How Cirque Du Soleil Plans To Survive The Virus

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G THE GLOBE AND M AIL

RE P O RT O N BUS I N ES S

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MON DAY , A P R IL 6, 2020

How Cirque du Soleil plans to survive the virus Brand’s rebirth will require carefully choosing markets where performers are available – and where cash will flow quickly NICOLAS VAN PRAET

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irque du Soleil chief executive Daniel Lamarre says the strength of its brand will ensure it survives the coronavirus pandemic. In fact, he’s counting on it. Sitting a safe distance across a wide boardroom table at Cirque’s Montreal headquarters – normally a hive of activity but today deserted – the slightly built CEO is blunt about the crisis his company is in and the unique challenges it faces as it tries to stave off bankruptcy. There is no sugarcoating the extent of the adversity. Revenue at Cirque has plummeted to zero as all its 44 shows crashed to a sudden halt. About 4,700 employees have been laid off. Cash is tight and about US$1billion of debt sits on the balance sheet. Still, Cirque’s existence is not in jeopardy, he says. He sees the firm as a global icon with nearlyunmatched ability to draw paying customers, a cultural cornerstone in Quebec that the province’s institutional power brokers will not abandon. Besides, he says, it’s profitable in normal times even if it faces a massive liquidity crunch now. “We are one of the most amazing brands in the world,” Mr. Lamarre says. “No investor with a straight mind will let it go.” Negotiations are now under way between shareholders, notably Texas-based private equity firm TPG Capital and pension fund giant Caisse de dépôt et placement du Québec, on a financial restructuring that will satisfy creditors and find a way out. The Quebec government is involved through its investment arm. A bankruptcy protection filing remains a possibility, Mr. Lamarre says. But the firm is also hoping it can soon reopen shows in carefully chosen markets as the pandemic wanes and get revenue flowing again. The coronavirus outbreak has cut fast and deep across the world, hitting the consumer-sensitive entertainment sector particularly hard. Cirque operates 10 resident shows, 13 touring shows and 21 shows under affiliated brands, including the Blue Man Group. Because it has to make upfront investments for travelling shows and plans its performances well in advance, it has little wiggle room when things don’t proceed as expected. Cirque felt the pain first in China, where the virus is believed to have originated, shutting down its one show in the city of Hangzhou in January. A few weeks later, it was Europe. The company’s first big casualty came in Italy, where two shows were set to open but never did. “The promoter there kept calling us every day saying ‘I’m not sure we’re going to be able to present the show,” Mr. Lamarre re-

Daniel Lamarre, president and chief executive of Cirque du Soleil, says ‘no investor with a straight mind’ will let the brand go, even though it is facing a massive liquidity crunch. CHRISTINNE MUSCHI/THE GLOBE AND MAIL

calls. “We had quite a lot of tickets sold and it was going well. And then kaboom.” As the virus and the measures to fight it spread across the continent, Cirque struggled to keep up with the developments. Things were moving so quickly that executives held meetings and developed strategies that were obsolete by the time the meetings were done. Eventually, all Cirque shows in Europe were suspended. The final major blow came in mid-March when Nevada ordered all non-essential businesses in the state to close to limit human contact. Cirque counts on a partnership with Las Vegas casino operator MGM Resorts for about 35 per cent of its US$950million annual revenue, according to a Moody’s Investors Service estimate. With Cirque’s permanent shows in Sin City shut down, one-third of its sales vanished in one swoop. With no revenue coming in, Cirque quickly decided it had no other option but to slash costs. On March 19, the company announced it would lay off 95 per cent of its roughly 4,700 employees, keeping only a core group of staffers to manage the crisis and plan for a resumption of the business. Mr. Lamarre calls this his “SWAT team.” The CEO broke the news to staff in a video message. Then he and his crisis team set back to work repatriating the last of about 2,000 employees in 30 different cities around the world back to their homes, racing as airlines were cancelling flights and countries closed their borders. Another team secured Cirque’s pricey touring equipment in various locations across the globe, placing 483 trucks loaded with big-top materials into warehouse storage when all was said and done. The key now, operationally, is getting the timing and resourcedistribution right to make sure Cirque’s logistically complex live shows are up and running quickly when authorities permit. It’s

crucial that the company spend money where it counts to get maximum cash flow coming in the door, which means keeping daily tabs on which of the 450 cities where the company tours could back first and where to dispatch resources. The planning will be tricky. Demand for Cirque’s entertainment is already coming back in China, Korea, and Singapore, where local promoters want to start selling tickets again, the CEO says.

As the virus and the measures to fight it spread across the continent, Cirque struggled to keep up with the developments. Things were moving so quickly that executives held meetings and developed strategies that were obsolete by the time the meetings were done. But most borders are still closed, so Cirque cannot send back its international artists at the moment, forcing the company to develop backup plans. For example, for its Land of Fantasy permanent show in China, Cirque is weighing whether it could recruit more locally-based artists. Half of its performers working there came from other countries while the other half were Chinese. Cirque says it is working with its local partner and authorities on plans for a safe resumption of performances. The task will be easier for Cirque’s permanent shows in Las Vegas because the cast and crew live in the city. Circus troupe staff are currently doing regular visits of theatres and venues to make sure that all the equipment is working properly to ensure there’s no false start. It would take three weeks from

the moment everyone is on-site to be able to restart performances, Mr. Lamarre says. The troupe will likely focus first on its 10 socalled super markets, cities such as London and Los Angeles where demand has been historically strong and predictable, he said. That’s not to say things will magically return to normal for Cirque. The company has invested $500-million in new-format productions and acquisitions over the past several years, buying Blue Man Group and VStar Entertainment Group among other properties. It has also veered out of its comfort zone with some shows that have flopped, fuelling criticism that the company has overextended itself. R.U.N., a Vegas show featuring movie-style stunts instead of acrobatic circus acts, shut down in March after four months. Mr. Lamarre says there is no doubt that the company will dial back its ambition going forward, which means reducing spending on new show development. Plans to take the company public are almost certainly on ice. TPG controls Cirque after buying a roughly 55-per-cent interest in the company from founder Guy Laliberté in 2015, while Chinese fund manager Fosun Capital Group bought about 25 per cent and the Caisse took 10 per cent. In a deal announced in February, the Caisse bought out Mr. Laliberté and boosted its stake to 20 per cent. TPG and Caisse said they are working with Cirque closely to manage through the crisis but would not comment on their intentions. Mr. Lamarre calls the Caisse’s increased involvement in Cirque “a blessing.” The pension fund last month earmarked $4-billion to support Quebec companies hurt by the current crisis, saying it would provide liquidity to profitable companies in need regardless of whether or not they are among its current investment

holdings. Quebec also confirmed its intent to see the entertainment company through the current crisis. “We will help Cirque to make sure that its liquidity, after its layoffs, is sufficient so they can survive this period,” Economy Minister Pierre Fitzgibbon told reporters last week. But even if Cirque manages to engineer a deal with its investors and creditors that secures a tenable capital structure, there will be further pressure on the company’s operating flexibility once shows resume, according to Moody’s analyst Whitney Leavens. Among the reasons are its weak liquidity position, soft demand for its shows and challenging economic conditions. “The discretionary nature of the product and prolonged economic weakness will exacerbate the company’s operating earnings and cash flow volatility,” she says in a recent note. Mr. Lamarre is optimistic that his live entertainment will draw people back once the public lockdowns lift, although he does not expect a rush on ticket sales. He says he will reopen shows gradually over several months, testing the demand and making adjustments in response. Every ticket sold after a show reaches 50 per cent capacity is pure profit for the company, the CEO says. So even a performance that is 60 per cent full still makes money. His confidence is bolstered by a test last week. Cirque posted a special 60-minute video highlight reel of three current shows on YouTube and Facebook to measure engagement. The video received 6.3 million views on the two platforms combined and generated another seven million visits to the Cirque website. The current crisis is affecting how we interact as human beings, increasing the physical and emotional distance between us, says Patrick Leroux, a professor and associate dean of research at Concordia University who has written on the circus industry. But that won’t last forever. Humans are social and vicarious by nature, Mr. Leroux says. Once we feel safe again, we’ll be back together in droves, enjoying the types of live, thrilling shows Cirque offers. “Virtual reality, video, couchlounging live streaming will never measure up to the real thing,” he says. “Recorded live performances only remind us that we were not there, that we missed out. During the pandemic, there is a sense of unity, of a shared experience in mediated experience. Afterward, we will want to experience the real thing.” Mr. Lamarre is philosophical in talking about what motivates him to work through the current hardship, by far the hardest Cirque has ever faced. “I cannot wait to call our people and say ‘Hey you can come back home,” he says. “And home for us is not this building. Home for us is the big tent. … A lot of us could be very depressed today and I could, too. But that’s not what feeds me today. What feeds me is saying ‘My God, if we as a [crisis] group, are not fighting for these 4,700 people, who is going to do that?’”

Students left in tight spot over ineligibility for COVID-19 benefits MATT LUNDY ECONOMICS REPORTER

Prime Minister Justin Trudeau on Sunday said the government “should have more to say in the coming days” about helping postsecondary students who will soon join a brutal job market, which is ratcheting up pressure on those who need summer income to pay for fall tuition. “We know that we need to do more for young people as they come out of university and look for projects and ways of securing income this summer,” Mr. Trudeau said in his daily press briefing. As it stands, many postsecondary students are shut out of existing programs designed to help workers affected by COVID-19. For instance, the Canada Emergency Response Benefit (CERB) – which provides eligible individuals with $2,000 monthly for up to four months – “is only available to individuals who stopped work as a result of reasons related to COVID-19,” a government webpage says. “For example, if you are a student who had a job last year and were planning on working this summer, you do not qualify

for the benefit.” As the school year winds down, students find themselves in a troubling spot. The labour market is shedding positions at an unprecedented pace, with more than two million Canadians filing for jobless benefits during the last half of March. Many students were counting on summer work to fund their studies, but are now seeing job opportunities scrapped because of the pandemic. “I can count on one hand the number [of my students] who have jobs lined up,” said Rob Gillezeau, an economics professor at the University of Victoria. “This cohort is taking a huge hit.” It’s likely hundreds of thousands of students are ineligible for federal programs for financial assistance. More than 2.1 million people were enrolled in Canadian public universities and colleges during the 2017-18 academic year, according to the most recent Statistics Canada figures. Between September and April, fewer than one million students are typically employed in a given month, and the majority work part-time hours. As such, some working students haven’t clocked enough

hours or income to qualify for employment insurance or CERB. Liz Weston, a marine biology student at Dalhousie University in Halifax, can no longer work at a campus library because it’s shut down.

It’s likely hundreds of thousands of students are ineligible for federal programs for financial assistance. More than 2.1 million people were enrolled in Canadian public universities and colleges during the 2017-18 academic year, according to the most recent Statistics Canada figures. Unfortunately for her, she doesn’t meet CERB’s $5,000 workincome requirement for 2019 or the 12 months prior to application, in large part because she spent much of last year in cancer treatment. (Ms. Weston is now in remission.) Her partner was recently laid off and the couple’s fi-

nancial pressures could lead to some tough decisions. “We’ll have to decide whether or not I get my medication,” said Ms. Weston, who has asthma. “Or we’ll have to decide if we’re going to eat Kraft Dinner, instead of having protein in our diets.” Many students had jobs lined up and expected a steady flow of income. Joshua Diemert, who’s finishing the first year of a master’s program at the University of British Columbia, was supposed to start an internship with Global Affairs Canada next month, but that’s been put on hold. Worst-case scenario, if that position falls through, Mr. Diemert will try to work a service-industry job – but it will almost certainly pay less than what he was supposed to earn. “Like a lot of students, my yearly budget is based on a good paying summer job,” he said. “I don’t see a lot of help on the policy side right now for people in my situation.” Samuel Wiggans, a University of Ottawa teaching student, is unable to finish his practicum at an elementary school. He’s trying to find summer work, but “the postings are definitely down signifi-

cantly,” he said. Over the past year, he relied on savings, provincial student loans and his wife for financial assistance. He has a line of credit, but doesn’t want to touch it. “Next [school] year would be a lot tougher without being able to work this summer, because we were depending on me being able to have four months of income,” Mr. Wiggans said. British Columbia has moved to help by investing $3.5-million into an existing program for emergency student financial assistance. Prof. Gillezeau said that could realistically help a couple of thousand students, but the need is likely in the tens of thousands. Another way to help, Prof. Gillezeau said, would be expanding who can qualify for CERB, such as graduates who are set to embark on their careers during a nasty recession. Provincial income-assistance programs could open up to allow student eligibility, he added, and existing student-loan programs could be used to direct grants to those in need. “I see very little risk when it comes to dealing with students – either at the provincial or at the federal level – of just being more generous,” he said.