What Happens When a Concert Tour Is Canceled? An Insurance Expert Answers the Million-Dollar Question

An insurance expert answers burning questions about what happens when an artist cancels a tour

• Amid a slew of concert cancellations, an insurance expert answers questions about what happens to all the money at stake

• Cancellations due to things out of an artist's control, like medical reasons, are typically covered

• Insurance will cover typically between 75 and 80% of the guaranteed fee that the promoter was paying the artist

In late May, The Black Keys announced that they’d be pumping the brakes on their upcoming North American tour, and planned to offer fans a more “intimate experience” than the arenas they’d had planned. Then, days later, Jennifer Lopez announced the cancellation of her This Is Me…Live tour, saying she was taking time off to be with her family and friends.

The canceled tour phenomenon is not now; over the last few years, major music players have either canceled shows or rescheduled, from Aerosmith and Madonna to Bruce Springsteen, Heart and the Jonas Brothers.

When a show is canceled, artists and their promoters (including industry titans like Live Nation Entertainment and AEG Presents) will often tell fans that the money they spent on their ticket will automatically be refunded — but what happens to the rest of the money?

According to Paul Bassman, managing director at Higginbotham Insurance, artists and their teams purchase cancellation insurance policies ahead of major tours to protect the artist from financial harm should the tour be canceled.

These policies are generally deemed "all risk" policies, meaning they cover cancellations for just about any reason, other than what is expressly excluded.

Related: Jennifer Lopez Cancels Tour to Spend Time with Her Family and Friends: 'I Am Completely Heartsick'

“Generally speaking, it’s cancellations that are within your control that are covered,” he explains to PEOPLE. “Personal reasons would not typically be a covered cause of loss, unless that personal reason was the sickness or illness or death of a close family member that was either named on the policy, or included in what’s called a family extension endorsement.”

Medical reasons and family emergencies are typically covered — but canceling a show due to low ticket sales is not. Still, when it comes to concerts, insurance will cover typically between 75 and 80% of the guaranteed fee that the promoter was paying the artist.

“They typically limit the amount that you’re able to cover under their policy so the artist is not putting themselves in a better position than they would’ve been otherwise,” he says. “They ensure a percentage of the guarantees for sickness, illness, death, God forbid, or whatever reason that wouldn’t be excluded under the policy. The insurance proceeds are what pays for the dancers and the production and the buses that you’ve already leased out, and the planes you’ve already rented, or whatever it may be. That all comes out of that pot of money that’s given to you by the insurance carriers.”

But what insurance doesn’t cover doesn’t necessarily come out of the artists’ pocket. Though contracts differ, Live Nation or another promoter would typically be the one to eat some costs — but things vary.

“For the most part, if the show is canceled, then you go your own ways and cover your own expenses,” he says. “There could be a provision in there that says if it’s canceled within 30 days of the show, then you have to cover our expenses. But it’s all just depending on the agreement with the promoter.”

Sometimes, Bassman says, promoters will cut their losses if a show is not selling well, opting to take a kill fee in order to save money in the long run.

“If I had $50 million in guarantees out on an artist and the tour is selling miserably and I could get out of it for $10 to $15 million, yeah, I think that’s a good idea,” he says. “It’s going to be painful, but it’s better than $50 [million].”

Bassman, who says a “huge part” of his business is festival cancellation insurance, says in his personal experience, he’s seen cancellations with losses of “tens of millions” of dollars. He cites blues musician Joe Bonamassa as another example. Bonamassa’s tour was canceled because of COVID, and because the exclusion for “communicable disease” had been removed from his contract, he received $4.4 million in insurance money from the canceled tour, a sum based on what his estimated revenue was going to be.

Though it may be a pain for a venue to deal with a last-minute cancellation, it’s not always the end of the world. Sometimes the venue and the promoter agree to a partnership, where they’ll each take the loss and the gain equally, and other times, they’ll simply rent the space for a flat, non-refundable fee.

Related: Heart Cancels European Tour as Ann Wilson Must Have 'Time-Sensitive but Routine Medical Procedure'

“[Sometimes] the venue’s like, ‘You’re paying us $100,000, $200,000 or whatever the rental fee is, you’re paying us this much no matter what, non-refundable.’ [Upon cancellation] the venue might just be like, ‘Eh, we’re dark tonight. Big deal. We got paid,’” says Bassman.

Still, the venue would lose ancillaries, like parking and concessions. A Wall Street Journal report from October estimated that a sudden cancellation could cost an arena an estimated $500,000 in revenue, while a canceled stadium show could cost $1 million or more.

As for how it’s decided where an artist will play on tour, whether it be small theaters or larger arenas, that’s a collaboration between the artist’s manager, booking agent and promoter.

“They collectively decide what size room they’re going to play, what the ticket price is going to be, and where it’s going to play and all that,” he says. “It’s like throwing a dart — sometimes you get it right, sometimes you get it wrong.”

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