Why a growing event business runs on negative working capital and what breaks it

A private equity analyst reading an events group for the first time gets to the balance sheet and stops. Your deferred revenue on its own is larger than every current asset you hold, so how is this business solvent.

It is a fair question with a boring answer, and the answer is the whole model. A negative working capital event business is what you get when customers pay a year before delivery and suppliers get paid a month after it. The interesting part is the direction of travel, because the same mechanism that hands you free funding on the way up takes it back on the way down, and it does so without touching reported profit.

What negative working capital means for an event business

Working capital is current assets less current liabilities. The events version turns negative because of one line.

The Financial Accounting Standards Board set the rule in ASC 606-10-45-2, issued through Accounting Standards Update 2014-09 in May 2014. "If a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (that is, a receivable), before the entity transfers a good or service to the customer, the entity shall present the contract as a contract liability when the payment is made or the payment is due (whichever is earlier)." The Master Glossary in the same update defines a contract liability as "an entity's obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer."

An organiser bills a June show from the previous June. Every one of those invoices lands on the liability side and stays there until the show runs. Nothing offsets it on the asset side except the cash it brought in, and cash gets spent, distributed or used to repay debt.

Emerald Holding states the position in its own words in the Form 10-Q for the quarter ended 30 June 2025, describing favourable cash flow characteristics that come from high profit margins, low capital expenditure and consistent negative working capital excluding cash on hand. The filing then names the consequence: the implication of having negative working capital excluding cash on hand is that changes in working capital represent a source of cash as the business grows.

What it looks like on two filed balance sheets

Emerald reported total current assets of 279.0 million dollars and total current liabilities of 264.7 million at 30 June 2025. On the face of it that is a current ratio of 1.05 and nothing to discuss.

Take the cash out. Cash and equivalents were 156.4 million, so current assets excluding cash were 122.6 million against 264.7 million of current liabilities, a deficit of 142.1 million. Deferred revenues alone were 199.9 million of that liability total. At 31 December 2024 the same calculation gives 112.1 million against 241.3 million, a deficit of 129.2 million, so the position deepened by 12.9 million across the half.

Informa PLC's 2025 full year results show the same shape at a different scale. Total current assets were 1,096.3 million pounds against total current liabilities of 2,503.7 million. Deferred income by itself was 1,169.2 million, which exceeds every current asset the group holds, cash included, by 72.9 million.

Neither company is distressed. Both are describing an industry where the customer funds the working capital cycle and the organiser holds the money in the meantime.

Why does growth generate cash on its own?

Because the funding scales with the book. If the forward book is 10 per cent bigger this year than last, the liability that funds it is roughly 10 per cent bigger too, and the difference arrives as cash with no profit attached.

Put numbers on it. A portfolio carrying 41.0 million of deferred revenue at the start of a year, growing its book 10 per cent with payment terms unchanged, ends the year at 45.1 million and has taken in 4.1 million of cash beyond whatever it earned. Do that for five consecutive years and the compounded balance reaches 66.0 million, so the cumulative release is 25.0 million of cash that never appeared in operating profit.

That is a genuine funding source and it behaves like a loan from your exhibitors on which no interest is payable. It has one property lenders do not: the principal is repayable only if the business shrinks, and nobody sends a demand.

The reason this catches people out is that the funding is invisible in the profit and loss. Two organisers with identical margins, identical revenue and identical growth will report identical operating profit while one generates several million more of operating cash in a growth year, purely because its deposit terms are heavier. The measure that exposes it is the contracted book measured on a fixed basis, which most organisers publish and few define tightly enough to compare.

The worked reversal

Now run the same portfolio through a year where the book goes backwards.

Revenue is 39.2 million and operating profit is 11.8 million, both flat against the prior year. Depreciation and amortisation is 1.2 million, so operating cash before working capital is 13.0 million in either year.

In the good year, deferred revenue rose from 37.4 million to 41.0 million, a 3.6 million inflow, and other working capital contributed 0.1 million. Operating cash flow was 13.0 plus 3.6 plus 0.1, which is 16.7 million, a conversion of 141.5 per cent against operating profit.

In the bad year, deferred revenue falls from 41.0 million to 36.2 million. That 4.8 million absorbs cash. Other working capital contributes 0.3 million. Operating cash flow becomes 13.0 less 4.8 plus 0.3, which is 8.5 million, a conversion of 72.0 per cent.

Reported operating profit is 11.8 million in both years. Operating cash flow swings 8.2 million and conversion falls 69.5 percentage points. Every line of the profit and loss says nothing happened.

What makes this worse in practice is that most of the 4.8 million usually has an administrative cause. On a portfolio like this one, a show whose date moves from February to April is further from doors at the balance date and has not yet issued its balance invoices, and a deposit percentage cut to defend against a competitor resets the balance permanently in a single year. Only the remainder is trading. Separating those causes is a diagnosis to run on the balance itself before anybody presents the cash number.

What breaks it

Five things reverse the funding, and they can arrive together.

A shrinking book. The mechanism above, running backwards. The first year of a portfolio decline costs cash twice, once in lost profit and once in repaid funding.

Dates moving later. A January edition becoming an April edition takes its whole pre-billed balance out of the year end position. Full year revenue is untouched.

Terms softening. Cutting the signature deposit from 50 per cent to 30 per cent to win exhibitors from a competitor is a one-time reset of the entire balance, and the cost lands in whichever year you do it.

Disposals. Selling a show hands the buyer the obligation and the deferred balance with it. The cash that funded it has usually already been spent elsewhere in the group.

Cancellation. The liability converts into refunds payable now, against costs that are already sunk.

Should a business fund itself on deferred revenue?

Yes, and with a written limit, which is a less popular answer than either extreme.

The version I would run has two rules. The first is a liquidity floor measured as cash less the deferred revenue on every edition inside 120 days of doors, tested monthly. That figure is what the business would still hold if the near-term shows all cancelled and every exhibitor was refunded, and it is the only cash number in an events group that answers the question a lender is actually asking.

The second rule is that the deferred balance never funds an increase in fixed cost. Deferred revenue delivers one release of cash per unit of growth, and a permanent headcount or a longer lease is a recurring commitment. Funding the second from the first works for exactly as long as growth continues, which is a bet the calendar can lose for you without any commercial failure at all. Capital expenditure, launches and buybacks are fair game, since each of those can stop.

Where this stops

Working capital excluding cash is a presentation cut, and no standard defines it. Emerald uses it because it describes its own model, and it is genuinely more informative than the headline ratio, but a reader comparing it across companies has to check that both took the same things out.

It is also a snapshot at one date, and in this industry the date does most of the work. Informa's deferred income moved from 1,166.6 million to 1,169.2 million pounds across 2025, a rise of 2.6 million or 0.2 per cent, in a year when reported revenue grew 13.7 per cent to 4,041.4 million. Almost nothing about that balance movement describes the trading year. It describes which shows happened to sit just after 31 December.

And the whole measure is silent on quality. A large deferred balance built on a show whose venue cost has doubled is a large obligation to deliver at a thin margin, and the cash flow statement will look excellent right up until the edition runs. The timing of both sides on a single show is worth laying out month by month before anybody draws a conclusion from the group total.

Take your last two year end balance sheets and calculate current assets less cash against current liabilities for both. Then split the change in the deferred revenue line into date moves, terms changes and genuine book movement, and see how much of your best cash year was trading. Put that split next to the cash number in the next event finance pack, because only the trading part of it is going to repeat.