Jackson's Concerts Highlight Risky Business

July 6, 2009— -- The mess of cancelled concerts and mass ticket refunds that follow the death of Michael Jackson have turned the spotlight behind the stage and onto some of the most risk-prone players in the music industry: concert promoters.

Even before Jackson's death, music, insurance and legal circles were buzzing about the risk that concert promoter AEG Live was taking on by staging Jackson's 50-concert London series.

"He's been sued so many times, was known not to show up, had health problems, and was believed to have drug problem," a Jackson associate told ABCNews.com. "Nobody would touch him."

Jackson's dubious reputation stemmed from no fewer than three lawsuits filed against him by concert promoters angry about concert cancellations, as well as worries that the pop star was addicted to Demerol, OxyContin and other drugs.

AEG's Jackson woes aside, experts and industry watchers say that, generally, what makes concert promotion such as risky business is concerns about ticket sales. Because the profit margins for promoters are so slim -- generally in the range of five percent or less -- they rely on close-to-capacity crowds to stay in the black.

"It can be very expensive," said Gary Bongiovanni, the editor of the concert magazine Pollstar. "Lots of promoters are gamblers by nature."

But, sometimes, as Jackson's case has shown, ticket sales take a back seat to other problems. While a death like Jackson's represents the worst-case scenario, everything from minor illnesses to major health problems to security concerns have scuttled big concerts.

Security concerns have loomed especially large at hip hop concerts, in particular. In 2002, for instance, police shut down a rap concert featuring L.L. Cool J, Nelly and Ja Rule, and arrested 30 people after suspected gang members attacked audience members with metal pipes. Last year, in Washington State, riotous fans overturned a police car during a concert by the rap duo Dead Prez.

Rap and hip hop concerts can attract "gang-mentality types of people," said Eric Moody, an entertainment insurance broker at Frankel & Associates Insurance Services in California.

"They're a lot more prone to fights and disputes," he said.

The Show Must Go On?

Then there are the concerts that get axed because stars are battling their own demons. Hard-partying British singer Amy Winehouse, for instance, cancelled a May 31 comeback show and may be returning to rehab, according to the Daily Mirror. Winehouse had previously pulled out of concerts in 2007 and 2008. (A U.S. representative for Winehouse said fans are notified of her concert cancellations in advance and "there's never been a situation where people paid for a show and arrived and she cancelled.")

Rapper DMX, Moody said, is also notorious for cancelling shows.

"He's just a temperamental artist and he cancels a lot of shows," Moody said. "It's quite annoying."

A representative for DMX could not be reached for comment.

Illnesses, meanwhile, can force concert cancellations among even the most determined performers. In 1987, for instance, singing during a rain shower in Italy reportedly brought on a case of laryngitis for the legendary crooner Frank Sinatra, who then ended up cancelling a concert two days later. In 2006, the Rolling Stones canceled a concert in St. Petersburg, Russia, after guitarist Keith Richard suffered a head injury.

Jackson's sister, singer Janet Jackson, had her own concert troubles after suffering from a rare form of migraine headache, the singer told the entertainment TV show "The Insider." The headaches led the singer to postpone dates on her "Rock Witchu" tour last year.

When a performer does pull out of a show, he or she often is able to find an amicable resolution with the promoters by re-scheduling the concert, said Jerry Mickelson, the owner of Chicago-based Jam Productions.

"If the performer didn't show up, they'll typically make it up," Mickelson said. "It's a business -- they can't afford to cancel. They need the money just like anybody else."

Jackson, however, had a poor history of reconciling with promoters -- when he cancelled shows, he often wound up in court. In 1993, promoter Marcel Avram, the owner of Munich-based Mama Concert, sued Jackson for $20 million for cancelling his "Dangerous" world tour. The suit alleged that the singer hid an addiction to morphine and Demerol.

The following year, a Chilean promotions company sued Jackson for $5 million for canceling two concerts, one in Chile and another in Peru. The company said Jackson cancelled because of a "back ache" but a lawyer for the company told the media that they didn't believe the excuse.

In 2000, Avram took Jackson to court again, this time suing the pop star for $21.2 million for pulling out of two New Year's Eve concerts. Those cancelled concerts, Avram alleged, left him $11 million in the red and resulted in another $10 million in lost profits.

But such a litigious history and Jackson's reported health problems weren't enough to scare off AEG. Concert organizers told ABC News they believed Jackson was ready for the 50-show run, especially given the careful way this particular concert series was organized.

"We are talking about 50 shows in one city, no travel and living in a beautiful estate in London," AEG Live CEO Randy Phillips said. "He was going to average two and a quarter shows a week."

Taking Major Pains for a Major Star

Limiting the stress on Jackson's schedule was one of many, some would say, extraordinary precautions AEG took to make sure its star was stage-ready. At the pop star's request, AEG paid for Jackson's personal cardiologist to accompany him in London.

Jackson "looked me in the eye [and said], 'Look, this is the machine,' pointing to his body. 'This is the machine, that fuels this entire business, OK? ... I need a doctor 24/7,'" Phillips told ABC News.

Organizers also monitored Jackson's eating habits.

Choreographer Kenny Ortega "would cut his chicken breast and feed him," Phillips said. " ...In the last week, I brought in someone whose sole purpose was to remind him to eat. That was my biggest concern, was his weight."

To further safeguard its investment in Jackson, AEG took out multiple insurance policies on the shows and was able to secure $25 million in insurance coverage through Lloyd's of London, a highly-placed source within the insurance industry told ABC News.

Experts say that while promoters may be loathe to shell out money to buy insurance for smaller acts, it's not unusual for promoters to buy cancellation and "non-appearance" insurance -- which specifically protects against a performer's absence -- for major stars. That, after all, is when millions of dollars are at stake.

Cancellation and non-appearance insurance can run tens of thousands of dollars per show, Moody said.

But, he added, "even if they paid $100,000 per concert for the cancellation and non-appearance, it's still worth it for a mega-headliner."

While AEG hasn't said how much it paid for Jackson's insurance, experts say that Jackson's history likely meant the company had to pay fairly high premiums.

Jackson "was basically blacklisted from doing concerts" without the benefit of a high-cost insurance, a Jackson associate told ABCNews.com.

For non-appearance insurance, in particular, underwriters require performers to undergo physicals. Jackson's physical lasted five hours and included "a battery of tests," Phillips told ABC News.

Insurance Uncertainty

Both the physical and a star's history will determine how much an insurance company charges, said Candysse Miller, the executive director of the Insurance Information Network of California.

"Whether it's an entertainer, a car or home, [insurance is about] trying to somehow put a dollar value on the risk," Miller said. "If I live on top of the San Andreas fault, I'm going to pay a lot more for earthquake insurance."

But even high-priced insurance isn't a safe bet. In 2005, Britney Spears and her tour production company, Britney Spears Touring Inc., sued eight different insurance companies after they declined to compensate her for about $9.8 million in losses for shows canceled in Chicago and Detroit. Spears canceled the shows because of a knee injury, but insurers declined her claim, alleging she failed to report having had knee surgery five years earlier.

The insurers argued that they would have denied coverage in the first place had they known about the surgery.

The case was eventually dismissed; Spears' lawyer would not comment on whether a settlement had been reached with the singer.

How much AEG will recover through the insurance policies on its Jackson concerts, meanwhile, remains unclear. AEG's Phillips told the Associated Press that the company will receive an insurance payout if Jackson is determined to have died of accidental causes, including a drug overdose. But natural causes of death, Phillips said, won't be covered.

Even under a full, $25 million payout, AEG wouldn't recover all its costs -- Phillips told the Associated Press he spent $25 to $30 million on Jackson's advance, while Billboard reports that AEG sunk as much as $30 million into concert production costs.

The company could, however, break even, thanks to sentimental fans. Phillips said that 40 percent to 50 percent of concert ticket-buyers have decided to forego full refunds. They're keeping their unused tickets as memorabilia instead.

ABC News' Richard Esposito, Eileen Murphy and Nathalie Tadena contributed to this report.