicting weather forecasts or even creating a budget sheet, McFarland focused on advertising his idea through paying celebrities like Kylie Jenner and Bella Hadid and then shooting a promotional video centered around his life (and then refusing to pay the company he hired). 

“McFarland induced investors to entrust him with tens of millions of dollars by fraudulently inflating key operational, financial metrics and successes of his companies, as well as his own personal success – including by giving investors a doctored brokerage account statement purporting to show personal stock holdings of over $2.5 million when, in reality, the account held shares worth under $1,500,” read a press release by the U.S. Securities and Exchange Commission.

Using his companies Fyre Media, Inc., Fyre Festival LLC and Magnises, Inc., McFarland conned over 100 investors into lending him $27.4 million, according to the press release. The now defunct Fyre Media and its partner companies have little information on their financial reports other that what was reported by the news outlets in their investigations. 

In a leaked Fyre Festival investor pitch deck, slides show the festival being promoted as one that would “ignite energy and power” among its attendees and even had a five year plan to host its future festivals on different islands McFarland planned to purchase. While the pitch claimed to Fyre Media owned $8.4 million worth of land and had partnerships with companies such as Snapchat, in reality none of their claims were true. Perhaps most telling, their slide titled “Financials” simply read “Please see appendix.” 

Music festivals, in all their glory and splendor, have also had a notorious history for being grand failures. Woodstock, TomorrowWorld, Governors Ball, Karoondinha Festival and Panorama Festival all faced similar endings with false promises that couldn’t deliver due to poor planning. 

Even more telling, beyond the attendees who were conned into giving up big bucks, those who were contracted to do business with Fyre ended up scorched as well. Local islanders who built infrastructure for the festival were not paid for their time and labor. In particular, one business owner MaryAnn Rolles spoke out in the Netflix documentary that was made about the fraudulent festival saying that she spent $50,000 of her own savings and was owed $134,000 by festival organizers for her restaurant catering services. Many other locals have not been paid for their services either and are unsure if and when they will receive compensation.

“The owners/operators/agents of this festival represented they would perform a service that would require the services of local persona and businesses. As with any economic opportunity, locals … simply expected to be paid based on the representations made,” Pedro Rolle, Exuma Chamber of Commerce president, said in an interview with Thrillist. 

Traditionally, music festivals have the ability to create temporary jobs for the host communities. The 2012 Coachella and Stagecoach music festivals generated over 3,000 temporary jobs alone in Indio, California. The original Fyre Festival promotional video to investors even outlined “the creation of hundreds of jobs for Bahamians” (perhaps they left out the payment part). In the Netflix documentary “Fyre: The Greatest Party That Never Was” cites that about a quarter of a million dollars are still owed to laborers. 

When dreams are built on empty promises, money stolen from investors and hopeful kids, and jobs created by plans that never actually succeed, the results can be extremely detrimental. Currently while serving his 6 year sentence, McFarland apparently has plans of publishing a memoir titled “Promythus: The God of Fyre,” handwriting it on over 800 pieces of paper and mailing it to his girlfriend to type up, according to New York magazine. He says he plans to use the profits from his book to pay off the $26 million in restitution. It is also reported that he and Ja Rule plan to have another Fyre Festival in the future. For con artists alike with immense egos, the legacy these grifters leave is also a key component in their minds. It doesn’t matter who they hurt in the process, in their minds they can do no wrong. McFarland has likened his novel to that of Jordan Belfort’s, who was sentenced to jail for manipulation of stocks and wrote a memoir that became the movie “The Wolf of Wall Street.” 

As if he doesn’t believe enough damage has been done already, the gifted grifter has made it clear he’ll be back and better than ever. 

Sources:

The New York Times: In Wreckage of the Fyre Festival, Fury, Lawsuits and an Inquiry
Nielsen 2018 U.S. Music 360 Report
Deloitte 2019 Global Millennial Survey
Vox: “Why are so many music festivals total disasters?”
LA Weekly: The economics of music festivals: who’s getting rich, who’s going broke?
U.S. Securities and Exchange Commission: SEC Charges Failed Fyre Festival Founder and Others With $27.4 Million Offering Fraud
Business Insider: This leaked Fyre Festival pitch deck shows how Billy McFarland was able to secure millions for the most overhyped festival in history
Thrillist: How Great Exuma’s Locals Are Managing After Fyre Fest, ‘The Greatest Party That Never Happened’
New York Magazine: This Is Billy McFarland’s Fyre Festival Comeback Plan

In 2010, Adam Neumann started office-rental company WeWork in New York City on the idea of community. With shared workspaces now throughout America, the concept gives small businesses and startups a coworking space to bring their ideas to fruition. Basically, it’s an elevated office space that’s private, but not too private, with communal areas supplied with “free” micro-roasted coffee, Foosball tables and state-of-the-art printers, and it costs a lot of money to rent (a single desk in Downtown L.A. averages $450 a month and an office is about $850).

In August of this year, the company publicly filed its IPO paperwork with a private valuation of $47 billion. Since its initial announcement about going public, the company has started to unravel. In its attempt at expansion, the company has lost a lot. For the six months prior to June 2019, the company reported a revenue of $1.54 billion but with net income loss of $900 million. In addition, Neumann has been criticized harshly for how he has run the company and how he treated WeWork as his “personal ATM.” For example, he trademarked “We Company” and as he expanded its brands to WeLive, WeGrow and WeMRKT, convinced his company to pay him $6 million for the privilege of using the name (he gave it back eventually and reluctantly after).

Only a month after its initial IPO filing, the company announced it would withdraw from its IPO. Neumann has since stepped down as CEO, remaining involved as chairman, renaming new co-CEOs and leaving the company in the hands of SoftBank, one of WeWork’s biggest investors to bail out the company. And they paid Neumann $1.7 billion to leave. 

It’s a strange case and one that many are still trying to figure out. The Atlantic commented that “WeWork’s free fall from a projected valuation of nearly $50 billion to just $5 billion will likely be taught in business school, immortalized in best-selling books, and debated among analysts for years.”

Just last Thursday, the company announced it would be laying off 2,400 employees, 20 percent of its workforce, with an expectation of laying off another 1,000 more. Those whose jobs don’t transfer will lose them and won’t be paid severance or benefits. This has sparked outrage, especially because Neumann has pocketed over $1 billion and has left WeWork relatively scot-free, probably to vacation in one of his five homes (which has totaled to $80 million). 

The future of the company is hazy. SoftBank has revealed no concrete plan other than the new $1.5 billion it has invested to bailout WeWork and a vague outline of selling another $3 billion in bonds to investors, which may not be enough to save the spiraling company. While many blame Neumann, the fault also lies in the hands of SoftBank, which grossly overvalued WeWork and invested $14 billion at the start. Zealously pouring money into startups can be a dangerous gamble (re: the infamous Elizabeth Holmes’ Theranos) leading to overvaluation, and it’s unclear as to how WeWork will pull itself up from the ashes.

Sources:

https://www.nytimes.com/2019/11/21/business/wework-layoffs.html

https://www.businessinsider.com/wework-ipo-timeline-delayed-ceo-adam-neumann-scandals-explained-2019-9

https://www.businessinsider.com/wework-ipo-timeline-delayed-ceo-adam-neumann-scandals-explained-2019-9

https://www.investopedia.com/articles/investing/082415/how-wework-works-and-makes-money.asp

https://www.businessinsider.com/the-founding-story-of-wework-2015-10

https://www.sec.gov/Archives/edgar/data/1533523/000119312519220499/d781982ds1.htm

This year, the United States’ fertility rate hit 59 births per 1,000 women, the lowest number it has been in 32 years, according to the Bureau of Labor Statistics. 

Since the Great Recession, the number of births has decreased due to the financial investment of having a child and how the recession took away resources that were necessary to support families. However, although the economy has since recovered, the fertility rate has not increased dramatically since. Many Americans cite the financial cost of raising a child as their primary reason for delaying child births. 

Several factors have contributed to the decline in childbearing. The overall decrease in teenage pregnancies, the availability of birth control, a shift in delaying marriage in favor of furthering personal careers and the higher cost of childcare and education have played roles in this decline. Women also cite that having better access to child care and stronger parental leave policies could spur more childbirths over the next years. 

Seventy percent of women in the U.S. today work outside the home, according to an article by Vox. On the one hand, more women in the workforce means more income tax being spent and the enjoyment of more disposable income. As we studied, consumer spending plays a large factor in GDP. In addition, with the need for specialized labor, a more educated workforce can create more opportunities for higher, advancing sectors that can stimulate the economy. Some also cite that lower fertility rates can be beneficial to ration our limited resources. 

On the other hand, declining birth rates can also have long-term effects. For one, the elderly population will increase creating an eventually-declining labor force and not enough people to work (much like in Japan).

The United Nations predicts that by the year 2100, 30 percent of the population will be made up of people ages 60 and above. With longer life expectancies, this can create an age imbalance that leaves a limited number of able-bodied people to work. Economists have predicted that this will create a rising need for increased healthcare, thereby also increasing its costs. With a smaller workforce, those who pay income taxes to fund these medical programs will also shrink as well. 

To increase the amount of people in the workforce, lawmakers have proposed keeping older people working longer, a solution that may not be feasible or welcomed. Another solution is relying on automation, artificial intelligence and robots to boost production and replace workers but this also has its limits. The last solution is to boost immigration to bring in more people who desire to work and fill jobs. If the U.S. is heading towards a recession by next year, there will be a chance that fertility rates will start to decline as people prepare for an economic slowdown, which can have overall negative effects on our economy.

Sources:

https://www.marketplace.org/2019/01/22/americans-are-having-fewer-babies-and-it-might-have-do-economy/

https://www.vox.com/science-and-health/2018/5/22/17376536/fertility-rate-united-states-births-women

https://www.businessinsider.com/dropping-fertility-rates-will-affect-the-economy-2016-11

https://money.cnn.com/2018/06/27/news/economy/arizona-birth-rates-economy/index.html

Known for its glaringly yellow shopping bags, paper-thin shirts and stores blasting bubblegum pop ballads, Forever 21 has marketed itself as a teenybopper retailer set on the rapid comings-and-goings of the fashion industry. At its peak only three years ago, the privately-owned, American fast-fashion company grossed $4.4 billion in annual sales, opened 800 stores globally and employed up to 43,000 people reported the New York Times.

Just last month, however, the retail giant announced it would be filing for Chapter 11 bankruptcy protection meaning the business will still operate but will restructure its debt repayments to investors. The founders said they’d be stopping production with 40 companies, shuttering 178 stores within the United States and closing up to 350 total brick-and-mortar locations worldwide. 

What became of the retailer which seemed to dominate every other mall and bring in hordes of teenagers and moms who wanted to preserve their inner 21-year-old? 

Two words: retail apocalypse. The term refers to the advent of online shopping and shifting consumer habits that has caused many retail stores to close, forcing many companies to declare bankruptcy.

Starting in 2017, malls through the United States saw closures of prominent stores. Major stores such as Payless ShoeSource, Abercrombie & Fitch, American Apparel, Gap Inc., Charlotte Russe, J.C. Penney, Michael Kors, Bed Bath and Beyond, and Toys ‘R Us have been affected by the retail apocalypse. Alarmingly, this was during a time when the economy was strong and unemployment was low.

Both department stores and middle-tier mall chains either went out of business completely or shifted their focus to online distribution. The average household spent $5,200 online in 2018, a figure that rose almost 50 percent from 2013, as reported by the Washington Post.

Of U.S. retail stores, 75,000 out of approximately 1 million will close by 2026, according to the Washington Post, with online shopping making up nearly a quarter of sales. However, this figure isn’t as high as years prior. During the 2001 recession, 151,000 stores closed and again during the 2008 recession, another 148,000 stores closed.

For Forever 21, the combination of the retail apocalypse plus the owners’ reluctance to allow the privately-held business to be managed by others led to its eventual downfall.

In 2017, the Atlantic published an article describing three of the major contributors to the retail apocalypse: the rise of e-commerce, the number of malls in existence and the shift in consumer spending from retail to restaurant consumption.

Currently, there are about 1,100 shopping malls nationwide. During the late 1950s, many malls in America were built on the idea of a communal ground for middle-class, suburban America. As much as it was a workplace for minimum wage jobs, it was also a meeting ground for anyone and everyone to socialize. At one point, mall developers had dreams of a futuristic destination spot that housed apartment buildings, office space and hospitals. Its popularity fueled the construction of more and more malls. Nowadays, malls are less of a destination and are seen as a place to run errands or bypass shipping fees. Forever 21 occupied many malls with leases that were too long and spaces that were too large for the amount of merchandise they sold, fueling its demise.

On the consumer demand end, behaviors and attitudes toward stores like Forever 21 and its competitors like Zara and H&M have also changed.

For Sarah Okamoto, a USC junior majoring in computer science, a big portion of her money went to buying clothing, mainly from Forever 21. About once a week over the span of six years, Okamoto spent over 35 percent of her income at its brick-and-mortar stores.

“I started to realize it was almost [becoming] like single-use clothing, and I realized I didn’t want to be spending money on those things,” Okamoto said. “More and more people began pointing out that it was a fast-fashion brand, and it was really harmful for the environment. I think as people started to move away from that and there became more sustainable clothing options, I didn’t really feel a need to keep shopping there.” 

In addition to consumers becoming more aware of the harmful environmental impacts of fast fashion, Okamoto cited the rise of minimalism, thrift shopping and cleaning guru Marie Kondo. These new trends may also affect what consumers want to see in-store now. Similarly, stores that sell similar items to Forever 21 such as Charlotte Russe and Claire’s have also filed for bankruptcy in recent years.

With the rise of other fast-fashion competitors who have made their success through social media marketing and online distribution, the question then remains if Forever 21 can pick themselves up enough to once again to meet the changing needs of consumers and thrive again in a world where more and more physical stores are shutting down.  

For those who earn more household income than qualified for Pell Grants but also make below the necessary means to bear the brunt of a costly higher education price tag, student loans are an attractive opportunity to finance an education. Christopher Ingraham for the Washington Post reported that American families carry more than $1.6 trillion in student debt or nearly 8 percent of national income. The number is striking, and it’s not going away any time soon. Since the 2000s, this figure has doubled, the Washington Post said.

With the pressure to earn a degree and an attractive promise of future opportunities, many bite the bullet and take out student loans. According to The Balance, the average U.S. graduate was straddled with over $39,400 in student debt in 2017. Some public service jobs and companies offer loan forgiveness opportunities for their employees, promising to pay off their worker’s college loans. Additionally, presidential candidates such as Bernie Sanders have expressed their plans to cancel student debt or make the cost of higher education free, making an attractive promise to those who understand the crippling weight of debt.

What are the implications of this financial burden? People are delaying marriage, investing less in small businesses, choosing not to buy homes and putting their income straight to paying off debt instead of saving for retirement, Ingraham said. And because of this, people aren’t spending as much money on goods and services. The Balance reported that individuals are less likely to seek out types of credit (like using credit cards or taking out car loans) because they are reluctant to borrow more money. As a result, lenders and banks receive less interest fees and slow spending affects businesses. 

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The real question, then, is if a college education is worth saddling piles of post-grad debt. CNBC referenced Twitter trends in which users encouraged other students to drop out of college because they claimed the student debt wasn’t worth it. 

Unfortunately, there is no clear answer because traditionally, a college degree is synonymous with upward mobility and higher earning potential. It’s almost universally acknowledged, in America at least, that to be competitive in the job market, having a bachelor’s degree is the baseline expectancy. 

Thirty-six percent of college graduates say their degree wasn’t worth it, according to CNBC, but experts say it’s still valuable. If basic economics centers around supply and demand, the demand for a college degree is higher than ever before, driving up the price of attaining one. Still, the solutions are bleak. The CNBC article says to avoid too much student debt, choose a more affordable college (advice that offers little solutions, in my humble opinion), and an author quoted in the piece says, “Don’t buy the typical advice that everyone seems to be throwing around these days saying college loans are the worst thing on earth. They’re not.” Still, delaying a family and withholding home-ownership sounds pretty rough to me. In the end, like most things, opportunities are a pay-to-play game and college is no exception with broader economic implications.

In his book “Misbehaving,” behavioral economist Richard Thaler analyzed a 2011 study by Justine Hastings and Jesse Shapiro which explored the relationship on spending and gas prices. The study found that during the 2008 financial crisis, when gas prices fell 50 percent from $4 a gallon to $2 a gallon, the money that was saved on buying regular gasoline ended up being spent on premium gasoline instead. Instead of pocketing the money in case of an emergency or allocating the extra cash elsewhere, car drivers viewed their decision to upgrade gas as a splurge. 

If households view premium gasoline as a splurge, then gas may be seen as an economic indicator. By definition, an economic indicator is used to predict investment possibilities and assess the economy’s overall health. In the same way that women view cosmetics like lipstick as an affordable splurge during hard times, an increase in buying premium gasoline can be an indicator of an economic fall. 

Gas is a frequent and telling purchase. 85 percent of Americans either drive alone or carpool to work each day, according to American Community Service data, and there are over 115 million cars on the roads each day. 

Although it may seem counterintuitive to be spending more on a higher grade of gasduring a recession, Thaler attributes this seemingly irrational behavior to a concept he termed “mental accounting,” meaning that consumers all have mental spending “buckets” that are largely separate and unchangeable. For example, the study found that a save in filling up a driver’s gas tank did not readily translate to a consumer using the extra money to upgrade their orange juice or milk choices.

Another study conducted by the American Automobile Association found that 16.5 million motorists in the United States purchase premium gas. However, 70 percent of cars driven in the U.S. require only regular gas. The study estimates that purchasing premium gas wasted $2.1 billion in 2016 because motorists perceive premium gas as better for their engines when in reality, it is an unnecessary purchase. Despite the state of the global financial crisis in 2008, spending on premium grade gasoline rose by 14 times the usual amount even more so than normal, according to the Hasting and Shapiro study.

In April of this year, the L.A. Times reported that gas prices rose to over $4 a gallon for the first time in four years. While the price of gas itself may be seen as an economic indicator, the amount of spending on premium grade gasoline can also chart economic changes. When gas prices go down during periods of economic recession, the purchase of premium grade fuel may go up due to its now-affordability as a splurge item, signaling an economic downturn. As gas prices rise, more consumers have forgone splurging on premium and have settled for regular due its lower cost because in their minds, they don’t have any discretionary funds from their gas money “bucket” to pay for better quality fuel.