<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q



     [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                    For the quarter ended September 30, 1998

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                        For the transition period from to

                        Commission file number: 000-24017


                             SFX ENTERTAINMENT, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                   DELAWARE                        13-3977880
        (State or other jurisdiction of        (I.R.S. Employer
         incorporation or organization)       Identification No.)


                         650 MADISON AVENUE, 16TH FLOOR
                            NEW YORK, NEW YORK 10155
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (212)-838-3100
                         (REGISTRANT'S TELEPHONE NUMBER)


Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

Yes [X]    No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of November 11, 1998, the
number of shares outstanding of the Registrant's Class A Common Stock, $.01 par
value, and Class B Common Stock, $.01 par value, was 28,753,194 and 1,697,037,
respectively.


<PAGE>


                    SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
                     INDEX TO QUARTERLY REPORT ON FORM 10-Q

<TABLE>
<CAPTION>

                                                                                              PAGE
                                                                                              ----
<S>                                                                                               <C>
PART I     FINANCIAL INFORMATION

Item 1.    Financial Statements

           Consolidated Balance Sheets at September 30, 1998 (Unaudited) and
              December 31,1997.................................................................   3

           Consolidated Statements of Operations for the Three Months
             Ended September 30, 1998 and 1997 (Unaudited).....................................   4

           Consolidated Statements of Operations for the Nine Months
             Ended September 30, 1998 and 1997 (Unaudited).....................................   5

           Consolidated Statements of Shareholders' Equity for the Nine Months
             Ended September 30, 1998 and 1997 (Unaudited).....................................   6

           Consolidated Statements of Cash Flows for the Nine Months
             Ended September 30, 1998 and 1997 (Unaudited).....................................   7

           Notes to Consolidated Financial Statements (Unaudited)..............................   8

Item 2.    Management's Discussion and Analysis of Financial Condition and
              Results of Operations............................................................  17


PART II    OTHER INFORMATION

Item 1.    Legal Proceedings...................................................................  30

Item 2.    Changes in Securities and Use of Proceeds...........................................  30

Item 6.    Exhibits and Reports on Form 8-K....................................................  30

</TABLE>




                                       2
<PAGE>









Item 1. Financial Statements
                    SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                                        September 30,    December 31,
                                                                                            1998             1997
                                                                                        -------------    ------------
ASSETS                                                                                   (Unaudited)
<S>                                                                                     <C>              <C>       
Current assets:
    Cash and cash equivalents                                                           $    65,589      $    5,979
    Accounts receivable                                                                      68,042           3,831
    Prepaid expenses                                                                         27,375               -
    Receivables from equity investees                                                           974               -
    Other current assets                                                                      3,747           1,410
                                                                                        -------------    ------------
Total current assets                                                                        165,727          11,220

Property and equipment, net                                                                 275,000          59,685
Deferred acquisition costs                                                                      551           6,213
Goodwill and other intangible assets, net                                                   904,929          60,306
Investment in and receivables from equity investees, less current portion                    22,406             937
Note receivable from related parties and employees                                           12,610               -
Other assets                                                                                 10,325           8,581
                                                                                        -------------    ------------
TOTAL ASSETS                                                                            $ 1,391,548      $  146,942
                                                                                        =============    ============
LIABILITIES AND SHAREHOLDERS' EQUITY 
    Current liabilities:
    Accounts payable and accrued expenses                                               $    66,202      $    2,715
    Deferred revenue                                                                         73,608           3,603
    Income taxes payable                                                                        480           1,707
    Due to SFX Broadcasting                                                                  26,250          11,539
    Current portion of long-term debt                                                         4,238             755
    Current portion of capital lease obligations                                                674             168
    Current portion of deferred purchase consideration                                        2,313           1,950
                                                                                        -------------    ------------
Total current liabilities                                                                   173,765          22,437

Long-term debt, less current portion                                                        714,884          14,929
Capital lease obligations, less current portion                                              12,248             326
Deferred purchase consideration, less current portion                                         8,117           4,289
Deferred income taxes                                                                        60,601           2,817
Other                                                                                         5,354               -
                                                                                        -------------    ------------
TOTAL LIABILITIES                                                                           974,969          44,798

Minority interest                                                                             3,868               -
Temporary equity - stock subject to redemption                                               16,500               -
Shareholders' equity:
   Preferred Stock, $.01 par value, 25,000,000 shares authorized, none
     issued and outstanding as of September 30, 1998 and December 31, 1997                        -               -
   Class A common stock, $.01 par value, 100,000,000 shares authorized,
      28,753,194 and 13,579,024 shares issued and outstanding as of
      September 30, 1998 and December 31, 1997, respectively                                    288             136
   Class B common stock, $.01 par value, 10,000,000 shares authorized,
      1,697,037 and 1,047,037 shares issued and outstanding as of
      September 30, 1998 and December 31, 1997, respectively                                     17              10
Additional paid in capital                                                                  431,617          98,184

Deferred compensation                                                                        (7,397)              -

Accumulated (deficit) earnings                                                              (28,314)          3,814
                                                                                        -------------    ------------
Total shareholders' equity                                                                  396,211         102,144
                                                                                        -------------    ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                              $ 1,391,548      $  146,942
                                                                                        =============    ============
</TABLE>

                             See accompanying notes.


                                       3
<PAGE>

                    SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        (IN THOUSANDS, EXCEPT SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                             Three Months Ended September 30,
                                                             -------------------------------
                                                                  1998              1997
                                                             -------------      ------------
<S>                                                          <C>                <C>       
Revenue                                                      $   388,034        $   43,425

Operating expenses:
    Cost of revenue                                              331,857            35,569
    Depreciation and amortization, including $1,014 of
        integration costs in 1998                                 21,207             2,345
    Corporate expenses, net of Triathlon fees                      2,510               259
    Non-cash charges                                                 843                 -
                                                             -------------      ------------
                                                                 356,417            38,173
                                                             -------------      ------------
Income from operations                                            31,617             5,252

Income from equity investments                                    (2,139)           (1,344)
Interest expense                                                  13,488               378
Investment income                                                   (967)              (95)
Minority interest                                                    916                 -
                                                             -------------      ------------
Income before provision for income taxes                          20,319             6,313

Provision for income taxes                                         1,983             2,952
                                                             -------------      ------------
Net income                                                        18,336             3,361

Accretion on stock subject to redemption                            (825)                -
                                                             -------------      ------------

Net income applicable to common shares                       $    17,511        $    3,361
                                                             =============      ============

Basic Earnings per common share                              $      0.58        $     0.23
                                                             =============      ============

Dilutive earnings per common share                           $      0.57        $     0.23
                                                             =============      ============

Weighted average basic common shares outstanding              30,420,883        14,626,061

Weighted average dilutive common shares outstanding           30,881,777        14,626,061
</TABLE>



                             See accompanying notes.

                                       4
<PAGE>



                    SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        (IN THOUSANDS, EXCEPT SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                              Nine Months Ended September 30,
                                                          -----------------------------------
                                                              1998                  1997
                                                          ------------          ------------
<S>                                                       <C>                   <C>       
Revenue                                                   $   680,376           $   74,396

Operating expenses:
    Cost of revenue                                           602,538               63,045
    Depreciation and amortization, including $1,264 of
         integration costs in 1998                             40,381                4,041
    Corporate expenses, net of Triathlon fees                   5,839                1,307
    Non-cash charges                                           32,895                    -
                                                          ------------          ------------
                                                              681,653               68,393
                                                          ------------          ------------
Income (loss) from operations                                  (1,277)               6,003

Income from equity investments                                 (3,964)              (1,344)
Interest expense                                               31,709                  956
Investment income                                              (3,466)                (213)
Minority interest                                               1,314                    -
                                                          ------------          ------------
Income (loss) before provision for income taxes               (26,870)               6,604

Provision for income taxes                                      3,333                2,952
                                                          ------------          ------------
Net income (loss)                                             (30,203)               3,652

Accretion on stock subject to redemption                       (1,925)                   -
                                                          ------------          ------------

Net income (loss) applicable to common shares             $   (32,128)          $    3,652
                                                          ============          ============

Basic and dilutive net income (loss) per share            $     (1.38)          $     0.25
                                                          ============          ============

Weighted average basic and dilutive common                 23,262,122           14,382,778
shares outstanding

</TABLE>

                             See accompanying notes.


                                       5
<PAGE>



                    SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                                                       Nine Months Ended September 30,
                                                                                      ---------------------------------
                                                                                          1998                 1997
                                                                                      ------------         ------------
<S>                                                                                   <C>                  <C>       
Balances at January 1,                                                                $    102,144         $        -

 Net assets contributed by SFX Broadcasting                                                      -             97,726

Liabilities in excess of assets of SFX Broadcasting, Inc. assumed in the
    Spin-Off, principally federal income taxes of $105.0 million                          (129,237)                 -

Sale of 8,050,000 Shares of Class A Common Stock                                           329,004                  -

Issuance of 5,837,874 shares of  Class A Common Stock
for acquisitions                                                                            97,466                  -

Issuance of 190,000 shares of Class A Common Stock pursuant to
employment agreements                                                                        8,511                  -

Issuance of 650,000 shares of Class B Common Stock pursuant to
employment agreements                                                                       18,526                  -

Net income (loss)                                                                          (30,203)             3,652

                                                                                      ------------         ------------
Balances at September 30                                                              $    396,211         $  101,378
                                                                                      ============         ============

</TABLE>




                             See accompanying notes.

                                       6
<PAGE>





                    SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                Nine Months Ended September 30,
                                                                                -------------------------------
                                                                                    1998             1997
                                                                                ------------    --------------
<S>                                                                             <C>             <C>       
Operating activities:
Net (loss) income                                                               $  (30,203)     $    3,652
Adjustment to reconcile net (loss) income to net cash provided by    
    operating activities:
    Depreciation and amortization, including $1,264 of integration costs            40,381           4,041
    Pretax income of equity investees, net of distributions  received                1,030             458
    Non-cash charges                                                                32,895               -
    Minority interest                                                                1,314               -
Changes in operating assets and liabilities, net of amounts acquired:
       Accounts receivable                                                          (9,620)         (1,019)
       Prepaid expenses                                                             (6,296)         (2,419)
        Other current assets                                                        (1,744)              -
       Other assets                                                                 (3,191)           (275)
       Receivable from related parties and employees                                (2,162)              -
       Accounts  payable and accrued expenses                                       (14,475)         2,641
       Accrued interest and dividends                                                 7,595              -
       Deferred revenue                                                               6,783         (6,290)
                                                                                --------------  --------------
Net cash provided by operating activities                                            22,307           789
                                                                                --------------  --------------
Investing activities:
  Purchases of businesses, net of cash acquired                                    (807,135)      (69,645)
  Deposits and other payments for pending acquisitions                                 (551)            -
  Purchases of property and equipment                                               (44,554)       (2,352)
                                                                                --------------  --------------
Net cash used in investing activities                                              (852,240)      (71,997)
                                                                                --------------  --------------

Financing activities:
   Capital contributed by SFX Broadcasting                                                -        78,855
   Proceeds  from issuance of senior subordinated debt and borrowings
      under the credit agreement                                                    723,500             -
   Proceeds from sale of common stock                                               330,683             -
   Repayment of debt and capital lease obligation                                   (33,049)         (553)
   Payments made to SFX Broadcasting pursuant to the Spin-Off                      (113,876)            -
   Other, principally debt issuance costs                                           (17,715)            -
                                                                                --------------  --------------
Net cash provided by financing activities                                           889,543        78,302
                                                                                --------------  --------------

Net increase in cash and cash equivalents                                            59,610         7,094
Cash and cash equivalents at beginning of period                                      5,979             -
                                                                                ==============  ==============
Cash and cash equivalents at end of period                                      $    65,589     $   7,094
                                                                                ==============  ==============
Supplemental disclosure of cash flow information:
Cash paid for interest                                                          $    22,807     $     897
                                                                                ==============  ==============
Cash paid for income taxes                                                      $    17,217     $       -
                                                                                ==============  ==============

</TABLE>


Supplemental disclosure of non-cash investing and financing activities:
o  Issuance of equity securities, including deferred equity security issuance
   and assumption of debt in connection with certain acquisitions (see Note 1).
o  Agreements to pay future cash consideration in connection with certain
   acquisitions (see Note 1).
o  The balance sheet includes certain assets and liabilities that have been
   contributed to the Company by SFX Broadcasting.

                             See accompanying notes.

                                       7
<PAGE>


                    SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

SFX Entertainment, Inc. ("SFX" or the "Company") is a leading promoter, producer
and venue operator for live entertainment events. In addition, the Company is a
leading full-service marketing and management company specializing in the
representation of team sports athletes, primarily in professional basketball.

The Company owns and/or operates the largest network of venues in the country
used principally for music concerts and other live entertainment events. Upon
completion of all pending acquisitions, it will have 68 venues either directly
owned or operated under lease or exclusive arrangements, including 13
amphitheaters in 9 of the top 10 markets. The Company also develops and manages
touring Broadway shows, selling subscriptions series in 38 of the markets that
maintain active touring schedules with approximately 240,000 subscribers last
year. Through its large number of venues and the long operating histories of the
businesses it has acquired, SFX operates an integrated franchise that promotes
and produces a broad variety of live entertainment events locally, regionally
and nationally. Pro forma for all completed acquisitions, during 1997,
approximately 30 million people attended 11,300 events promoted and/or produced
by SFX, including approximately 5,400 music concerts, 5,600 theatrical shows and
over 200 specialized motor sports events.

SFX was formed as a wholly-owned subsidiary of SFX Broadcasting, Inc. in
December 1997 and as the parent company of SFX Concerts, Inc ("Concerts").
Concerts was formed in January 1997 to acquire and hold SFX Broadcasting's live
entertainment operations. The Company had no substantive operations until its
acquisition of Delsener/Slater Enterprises, Ltd. and affiliated companies
("Delsener/Slater") in January 1997.

In August 1997, SFX Broadcasting agreed to the merger (the "Broadcasting Merger
Agreement") among SBI Holdings, Inc. (the "Buyer"), SBI Radio Acquisition
Corporation, a wholly owned subsidiary of the Buyer, and SFX Broadcasting (the
"Broadcasting Merger") and to the spin-off of the Company to the shareholders of
SFX Broadcasting (the "Spin-Off"). The Spin-Off was completed on April 27, 1998
and the Broadcasting Merger was completed on May 29, 1998.

Information with respect to the three and nine months ended September 30, 1998
and 1997 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the unaudited interim financial statements contain
all adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the financial position, results of operations and cash flows of
the Company, for the periods presented.

In June 1997, the Financial Accounting Standards Board issued Statement No. 131
("SFAS 131"), "Disclosure About Segments of an Enterprise and Related
Information," which establishes new standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that these enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. SFAS 131 is effective for financial statements for fiscal years
beginning after December 31, 1997, and therefore the Company will adopt the new
requirements in 1998. Management has completed its review of SFAS 131 and as
such has preliminarily determined that its reportable segments will be music,
theatrical, sports and other.

The Company's operations and revenues are largely seasonal in nature, with
generally higher revenue generated in the second and third quarters of the year.
The Company's outdoor venues are primarily utilized in the summer months and do
not generate substantial revenue in the late fall, winter and early spring.
Similarly, the musical concerts that the Company promotes largely occur in the
second and third quarters. To the extent that the Company's entertainment
marketing and consulting relate to musical concerts, they also predominantly
generate revenues in the second and third quarters. However, this seasonality is
somewhat offset by typically non-summer seasonal businesses such as touring
Broadway Shows (which typically tour between September and May) and motor sports
(which produces revenue predominantly in the first quarter).


                                       8
<PAGE>

2. ACQUISITIONS

1997 Acquisitions

In January 1997, SFX Broadcasting acquired Delsener/Slater, a concert promotion
company which has long-term leases or is the exclusive promoter for seven of the
major concert venues in the New York City metropolitan area. In March 1997, the
Company acquired the stock of certain companies which own and operate the
Meadows Music Theater (the "Meadows"), an indoor/outdoor complex located in
Hartford, Connecticut. In June 1997, the Company acquired the stock of Sunshine
Promotions, Inc. and certain other related companies ("Sunshine Promotions"), an
owner-operator of venues and a concert promoter in the Midwest.

The Delsener/Slater, Meadows, and Sunshine Promotions acquisitions are
collectively referred to herein as the "1997 Acquisitions." The 1997
Acquisitions were financed through capital contributions from SFX Broadcasting
and were accounted for under the purchase method of accounting.

1998 Acquisitions

   Westbury

On January 8, 1998, the Company acquired certain companies which hold a
long-term lease for Westbury Music Fair, located in Westbury, New York, (the
"Westbury Acquisition") for an aggregate consideration of approximately $3.0
million in cash and 75,019 shares of the Company's Class A Common Stock. During
the period between the closing and January 8, 2000, the Company has the right to
repurchase all of such shares for an aggregate consideration of $2.0 million and
the seller has the right to require the Company to purchase all of such shares
for an aggregate consideration of $750,000.

   BGP

On February 24, 1998, the Company acquired all of the outstanding capital stock
of BG Presents ("BGP"), an owner-operator of venues for live entertainment and a
promoter in the San Francisco Bay area (the "BGP Acquisition"), for total
consideration of approximately $80.3 million (including the repayment of $12.0
million in BGP debt and the issuance upon the Spin-Off of 562,640 shares of
Class A Common Stock of the Company valued by the parties at $7.5 million). The
sellers of BGP provided net working capital (as defined in the acquisition
agreement) at the closing in an amount equal to or greater than long-term debt.

   PACE

On February 25, 1998, the Company acquired all of the outstanding capital stock
of PACE Entertainment Corporation ("PACE"), a diversified producer and promoter
of live entertainment in the United States (the "PACE Acquisition"), for total
consideration of approximately $150.1 million (including issuance upon the
Spin-Off of 1,500,000 shares of the Company's Class A Common Stock valued by the
parties at $20.0 million and assumption of approximately $20.6 million of debt).
In related transactions, the Company acquired, for total consideration of $90.6
million comprised of $41.4 million in cash, the repayment of approximately $43.1
million of debt and the assumption of approximately $6.1 million of debt related
to a capital lease, the 66 2/3% ownership interests of Blockbuster Entertainment
Corporation and Sony Music Entertainment, Inc. in Amphitheater Entertainment
Partnership, a partner of PACE in the Pavilion Partners venue partnership. As a
result, the Company owns 100% of Pavilion Partners.

The PACE Acquisition agreement further provides that each seller of PACE shall
have an option, exercisable during a period beginning on the fifth anniversary
of the closing of the PACE Acquisition and ending 90 days thereafter, to require
the Company to purchase up to one-third of the PACE consideration stock received
by such PACE seller for a cash purchase price of $33.00 per share. With certain
limited exceptions, these option rights are not assignable by the PACE sellers.
The stock, which is subject to redemption, has been recorded as temporary equity
on the accompanying consolidated balance sheet and is being accreted over a
five-year period.

Under the terms of an employment agreement entered into by the Company with an
officer of PACE, the officer will have the right, two years from the date of the
acquisition, to purchase PACE's motor sports division at fair value. If the
motor sports division has been sold by the Company, the officer would be
entitled to purchase PACE's theatrical division for its fair value.


                                       9
<PAGE>


In addition, on March 25, 1998, PACE paid $4.0 million to acquire a 67% interest
in certain assets and liabilities of USA Motor Sports, a producer and promoter
of motor sports events. The remaining 33% interest is owned by the Contemporary
Group.

   Contemporary

On February 27, 1998, the Company acquired the Contemporary Group
("Contemporary"), a fully-integrated live entertainment and special event
promoter and producer, venue owner and operator and consumer marketer, for total
consideration of approximately $101.4 million comprised of $72.8 million in
cash, a payment for working capital of approximately $9.9 million and the
issuance of preferred stock of the Company valued by the parties at $18.7
million which, upon the Spin-Off, was converted into 1,402,850 shares of Class A
Common Stock of the Company (the "Contemporary Acquisition"). The Contemporary
Acquisition involved the merger of Contemporary International Productions
Corporation with and into the Company, the acquisition by a wholly owned
subsidiary of the Company of substantially all of the assets, excluding certain
cash and receivables, of the remaining members of Contemporary and the
acquisition by Contemporary of the 50% interest in the Riverport Amphitheater
Joint Venture not owned by Contemporary. If any of the Contemporary sellers owns
any shares of the Company's Class A Common Stock received in the Contemporary
Acquisition on the second anniversary of the closing date and the average
trading price of such stock over the 20-day period ending on such anniversary
date is less than $13.33 per share, then the Company will make a one-time cash
payment to each individual holding such shares that is equal to the product of
(i) the quotient of the difference between (A) the actual average trading price
per share over such 20-day period and (B) $13.33 divided by two, multiplied by
(ii) the number of shares of Class A Common Stock of the Company's received by
such individual in the Contemporary Acquisition and owned as of such anniversary
date. In May 1998 the Company placed 140,000 of the shares issued in connection
with the Contemporary Acquisition into an escrow account. The Company may, at
its sole discretion, cancel such shares at any time.

   Network

On February 27, 1998, the Company acquired the Network Magazine Group ("Network
Magazine"), a publisher of trade magazines for the radio broadcasting industry,
and SJS Entertainment Corporation ("SJS"), an independent creator, producer and
distributor of music-related radio programming, services and research which it
exchanges with radio broadcasters for commercial air-time which, in turn, is
sold to national network advertisers (the "Network Acquisition"), for total
consideration of approximately $66.8 million comprised of $52.0 million in cash,
a payment for working capital of approximately $1.8 million, reimbursed sellers
costs of $500,000, the purchase of an office building and property for $2.5
million and the issuance upon the Spin-Off of approximately 750,000 shares of
Class A Common Stock of the Company valued by the parties at $10.0 million. The
$2.5 million purchase of the office building and property is comprised of cash
of approximately $700,000 and the assumption of debt of approximately $1.8
million. The Company is also obligated to pay the sellers an additional payment
in Class A Common Stock or, at the Company's option, cash based on future
operating results, as defined, generated on a combined basis by Network Magazine
and SJS in 1998, up to a maximum of $14.0 million. In the Network Acquisition,
the Company, through a wholly owned subsidiary, acquired all of the outstanding
capital stock of each of The Album Network, Inc. and SJS Entertainment
Corporation and purchased substantially all of the assets and properties and
assumed substantially all of the liabilities and obligations of The Network 40,
Inc.

   Concert/Southern

On March 4, 1998, the Company acquired Concert/Southern Promotions
("Concert/Southern"), a promoter of live music events in the Atlanta, Georgia
metropolitan area (the "Concert/Southern Acquisition"), for total cash
consideration of approximately $16.9 million, which includes a $300,000 payment
for working capital.

   Avalon

On May 14, 1998, the Company acquired all of the outstanding equity interests of
Irvine Meadows Amphitheater, New Avalon, Inc., TBA Media, Inc. and West Coast
Amphitheater (collectively, "Avalon") for a cash purchase price of $26.8 million
(subject to upward adjustment), including approximately $300,000 that the
Company paid to reimburse the Avalon sellers for certain third party out of
pocket expenses incurred in the development of the Camarillo Creek Amphitheatre
(the "Avalon Acquisition"). Avalon is a concert promoter and producer that
operates predominantly in the Los Angeles area.


                                       10
<PAGE>


   Oakdale

On June 3, 1998, the Company acquired certain assets of Oakdale Concerts, LLC
and Oakdale Development Limited Partnership (collectively, "Oakdale"), a
promoter and producer of concerts in Connecticut and the owner of the 4,800 seat
Oakdale Music Theater, for a purchase price of $9.4 million in cash and the
assumption of $2.5 million in liabilities (the "Oakdale Acquisition"). The
Company also made a non-recourse loan to the Oakdale sellers in the amount of
$11.4 million. In addition, pursuant the Oakdale Agreement, if the future
operating results (as defined in the Oakdale Agreement) of the Oakdale Theater
and the Meadows exceeds $5.5 million in 1999, the Company will be obligated to
pay between 5.0 to 5.8 times the amount of such excess to the Oakdale sellers.

    FAME

On June 4, 1998, the Company acquired Falk Associates Management Enterprises,
Inc. and Financial Advisory Management Enterprises, Inc. (collectively, "FAME"),
a full-service marketing and management company which specializes in the
representation of team sports athletes, primarily in professional basketball.
The aggregate purchase price for FAME was approximately $82.2 million in cash
(including approximately $7.9 million which the Company paid in connection with
certain taxes incurred by FAME and the FAME sellers and excluding $4.7 million
of taxes paid on behalf of the sellers which will be refunded to the Company in
1999) and 1.0 million shares of Class A Common Stock, valued at approximately
$36.0 million (the "FAME Acquisition"). The agreement also provides for payments
by the Company to the FAME sellers of additional amounts up to an aggregate of
$15.0 million in equal annual installments over 5 years contingent on the
achievement of certain operating performance targets. The agreement also
provides for additional payments by the Company if FAME's operating performance
exceed the targets by certain amounts.

   Don Law

On July 2, 1998, the Company acquired certain assets of Blackstone
Entertainment, LLC ("Don Law"), a concert and theater promoter in New England,
for an aggregate consideration of approximately $92.2 million, including the
repayment of approximately $7.0 million in debt. Don Law currently owns and/or
operates three venues in New England with an aggregate seating capacity of
27,400. Don Law also acts as the sole ticket operator for all of its own venues
as well as several third party venues.

   Magicworks

On September 11, 1998, the Company purchased all of the outstanding shares of
common stock of Magicworks Entertainment Incorporated ("Magicworks"), a producer
and promoter of theatrical shows, musical concerts, ice skating shows and other
live entertainment events. The total consideration was $118.9 million in cash,
including approximately $3.2 million in fees and expenses and the repayment of
$2.4 million in convertible notes which the Company is required to repay upon
presentation for conversion into Magicworks stock (the "Magicworks
Acquisition"). The acquisition was consummated by means of a tender offer (in
which approximately 98.7% of Magicworks shares were purchased) followed by a
merger (in which the remaining shares were converted into cash consideration).

   Other Acquisitions

During the third quarter of 1998, the Company completed the acquisition of seven
companies in the theatrical and music segments, principally in the areas of
programming, touring and merchandising (collectively the "Other Acquisitions").
The aggregate purchase price was $104.7 million in cash, approximately $10.0
million in stock (300,000 shares of the Company's Class A Common Stock) and
$10.0 million of deferred payments. In addition, the Company is required to make
a loan to certain sellers in an amount equal to taxes incurred by the sellers in
connection with one of the transactions. The Company expects that the amount of
the loan will be approximately $750,000.

The Westbury Acquisition, the BGP Acquisition, the PACE Acquisition, the
Contemporary Acquisition, the Network Acquisition, the Concert/Southern
Acquisition, the Avalon Acquisition, the Oakdale Acquisition, the FAME
Acquisition, the Don Law Acquisition, the Magicworks Acquisition and the Other
Acquisitions are collectively referred to herein as the "1998 Acquisitions." The
1998 Acquisitions were accounted for under the purchase method of accounting and
funded with the proceeds of the Note Offering, the Equity Offering, the Credit
Agreement (each as defined herein) and available cash. The purchase prices of
the 1998 Acquisitions have been preliminarily allocated to the assets acquired
and liabilities assumed and are

                                       11
<PAGE>

subject to change.

Operating results for the 1997 Acquisitions and the 1998 Acquisitions are
included herein from their respective acquisition dates. Operating results
associated with the assets and liabilities contributed by SFX Broadcasting are
also included herein. Prior to the Spin-Off, SFX Broadcasting provided various
administrative services to the Company. SFX Broadcasting allocated these
expenses on the basis of direct usage. In the opinion of management, this method
of allocation was reasonable and allocated expenses approximated what the
Company would have incurred on a stand-alone basis. Intercompany transactions
and balances have been eliminated in consolidation.

The following pro forma summary represents the consolidated results for the nine
months ended September 30, 1998 and the year ended December 31, 1997 as if the
1997 Acquisitions and the 1998 Acquisitions had occurred at January 1, 1997,
after giving effect to certain adjustments, including amortization of intangible
assets and interest expense on the acquisition debt. These pro forma results
have been included for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisitions been made as of that
date or of results which may occur in the future (in thousands).

                                                    PRO FORMA
                                       Nine Months Ended         Year Ended
                                       September 30, 1998      December 31, 1997
                                       ------------------      -----------------
   Revenues                            $   925,531             $   833,582
   Net loss                            $   (19,659)            $   (42,559)
   Loss applicable to common shares    $     (0.65)            $     (1.40)

3. FINANCING

    Note Offering and Guarantees by Subsidiaries

On February 11, 1998, the Company completed an offering of $350.0 million 9 1/8%
Senior Subordinated Notes (the "Notes" and "Note Offering") due 2008. Interest
is payable on the Notes on February 1 and August 1 of each year. On July 15,
1998, the Company consummated the exchange of substantially identical publicly
registered notes (the "Exchange Notes") for all outstanding Notes. All Notes
were tendered for exchange and were cancelled upon the issuance of the same
principal amount of Exchange Notes.

The Company is a holding company that has no operating assets or operations of
its own. Substantially all of the Company's subsidiaries are wholly owned and
have jointly and severally guaranteed the Company's indebtedness represented by
the Exchange Notes (the "Guarantors"). Certain subsidiaries which are not wholly
owned (the "Non-Guarantor Subsidiaries"), do not guarantee such indebtedness.

Full financial statements of the Guarantors and Non-Guarantor Subsidiaries have
not been included because, pursuant to their respective guarantees, the
Guarantors are jointly and severally liable with respect to the Exchange Notes
and management believes that the Non-Guarantor Subsidiaries are not material to
the Company on a consolidated basis. Accordingly, the Company does not believe
that the information contained in separate full financial statements of the
Guarantors or Non-Guarantor Subsidiaries would be material to investors. The
following are summarized unaudited statements setting forth certain financial
information concerning the Guarantors and Non-Guarantor Subsidiaries as of and
for the nine months ended September 30, 1998 (in thousands).


                                       12
<PAGE>

<TABLE>
<CAPTION>

                                                       SFX                                                                 SFX
                                                    Entertainment                  Non-Guarantor                      Entertainment
                                                        Inc.         Guarantors    Subsidiaries     Eliminations      Consolidated
                                                 -----------------------------------------------------------------------------------
<S>                                              <C>                <C>              <C>           <C>               <C>          
      Current assets                             $       8,910      $  148,522       $   8,295     $         -       $     165,727
      Property and equipment, net                        8,905         256,182           9,913               -             275,000
      Goodwill and other intangible assets, net         29,972         853,660          21,297               -             904,929
      Investment in subsidiaries                     1,111,914          22,406               -      (1,111,914)             22,406
      Other assets                                       3,648          16,768           3,070               -              23,486
                                                 -----------------------------------------------------------------------------------
         Total assets                            $   1,163,349      $1,297,538       $  42,575     $(1,111,914)      $   1,391,548
                                                 ===================================================================================

      Current liabilities                        $      42,455      $  127,678       $   3,632     $         -       $     173,765
      Long-term debt, less current portion             697,753          29,379          12,767         (12,767)            727,132
      Other liabilities                                 10,430          63,179             463               -              74,072
      Minority interest                                      -           2,579           1,289               -               3,868
      Temporary equity                                  16,500               -               -               -              16,500
      Shareholders' equity                             396,211       1,074,723          24,424      (1,099,147)            396,211
                                                 -----------------------------------------------------------------------------------
         Total liabilities and shareholders'
             Equity                              $   1,163,349      $1,297,538       $  42,575     $(1,111,914)      $   1,391,548
                                                 ===================================================================================

      Revenue                                    $           -      $  659,858       $  20,518     $         -       $     680,376
      Operating expenses                                48,047         615,916          17,690               -             681,653
      Interest expense, net                             27,669             591             507            (524)             28,243
      Minority interest                                      -             392             922               -               1,314
      Income from equity investments                         -          (3,964)              -               -              (3,964)
      Provision for income taxes                             -           3,333               -               -               3,333
                                                 -----------------------------------------------------------------------------------
      Net (loss) income                          $     (75,716)     $   43,590       $   1,399     $       524       $     (30,203)
                                                 ===================================================================================

      Cash flow from operations                  $     (45,994)     $   70,023       $  (1,722)    $         -       $      22,307
      Cash flow used in investing activities          (844,051)         (7,816)           (373)              -            (852,240)
      Cash flow from financing activities              891,252          (1,704)             (5)              -             889,543
      Cash at the beginning of the period                    -           2,916           3,063               -               5,979
      Cash at the end of the period              $       1,207      $   63,419       $     963     $         -       $      65,589

The following are summarized unaudited statements setting forth certain
financial information concerning the Guarantors and Non-Guarantor Subsidiaries
as of and for the three months ended September 30, 1998 (in thousands).

                                                       SFX                                                                 SFX
                                                    Entertainment                  Non-Guarantor                      Entertainment
                                                        Inc.         Guarantors    Subsidiaries     Eliminations      Consolidated
                                                 -----------------------------------------------------------------------------------

      Revenue                                    $           -     $   372,039       $  15,995     $         -       $     388,034
      Operating expenses                                 7,745         335,722          12,950               -             356,417
      Interest expense, net                             12,361             119             208            (167)             12,521
      Minority interest                                      -              (7)            923               -                 916
      Income from equity investments                         -          (2,139)              -               -              (2,139)
      Provision for income taxes                             -          1 ,983               -               -               1,983
                                                 -----------------------------------------------------------------------------------
      Net (loss) income                          $     (20,106)    $    36,361       $   1,914     $       167       $      18,336
                                                 ===================================================================================
</TABLE>


   Credit Agreement

On February 26, 1998, the Company executed a Credit and Guarantee Agreement (the
"Credit Agreement" or "Credit Facility") which established a $300.0 million
senior secured credit facility comprised of (i) a $150.0 million eight-year term
loan (the "Term Loan") and (ii) a $150.0 million seven-year reducing revolving
credit facility (the "Revolver"). In addition, in September 1998, the Company
received an increase in its borrowing availability under the Revolver by $50.0
million, which increased the Company's availability under the Credit Agreement
to $350.0 million. Loans outstanding under the Credit Facility bear interest, at
the Company's option, at 1.875 to 2.375 percentage points over LIBOR or the
greater of the Federal Funds rate plus 0.50% or the Bank of New York's prime
rate. The interest rate spreads on the Term Loan and the Revolver are adjusted
based on the Company's Total Leverage Ratio (as defined in the Credit
Agreement). The Company pays a per annum commitment fee on unused availability
under the Revolver of 0.50% to the extent that the Company's Leverage Ratio is
greater than or equal to 4.0 to 1.0, and 0.375% if such ratio is less than 4.0
to 1.0 and a per annum letter of credit fee equal to the Applicable LIBOR Margin


                                       13
<PAGE>

(as defined in the Credit Agreement) for the Revolver then in effect. Borrowings
under the Credit Agreement are secured by substantially all of the assets of the
Company, including a pledge of the outstanding stock of substantially all of its
subsidiaries and guaranteed by all of the Company's subsidiaries. As of November
13, 1998, the Company had borrowed $346.0 million under the Credit Agreement to
consummate certain of the 1998 Acquisitions.

In addition, the Company has received a commitment letter from its lenders to
replace its existing credit facility with a new $600.0 million credit facility.
The new facility is subject to the execution of a definitive agreement and will
differ from the current credit facility in several respects including applicable
financial ratios, interest rate margins and term of repayment. The Company and
its lenders are presently reviewing the pending commitment in light of recent
developments in the credit markets. The Company may renegotiate the existing
commitment, which renegotiations may significantly alter the principal terms, or
the Company may consider alternative forms of debt financing. If a new credit
facility is consummated and the terms of the agreement are substantially
different than the terms of the existing credit facility, the Company may be
required to write off the remaining deferred financing costs related to the
current credit facility in the form of an extraordinary loss.

   Equity Offering

On May 27, 1998, the Company consummated an offering of 8,050,000 shares of
Class A Common Stock at an offering price of $43.25 per share (the "Equity
Offering"). The proceeds received by the Company, after deducting the
underwriting discount and offering expenses, were approximately $329.0 million.
The proceeds were used to (i) repay certain indebtedness and consummate certain
of the 1998 Acquisitions and (ii) pay $93.7 million of the tax indemnification
obligation related to the Spin-Off (see Note 6).

4. CAPITAL STOCK

 .
In order to facilitate the Spin-Off, the Company revised its capital structure
to increase its authorized capital stock and to effect a stock split. The
authorized capital stock of the Company consists of 110,000,000 shares of Common
Stock (comprised of 100,000,000 shares of Class A Common Stock and 10,000,000
shares of Class B Common Stock), and 25,000,000 shares of preferred stock, par
value $.01 per share.

In the Spin-Off, (a) 13,579,024 shares of Class A Common Stock were distributed
to holders on the Spin-Off record date of SFX Broadcasting's Class A Common
Stock, Series D preferred stock and interests in SFX Broadcasting's director
deferred stock ownership plan, including 609,856 shares of Class A Common Stock
issued upon the exercise of certain warrants of SFX Broadcasting and (b)
1,047,037 shares of Class B Common Stock were distributed to holders on the
Spin-Off record date of SFX Broadcasting Class B Common Stock. The financial
statements have been retroactively adjusted to reflect this transaction.

Holders of Class A Common Stock and Class B Common Stock vote as a single class
on all matters submitted to a vote of the stockholders, with each share of Class
A Common Stock entitled to one vote and each share of Class B Common Stock
entitled to ten votes, except (a) for the election of directors, (b) with
respect to any "going private" transaction between the Company and Mr. Sillerman
or any of his affiliates and (c) as otherwise provided by law.

The Board of Directors has the authority to issue preferred stock and will
assign the designations and rights at the time of issuance.

During January 1998, the Board of Directors and SFX Broadcasting, as sole
stockholder, approved and adopted a stock option and restricted stock plan
providing for the issuance of restricted shares of the Company's Class A Common
Stock and options to purchase shares of the Company's Class A Common Stock
totaling up to 2,000,000 shares. In January 1998, the Company granted options
exercisable for an aggregate of 345,000 shares of the Company's Class A Common
Stock at an exercise price of $5.50 which will vest over three years and 7,500
shares of the Company's Class A Common Stock at an exercise price of $5.50 which
vests over one year. The Company will record non-cash compensation charges over
the three-year vesting period of approximately $3.3 million annually. Between
April and August 1998, the Company granted options exercisable for an aggregate
of 1,629,666 shares of Class A Common Stock at exercise prices ranging from
$29.125 to $45.875.

During January 1998, in connection with the expectation of certain executive
officers entering into employment agreements with the Company, the Board of
Directors, upon recommendation of the Compensation Committee, approved the sale
of an aggregate of 650,000 shares of the Company's Class B Common Stock and
190,000 shares of the Company's Class A Common Stock to certain officers for a
purchase price of $2.00 per share. Such shares were issued in April 1998. A
non-cash charge to earnings


                                       14
<PAGE>

was recorded by the Company in the second quarter of approximately $23.9 million
associated with the sale.

The Board of Directors also approved the issuance of shares of the Company's
Class A Common Stock to holders of stock options or stock appreciation rights
("SARs") of SFX Broadcasting as of the Spin-Off record date, whether or not
vested. The issuance was approved to allow such holders of these options or SARs
to participate in the Spin-Off in a similar manner to holders of SFX
Broadcasting's Class A Common Stock. Additionally, many of the option holders
will become officers, directors and employees of the Company.

5.  NON-CASH CHARGES

Non-cash charges recorded in the second and third quarters of 1998 of $32.9
million consisted of (a) $23.9 million of compensation related to the sale of
650,000 shares of Class B Common Stock and 190,000 shares of Class A Common
Stock at a purchase price of $2.00 per share to certain executive officers
pursuant to employment agreements, (b) $7.5 million associated with the issuance
of 247,177 shares of Class A Common Stock to Mr. Robert F.X. Sillerman,
Executive Chairman of the Company, in connection with the repurchase of shares
of SFX Broadcasting issued to the sellers of the Meadows and (c) $1.5 million
related to the issuance of stock options to certain executive officers pursuant
to employment agreements exercisable for an aggregate of 352,500 shares of Class
A Common Stock.

In addition, a $2.7 million write down of the remaining balance of the deferred
expense relating to the Triathlon Broadcasting Company ("Triathlon") agreement
was recorded in the second quarter of 1998 as a result of Triathlon's recent
agreement to be acquired by a third party. If a third party acquires Triathlon,
the consulting fee agreement would be terminated. The write down was recorded as
a charge to amortization expense.

6. SPIN-OFF

Pursuant to the terms of the Spin-Off, SFX Broadcasting contributed to the
Company all of the assets relating to its live entertainment businesses and the
Company assumed all of SFX Broadcasting's liabilities pertaining to the live
entertainment businesses, as well as certain other liabilities including the
obligation to make change of control payments to certain employees of SFX
Broadcasting of approximately $5.0 million, as well as the obligation to
indemnify one-half of certain of these employees' excise tax. At the time of the
Broadcasting Merger, the Company preliminarily received $2.0 million of net
Working Capital (as defined in the Broadcasting Merger Agreement). Any
additional payments which may be payable upon the final determination of the
Working Capital will be reflected as an increase or decrease, as the case may
be, to equity.

In connection with the Spin-Off, the Company entered into a tax sharing
agreement with SFX Broadcasting. Pursuant to the tax sharing agreement, as
amended, the Company is responsible for certain taxes incurred by SFX
Broadcasting, including income taxes imposed with respect to income generated by
the Company for periods prior to the Spin-Off and taxes resulting from gain
recognized by SFX Broadcasting in the Spin-Off. The Company believes that the
amount of taxes it will be required to pay in connection with the Spin-Off will
be approximately $120.0 million, of which $93.7 million was paid on or before
September 30, 1998. The remaining $26.3 million portion of the tax indemnity
payment is payable on December 31, 1998. Management's estimates of the amount
of the indemnity payment are based on assumptions which management believes are
reasonable. However, upon the completion of all final tax returns, including any
potential tax audits, such assumptions could be modified in a manner that would
result in a significant variance in the actual amount of the tax indemnity.

7.     DILUTIVE EARNINGS PER SHARE

A reconciliation of the number of shares used for calculating basic earnings per
common share and diluted earnings per common share for the three months ended
September 30, 1998 follows:

     Average number of common shares outstanding              30,420,883
     Effect of stock options                                     460,894
                                                             -----------
                                                              30,881,777
                                                             ===========

Options to purchase 1,117,666 shares of common stock at prices ranging from
$43.25 to $45.88 were outstanding at September 30, 1998, but were not included
in the computation of diluted earnings per common share because the options'
exercise price was greater than the average market price of the Company's common
stock during the three months ended September 30, 1998. In addition, diluted
earnings per share was not adjusted for the impact of common stock issued to the
PACE sellers, which is 

                                       15
<PAGE>

subject to redemption by the Company, because to do so would have been
antidilutive.

Outstanding stock options at September 30, 1998 had no dilutive effect on basic
earnings per share during the nine months ended September 30, 1998 due to the
Company's net loss position. The Company did not have any dilutive securities
outstanding during the nine-months and three-months ended September 30, 1997.

8. COMMITMENTS AND CONTINGENCIES

Pursuant to a real estate purchase agreement with the sellers of Oakdale, the
Company has agreed to purchase the land, building and improvements of the
Oakdale Theater at the end of the Company's fifteen-year lease of the premises
in June 2013 for $15.4 million. In June 1998, the Company extended an $11.4
million note receivable to the sellers which is secured by the property.

While the Company is involved in several law suits and claims arising in the
ordinary course of business, the Company is not currently a party to any legal
proceeding that the Company believes would have a material adverse effect on its
business, financial position or results of operations.

9. SUBSEQUENT EVENTS

Pending Acquisitions

   Marquee

The Company has entered into an agreement and plan of merger (the "Marquee
Merger Agreement"), dated as of July 23, 1998, as amended, with The Marquee
Group, Inc. ("Marquee"), pursuant to which Marquee will become a wholly-owned
subsidiary of the Company. Pursuant to the Marquee Merger Agreement, at the
effective time of the merger, each outstanding share of common stock of Marquee
will be converted into the right to receive shares of the Company's Class A
Common Stock based on the exchange ratio, calculated as follows: (i) if the
Company's stock price (the average of the last reported sale for the fifteen
consecutive trading days ending on the fifth trading day prior to the effective
time of the merger) is $42.75 or less, then the exchange ratio will equal
0.1111; and (ii) if the Company's stock price is greater than $42.75, then the
exchange ratio will equal the quotient obtained by dividing $4.75 by the
Company's stock price. Marquee is a publicly traded company that provides
integrated event management, television production, marketing and consulting
services in the sports, news and entertainment industries. The Company expects
to incur approximately $6.0 million in fees and expenses related to the
transaction.

   Cellar Door

On August 13, 1998, the Company and the beneficial owner of all of the
outstanding equity interests of the entities comprising the Cellar Door Group of
Companies (collectively, "Cellar Door") entered into a letter of intent with
respect to the Company's acquisition of all of the outstanding capital stock of
Cellar Door (the "Cellar Door Acquisition"). Pursuant to the letter of intent,
the aggregate purchase price for Cellar Door will be $70.0 million in cash
payable at closing, Class A Common Stock with a value of $20.0 million (based
upon the average closing price of the Class A Common Stock for the twenty
business day period ending on the business day prior to the closing) and $8.5
million payable in five equal annual installments beginning on the first
anniversary of the closing date. In addition, the Company will issue to the
seller options to purchase 100,000 shares of the Company's Class A Common Stock.
The closing will be subject to customary closing conditions, including the entry
into a definitive acquisition agreement and obtaining the required approval
under the HSR Act (as defined herein). If the Company is unable to complete the
Cellar Door Acquisition, it may be required to pay the seller $10.0 million as
liquidated damages. Cellar Door is a leading promoter and producer of live
entertainment events. The Company expects to incur approximately $1.5 million in
fees and expenses related to the transaction.

The Marquee merger and the Cellar Door Acquisition are collectively referred to
herein as the "Pending Acquisitions." The Company expects to complete the
Pending Acquisitions during the first quarter of 1999. However, the timing and
completion of the Pending Acquisitions are subject to a number of conditions,
including the approval of the stockholders of Marquee, the expiration or
termination of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 for the Cellar Door Acquisition, and the
receipt of all applicable consents from third parties and regulatory agencies.
Certain of these conditions are beyond the Company's control and there can be no
assurance that each of the Pending Acquisitions will be consummated during the
first quarter of 1999, on the terms described herein, or at all. In connection
with the HSR Act filing for the Marquee merger, the Company received notice of a
preliminary inquiry from the Antitrust Division of the U.S. Department 


                                       16
<PAGE>

of Justice relating to the Cellar Door Acquisition and seeking information on
the overall scope of the Company's operations. The Company intends to cooperate
with the Department of Justice inquiry. While the Company believes that the
Cellar Door Acquisition, along with the Company's overall business and plan of
acquisitions, are in compliance with applicable antitrust laws, there can be no
assurance that the results of such inquiry will not have a material adverse
impact on the Company's ability to consummate the Cellar Door Acquisition or its
business, results of operations and financial conditions.

   Stock Incentive Plan

Following a recommendation of the Company's compensation committee, the Company
has, subject to stockholder approval, adopted a new incentive stock option plan
covering options to acquire up to three million shares of the Company's Class A
Common Stock. The plan will be designed to broaden the equity ownership of the
Company's employees at all levels. The Company anticipates that the proposed
stock plan will be submitted to a vote of the stockholders at the Company's
first annual meeting scheduled to be held in the spring of 1999.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

GENERAL

SFX Entertainment, Inc. ("SFX" or the "Company") is a leading promoter, producer
and venue operator for live entertainment events. In addition, the Company is a
leading full-service marketing and management company specializing in the
representation of team sports athletes, primarily in professional basketball.

The Company owns and/or operates the largest network of venues in the country
used principally for music concerts and other live entertainment events. Upon
completion of all pending acquisitions, it will have 68 venues either directly
owned or operated under lease or exclusive arrangements, including 13
amphitheaters in 9 of the top 10 markets. The Company also develops and manages
touring Broadway shows, selling subscriptions series in 38 of the markets that
maintain active touring schedules with approximately 240,000 subscribers last
year. Through its large number of venues and the long operating histories of the
businesses it has acquired, SFX operates an integrated franchise that promotes
and produces a broad variety of live entertainment events locally, regionally
and nationally. Pro forma for all completed acquisitions, during 1997,
approximately 30 million people attended 11,300 events promoted and/or produced
by SFX, including approximately 5,400 music concerts, 5,600 theatrical shows and
over 200 specialized motor sports events. 

The following discussion of the financial condition and results of operations
of the Company should be read in conjunction with the consolidated financial
statements and related notes thereto. The following discussion contains certain
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors
that could cause or contribute to the differences include, but are not limited
to, risks and uncertainties relating to the Company's absence of a combined
operating history, its potential inability to integrate its acquisitions and
other risks related to the recent acquisitions, the Company's substantial
leverage, control of the motor sports and theatrical businesses, future
acquisitions, inability to obtain future financing, inability to successfully
implement operating strategies (including the achievement of cost savings), the
Company's expansion strategy, its control of venues, control by management,
dependence on key personnel, potential conflicts of interest, indemnification
agreements, seasonality, competition, regulatory matters, environmental
matters, economic conditions and consumer tastes and availability of artists
and events. For a more detailed discussion of these and other risk and
uncertainties, readers should see the Company's latest annual report and other
filings with the Securities and Exchange Commission. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.

The performance of entertainment companies, such as the Company, is measured, in
part, by their ability to generate EBITDA. "EBITDA" is defined as earnings
before interest, taxes, other income, net equity income (loss) from investments
and depreciation and amortization. Although EBITDA is not a measure of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"), the Company believes that EBITDA is accepted by the
industry as a generally recognized measure of performance and is used by
analysts who report publicly on the performance of entertainment companies.
Nevertheless, this measure should not be considered in isolation or as a
substitute for operating income, net income, net cash provided by operating
activities or any other measure for determining the Company's operating
performance or liquidity that is calculated in accordance with GAAP.

The Company's core business is the promotion and production of live
entertainment events, most significantly for concert and 


                                       17
<PAGE>

other music performances in venues owned and/or operated by the Company and in
third-party venues. In connection with all of its live entertainment events, the
Company seeks to maximize related revenue streams, including the sale of
corporate sponsorships, the sale of concessions and the merchandising of a broad
range of products. On a pro forma basis for the 1998 Acquisitions (as defined
herein), the Company's music businesses, including venue operations, comprised
approximately 62% of net revenues, theater comprised approximately 23% of net
revenues, sports, including representation of professional athletes and
specialized motor sports, comprised approximately 6% of net revenues and other
operations comprised approximately 9% of net revenues for the twelve months
ended September 30, 1998.

Promotion of events involves booking talent, renting or providing the event
venue, marketing the event to attract ticket buyers and providing for local
services required in the production of the event, such as security and stage
hands. Promoters generally receive revenues from the sale of tickets and
sponsorships. When an event is promoted at a venue owned or managed by the
promoter, the promoter also generally receives a percentage of revenues from
concessions, merchandising, parking, premium box seats and ticket rebates. The
Company earns promotion revenues principally by promoting (a) music concerts,
(b) Touring Broadway Shows and (c) specialized motor sports events.

Production of events involves developing the event content, hiring artistic
talent and managing the actual production of the event (with the assistance of
the local promoter). Producers generally receive revenues from guarantees and
from profit sharing agreements with promoters, a percentage of the promoters'
ticket sales, merchandising, sponsorships, licensing and the exploitation of
other rights (including intellectual property rights) related to the production.
The Company earns revenues by producing (a) Touring Broadway Shows, (b)
specialized motor events and (c) other proprietary and non-proprietary
entertainment events.

THE SPIN-OFF

On April 27, 1998, the Company was spun-off (the "Spin-Off") from its former
parent, SFX Broadcasting, a company primarily engaged in the radio broadcasting
business. In connection with the Spin-Off, the Company and SFX Broadcasting
entered into a distribution agreement (the "Distribution Agreement"), a tax
sharing agreement (the "Tax Sharing Agreement") and an Employee Benefits
Agreement (the "Employee Benefits Agreement"), each of which provides for
certain indemnification obligations by the Company.

FINANCINGS

   Note Offering

On February 11, 1998, the Company completed an offering of $350.0 million 9 1/8%
Senior Subordinated Notes (the "Notes" and "Note Offering") due 2008. Interest
is payable on the Notes on February 1 and August 1 of each year. On July 15,
1998, the Company consummated the exchange of substantially identical publicly
registered notes (the "Exchange Notes") for all outstanding Notes. All Notes
were tendered for exchange and were cancelled upon the issuance of the same
principal amount of Exchange Notes.

   Credit Agreement

On February 26, 1998, the Company executed a Credit and Guarantee Agreement (the
"Credit Agreement") which established a $300.0 million senior secured credit
facility comprised of (i) a $150.0 million eight-year term loan (the "Term
Loan") and (ii) a $150.0 million seven-year reducing revolving credit facility.
On September 10, 1998, the Company entered into an agreement with its lenders to
increase its borrowing availability under the revolver portion of the credit
facility by $50.0 million, which increased the aggregate amount of borrowing
availability under the Credit Agreement to approximately $350.0 million. As of
November 13, 1998, the Company had borrowed $346.0 million.

 In addition, the Company has received a commitment letter from its lenders to
replace its existing credit facility with a new $600.0 million credit facility.
The new facility is subject to the execution of a definitive agreement and will
differ from the current credit facility in several respects including applicable
financial ratios, interest rate margins and term of repayment. The Company and
its lenders are presently reviewing the pending commitment in light of recent
developments in the credit markets. The Company may renegotiate the existing
commitment, which renegotiations may significantly alter the principal terms, or
the Company may consider alternative forms of debt financing.

                                       18
<PAGE>


  Equity Offering

On May 27, 1998, the Company consummated an offering of 8,050,000 shares of
Class A Common Stock at an offering price of $43.25 per share (the "Equity
Offering"). The proceeds received by the Company, after deducting the
underwriting discount and offering expenses, were approximately $329.0 million.

1997 ACQUISITIONS

The Company entered the live entertainment business with SFX Broadcasting's
acquisition of Delsener/Slater, a New York-based concert promotion company, in
January 1997. Delsener/Slater has long-term leases or is the exclusive promoter
for many of the major concert venues in the New York City metropolitan area,
including the Jones Beach Amphitheater, a 14,000-seat complex located in
Wantagh, New York, and the PNC Bank Arts Center (formerly known as the Garden
State Arts Center), a 17,500-seat complex located in Holmdel, New Jersey. In
March 1997, Delsener/Slater acquired companies which hold a 37-year lease to
operate the Meadows, a 25,000-seat indoor/outdoor complex located in Hartford,
Connecticut. In June 1997, SFX Broadcasting acquired Sunshine Promotions, a
concert promoter in the Midwest, and certain other related companies. As a
result of the acquisition of Sunshine Promotions, the Company owns the Deer
Creek Music Theater, a 21,000-seat complex located in Indianapolis, Indiana, the
Polaris Amphitheater, a 20,000-seat complex located in Columbus, Ohio, and has a
long-term lease to operate the Murat Centre, a 2,700-seat theater and 2,200-seat
ballroom located in Indianapolis, Indiana.

The acquisitions of Delsener/Slater, Sunshine and Meadows are collectively
referred to herein as the "1997 Acquisitions." The cash portion of the 1997
Acquisitions was financed through capital contributions from SFX Broadcasting.

1998 ACQUISITIONS

In January 1998, the Company acquired certain companies which hold a long-term
lease for Westbury, located in Westbury, New York. In February 1998, the Company
acquired BGP, PACE, Pavilion Partners, Contemporary and Network. BGP is an owner
and operator of venues for live entertainment and a promoter in the San
Francisco Bay area. PACE is a diversified producer and promoter of live
entertainment in the United States. Pavilion Partners is a partnership that owns
interests in 10 venues in the Unites States. Contemporary is a fully integrated
live entertainment and special event promoter and producer, venue owner and
operator in the St. Louis and Kansas City, Missouri markets and a consumer
marketer. Network is an independent creator, producer and distributor of
music-related radio programming, services and research which it exchanges with
radio broadcasters for commercial air-time which, in turn, is sold to national
network advertisers. In March 1998, the Company acquired Concert/Southern and
USA Motorsports. Concert/Southern is a promoter of live music events in the
Atlanta, Georgia metropolitan area and USA Motor Sports is a producer and
promoter of motor sports events. In May 1998, the Company acquired Avalon, a
concert promoter and producer in the Los Angeles area. In June 1998 the Company
acquired Oakdale and FAME. Oakdale is a promoter and producer of concerts in
Connecticut and FAME is a full-service marketing and management company which
specializes in the representation of team sports athletes, primarily in
professional basketball. In July 1998 the Company acquired Don Law, a concert
and theater promoter in New England, which currently owns and/or operates three
venues in New England. In September 1998 the Company acquired Magicworks, a
producer and promoter of theatrical shows, musical concerts, ice skating shows
and other live entertainment events. In addition, during the third quarter of
1998, the Company acquired seven companies (collectively the "Other
Acquisitions") which operate in the Company's theatrical and music segments.

The acquisitions of Westbury, BGP, PACE, Pavilion Partners, Contemporary,
Network, Concert/Southern, USA Motorsports, Avalon, Oakdale, FAME, Don Law,
Magicworks and the Other Acquisitions are collectively referred to herein as the
"1998 Acquisitions". The 1998 Acquisitions were funded with the proceeds of the
Note Offering, the Equity Offering, the Credit Agreement and available cash.

The 1997 Acquisitions and the 1998 Acquisitions were accounted for using the
purchase method of accounting, and the intangible assets created in the purchase
transactions will generally be amortized against future earnings over a 15-year
period. The amount of amortization will be substantial and will continue to
affect the Company's operating results in the future. These expenses, however,
do not result in an outflow of cash by the Company and do not impact EBITDA.


                                       19
<PAGE>


PENDING ACQUISITIONS

   Marquee

The Company has entered into an agreement and plan of merger (the "Marquee
Merger Agreement"), dated as of July 23, 1998, as amended, with The Marquee
Group, Inc. ("Marquee"), pursuant to which Marquee will become a wholly-owned
subsidiary of the Company. Pursuant to the Marquee Merger Agreement, at the
effective time of the merger, each outstanding share of common stock of Marquee
will be converted into the right to receive shares of the Company's Class A
Common Stock based on the exchange ratio, calculated as follows: (i) if the
Company's stock price (the average of the last reported sale for the fifteen
consecutive trading days ending on the fifth trading day prior to the effective
time of the merger) is $42.75 or less, then the exchange ratio will equal
0.1111; and (ii) if the Company's stock price is greater than $42.75, then the
exchange ratio will equal the quotient obtained by dividing $4.75 by the
Company's stock price. Marquee is a publicly traded company that provides
integrated event management, television production, marketing and consulting
services in the sports, news and entertainment industries.

The consummation of the Marquee Merger is subject to the satisfaction of a
number of conditions set forth in the Marquee Merger Agreement, including, but
not limited to, the approval of the stock holders of Marquee of the transactions
contemplated thereby and the receipt of all applicable consents to the Marquee
Merger from third parties.

   Cellar Door

On August 13, 1998, the Company and the beneficial owner of all of the
outstanding equity interest of the entities comprising the Cellar Door Companies
(collectively, "Cellar Door") entered into a letter of intent with respect to
the Company's acquisition of all of the outstanding capital stock of Cellar Door
(the "Cellar Door Acquisition"). Pursuant to the letter of intent, the aggregate
purchase price for Cellar Door will be $70.0 million in cash payable at closing,
Class A Common Stock with a value of $20.0 million (based upon the average
closing price of the Class A Common Stock for the twenty business day period
ending on the business day prior to the closing) and $8.5 million payable in
five equal annual installments beginning on the first anniversary of the closing
date. In addition, the Company will issue to the seller options to purchase
100,000 shares of the Company's Class A Common Stock. The closing will be
subject to customary closing conditions, including the entry into a definitive
acquisition agreement and obtaining the required approval under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). If the Company is unable to complete the Cellar Door Acquisition, it may
be required to pay the seller $10.0 million as liquidated damages. Cellar Door
is a leading promoter and producer of live entertainment events.

The Marquee Merger and the Cellar Door Acquisition are collectively referred to
herein as the "Pending Acquisitions." The Company expects to complete the
Pending Acquisitions during the first quarter of 1999. However, the timing and
completion of the Pending Acquisitions are subject to a number of conditions,
certain of which are beyond the Company's control, and there can be no assurance
that any of the Pending Acquisitions will be consummated during such period, on
the terms described herein, or at all. The Company received notice of a
preliminary inquiry from the Antitrust Division of the U.S. Department of
Justice relating to the Cellar Door Acquisition and seeking information on the
overall scope of the Company's operations. The Company intends to cooperate with
the Department of Justice inquiry. While the Company believes that the Cellar
Door Acquisition, along with the Company's overall business and plan of
acquisitions, are in compliance with applicable antitrust laws, there can be no
assurance that the results of such an inquiry will not have a material adverse
impact on the Company's ability to consummate the Cellar Door Acquisition or its
business, results of operations and financial condition.

The consummation of the acquisitions by the Company and other future
acquisitions will result in substantial charges to earnings relating to interest
expense and the recognition and amortization of goodwill and other intangible
assets. As of September 30, 1998, the Company's goodwill was approximately
$894.9 million. This balance will substantially increase due to the Pending
Acquisitions. Goodwill and other intangible assets are being amortized using the
straight-line method over 15 years.

STOCK INCENTIVE PLAN

Following a recommendation of the Company's compensation committee, the Company
has, subject to stockholder approval, adopted a new incentive stock option plan
covering options to acquire up to three million shares of the Company's Class A
Common Stock. The plan will be designed to broaden the equity ownership of the
Company's employees at all levels. The Company anticipates that the proposed
stock plan will be submitted to a vote of the stockholders at the Company's
first annual meeting scheduled to be held in the spring of 1999.

                                       20
<PAGE>

RESULTS OF OPERATIONS

The Company's operations consist primarily of (a) concert promotion and venue
operation, (b) the promotion and production of theatrical events, particularly
Touring Broadway Shows, (c) the promotion and production of motor sports events
and (d) representation of professional athletes. The Company also engages in
various other activities ancillary to their live entertainment businesses.

   Concert Promotion and Venue Operation

The Company's concert promotion and venue operation business consists primarily
of the promotion of concerts and operation of venues primarily for use in the
presentation of musical events. The Company's primary source of revenues from
its concert promotion activities is from ticket sales at events promoted by the
Company. As a venue operator, the Company's primary sources of revenue are
sponsorships, concessions, parking and other ancillary services, derived
principally from events promoted by the Company.

Revenue from ticket sales is affected primarily by the number of events the
Company promotes, the average ticket price and the number of tickets sold. The
average ticket price depends on the popularity of the artist whom the Company is
promoting, the size and type of venue and the general economic conditions and
consumer tastes in the market where the event is being held. Revenue and margins
are also affected significantly by the type of contract entered into with the
artist or the artist's representative. Generally, the promoter or venue operator
will agree to pay the artist the greater of a minimum guarantee or a profit
sharing payment based on ticket revenue, less certain show expenses. The
promoter or venue operator assumes the financial risk of ticket sales and is
responsible for local production and advertising of the event. However, in
certain instances, the promoter agrees to accept a fixed fee from the artist for
its services, and the artist assumes all financial risk. When the promoter or
venue operator assumes the financial risk, all revenue and expenses associated
with the event are recorded. When the artist assumes the risk, only the fee is
recorded. As a result, operating margins would be significantly greater for
fee-based events as opposed to events for which the Company assumes the risk of
ticket sales, although profits per event would tend to be lower. Operating
margins can vary from period to period.

The Company's most significant operating expenses are talent fees, production
costs, venue operating expenses (including rent), advertising costs and
insurance expense. The booking of talent in the concert promotion business
generally involves contracts for limited engagements, often involving a small
number of performances. Talent fees depend primarily on the popularity of the
artist, the ticket price that the artist can command at a particular venue and
the expected level of ticket sales. Production costs and venue operating
expenses have substantial fixed cost components and lesser variable costs
primarily related to expected attendance.

   Theatrical

The Company's theatrical operations are directed mainly towards the promotion
and production of Touring Broadway Shows, which generate revenues primarily from
ticket sales and sponsorships. The Company may also participate in ancillary
revenues, such as concessions and merchandise sales, depending on its agreement
with a particular local promoter/venue operator. Revenue from ticket sales is
primarily affected by the popularity of the production and the general economic
conditions and consumer tastes in the particular market and venue where the
production is presented. In order to reduce its dependency on the success of any
single touring production, the Company sells advance annual subscriptions that
provide the purchaser with tickets for all of the shows that the Company intends
to tour in the particular market during the touring season. Approximately 34% of
ticket sales for Touring Broadway Shows presented by the Company are sold
through advance annual subscriptions. Subscription related revenues received
prior to the event date are initially recorded on the balance sheet as deferred
revenue; after the event occurs, they are recorded on the statement of
operations as gross revenue. Expenses are capitalized on the balance sheet as
prepaid expenses until the event occurs. Subscriptions for Touring Broadway
Shows typically cover approximately two-thirds of the Company's break-even cost
point for those shows.

Principal operating expenses related to touring shows include talent, rent,
advertising and royalties. Talent costs are generally fixed once a production is
cast. Rent and advertising expense may be either fixed or variable based on the
arrangement with the particular local promoter/venue operator. Royalties are
generally paid as a percentage of gross ticket sales.

The Company also makes minority equity investments in original Broadway
productions, principally as a means to obtain rights


                                       21
<PAGE>

for touring shows, and in certain Touring Broadway Shows. These investments are
accounted for using either the equity method or the cost method of accounting,
based on the relative size of the investment. The Company monitors the
recoverability of these investments on a regular basis, and the Company may be
required to take write-offs if the original production closes or if the Company
determines that the production will not recoup the investment. The timing of any
write-off could adversely affect operating results in a particular quarter.

   Motor Sports

The Company's motor sports activities consist principally of the promotion and
production of specialized motor sports, which generate revenues primarily from
ticket sales and sponsorships, as well as merchandising and video rights
associated with producing motor sports events. Ticket prices for these events
are generally lower than for theatrical or music concert events, generally
ranging from $5 to $30. Revenue from these sources is primarily affected by the
type of event and the general economic conditions and consumer tastes in the
particular markets and venues where the events are presented. Event-related
revenues received prior to the event date are initially recorded on the balance
sheet as deferred revenue; after the event occurs, they are recorded on the
statement of operations as gross revenue. Expenses are deferred on the balance
sheet as prepaid expenses until the event occurs.

Operating expenses associated with motor sports activities include talent, rent,
track preparation costs, security and advertising. These operating expenses are
generally fixed costs that vary based on the type of event and venue where the
event is held.

Under certain circumstances, the Company may be required to sell either its
motor sports or theatrical lines of business.

   Representation of Professional Athletes

Through FAME, the Company's talent representation activities consist principally
of the representation of team sports athletes, primarily in the National
Basketball Association ("NBA"), in player contract and endorsement negotiations.
FAME also provides certain investment advisory services to its clients through
an affiliate. FAME typically receives a percentage of monies earned by a player,
generally approximately 4% of a player's sports contract and typically from 15%
to 25% of endorsement deals. Revenue from these sources is recognized as the
player receives his salary or endorsement payments based on the terms of the
negotiated agreement. Revenue from these sources is dependent upon a number of
variables, many of which are outside the Company's control, including a player's
skill, health, public appeal and the appeal of the sport in which the player
participates. Principal operating expenses include salaries, wages and travel
and entertainment expenses. On a pro forma basis for the 1998 Acquisitions,
FAME's EBITDA would have comprised approximately 6% of the Company's EBITDA for
the twelve months ended June 30, 1998. The owners of the teams in the NBA have
instituted a "lock-out" of the basketball players on their respective teams,
causing cancellation of some of the games for the 1998-99 basketball season. If
such NBA lock-out continues for an extended period of time, it will have a
significant negative impact on FAME's revenues and EDITDA.

   Other Businesses

The Company's other principal businesses include (a) the production and
distribution of radio industry trade magazines, (b) the production of radio
programming content and show-prep material and (c) the provision of radio air
play and music retail research services. The primary sources of revenues from
these activities include (a) the sale of advertising space in its publications
and the sale of advertising time on radio stations that carry its syndicated
shows, (b) subscription fees for its trade publications and (c) subscription
fees for access to its database of radio play list and audience data. Revenues
generally vary based on the overall advertising environment and competition.

The Company also provides marketing and consulting services pursuant to
contracts with individual clients for specific projects. Revenues from and costs
related to these services vary based on the type of service being provided and
the incremental associated costs.

   Seasonality

The Company's operations and revenues are largely seasonal in nature, with
generally higher revenue generated in the second and third quarters of the year.
For example, on a pro forma basis for the 1997 Acquisitions, the Company
generated approximately 68% of its revenues in the second and third quarters for
the twelve months ended December 31, 1997. The Company's outdoor venues are
primarily utilized in the summer months and do not generate substantial revenue
in the late fall,



                                       22
<PAGE>

winter and early spring. Similarly, the musical concerts that the Company
promotes largely occur in the second and third quarters. To the extent that the
Company's entertainment marketing and consulting relate to musical concerts,
they also predominantly generate revenues in the second and third quarters.
Therefore, the seasonality of the Company's business causes (and, upon
consummation of the Pending Acquisitions, will probably continue to cause) a
significant variation in the Company's quarterly operating results. These
variations in demand could have a material adverse effect on the timing of the
Company's cash flows and, therefore, on its ability to service its obligations
with respect to its indebtedness. However, the Company believes that this
variation may be somewhat offset with the acquisition of typically non-summer
seasonal businesses in the 1998 Acquisitions, such as motor sports (which is
winter-seasonal) and Touring Broadway Shows (which typically tour between
September and May).

Three months ended September 30, 1998 compared to the three months ended
September 30, 1997

The Company's revenue increased by $344.6 million to $388.0 million for the
three months ended September 30,1998, compared to $43.4 million for the three
months ended September 30, 1997, primarily as a result of the 1998 Acquisitions.
The 1998 Acquisitions significantly increased the concert promotion and venues
operation business and expanded the Company's business to include theatrical
promotion and production, motor sports promotion and production, representation
of professional athletes and radio magazine publishing, programming and
research. On a pro forma basis, assuming all companies owned as of September 30,
1998 were owned as of July 1, 1998, revenue for the three months ended
September 30, 1998 would have been $407.7 million.

Cost of revenue increased by $296.3 million to $331.9 million for the three
month period ended September 30, 1998, compared to $35.6 million for the three
months ended September 30,1997, primarily as a result of the 1998 Acquisitions.
On a pro forma basis, cost of revenues, including certain cost savings related
to the acquisitions the Company anticipates realizing, would have been $350.9
million for the three month period ended September 30, 1998.

Depreciation and amortization expense increased to $21.2 million for the three
month period ended September 30,1998 compared to $2.3 million for the three
month period ended September 30, 1997, due to the inclusion of depreciation and
amortization expense related to the 1998 Acquisitions, and the completion of
capacity expansion projects at two amphitheaters. In addition, the Company
recorded $1.0 million of integration costs for the three month period ended
September 30,1998. The company recorded the fixed assets of the 1998
Acquisitions at fair value and recorded intangible assets equal to the excess of
purchase price over the fair value of the net tangible assets, which are being
amortized over a 15 year period.

Corporate expenses were $2.5 million for the three month period ended September
30, 1998, net of $133,000 fees received from Triathlon, compared to $259,000 for
the three months ended September 30, 1997, net of Triathlon fees of $491,000.
The increase in corporate expense reflects the growth of the Company's
operations and the formation of SFX Live, the national marketing division of the
Company.

Non-cash charges recorded in the third quarter of 1998 of $843,000 related to
the issuance of stock options to certain executive officers pursuant to
employment agreements for an aggregate of 345,000 shares of Class A Common
Stock. These options vest over three years and have an exercise price of $5.50
per share. The Company is recording non-cash compensation charges of
approximately $3.3 million annually over the three-year exercise period.

Operating income was $31.6 million for the three month period ended September
30, 1998, compared to $5.3 million for the three months ended September 30,
1997, due to the results discussed above.

Interest expense, net of investment income, was $12.5 million in the three
months ended September 30, 1998, compared to $283,000 for the three months ended
September 30, 1997, primarily as a result of incurrence of additional debt
related to the 1998 Acquisitions.

Minority interest was $916,000 for the three months ended September 30, 1998 as
a result of the 1998 Acquisitions.

Income from equity investments was $2.1 million for the three months September
30, 1998 as a result of the 1998 Acquisitions.

Income tax expense was $2.0 million for the three month period ended September
30, 1998. The provision is primarily for state and local taxes and reflects the
impact of non-deductible goodwill amortization and other non-cash charges. No
federal tax expense has been recognized due to the uncertainty of the Company's
having taxable income for the full year.


                                       23
<PAGE>


The Company's net income was $18.3 million for the three month period ended
September 30, 1998, as compared to $3.4 million for the three months ended
September 30, 1997, due to the factors discussed above.

EBITDA defined as earnings before interest, taxes, other income, net equity
income (loss) from investments and depreciation and amortization, and excluding
non-cash charges, increased to $53.7 million for the three month period ended
September 30, 1998, compared to $7.6 million for the three months ended
September 30, 1997, primarily as a result of the 1998 Acquisitions. On a pro
forma basis, EBITDA including certain cost savings related to the 1998 
Acquisitions would have been $56.9 million for the three month period ended
September 30, 1998.

Nine months ended September 30, 1998 compared to the nine months ended September
30, 1997

The Company's revenue increased by $606.0 million to $680.4 million for the nine
months ended September 30, 1998, compared to $74.4 million for the nine months
ended September 30, 1997, primarily as a result of the 1998 Acquisitions and the
acquisitions of the Meadows in March 1997 and Sunshine in June 1997. The 1998
Acquisitions significantly increased the concert promotion and venues operation
business and expanded the Company's business to include theatrical promotion and
production, motor sports promotion and production, representation of
professional athletes and radio magazine publishing, programming and research.
On a pro forma basis, assuming all companies owned as of September 30, 1998 were
owned as of January 1, 1998, revenue for the nine months ended September 30,
1998 would have been $925.1 million.

Cost of revenue increased by $539.5 million to $602.5 million for the nine month
period ended September 30, 1998, compared to $63.0 million for the nine months
ended September 30,1997, primarily as a result of the 1998 Acquisitions and the
acquisition of Sunshine in June 1997. On a pro forma basis, cost of revenue,
including certain cost savings the Company anticipates realizing related to the
acquisitions, would have been $812.7 million for the nine month period ended
September 30, 1998.

Depreciation and amortization expense increased to $40.3 million for the nine
month period ended September 30, 1998 compared to $4.0 million for the nine
month period ended September 30, 1997, due to the inclusion of depreciation and
amortization expense related to the 1998 Acquisitions, the acquisition of
Sunshine in June 1997 and the completion of capacity expansion projects at two
amphitheaters. In addition, the Company recorded $1.3 million of integration
costs for the nine month period ended September 30,1998.The Company recorded the
fixed assets of the 1998 Acquisitions and the Sunshine Acquisition at fair value
and recorded intangible assets equal to the excess of purchase price over the
fair value of the net tangible assets, which are being amortized over a 15 year
period.

Corporate expenses were $5.8 million for the nine month period ended September
30, 1998, net of $398,000 fees received from Triathlon, compared to $1.3 million
for the nine months ended September 30, 1997, net of Triathlon fees of $1.7
million. The increase in corporate expense reflects the growth of the Company's
operations and the formation of SFX Live, the national marketing division of the
Company.

Non-cash charges recorded in the second and third quarter of 1998 of $32.9
million consisted of (a) $23.9 million of compensation related to sale of
650,000 shares of Class B Common Stock and 190,000 shares of Class A Common
Stock at a purchase price of $2.00 per share to certain executive officers
pursuant to employment agreements, (b) $7.5 million associated with the issuance
of 247,177 shares of Class A Common Stock to Mr. Sillerman in connection with
the repurchase (the "Meadows Repurchase") of shares of SFX Broadcasting issued
to the Sellers of Meadows and (c) $1.5 million related to the issuance of stock
options to certain executive officers pursuant to employment agreements
exercisable for an aggregate of 352,500 shares of Class A Common Stock. Of these
options, 345,000 vest over three years and have an exercise price of $5.50 per
share. The Company is recording non-cash compensation charges of approximately
$3.3 million annually over the three-year exercise period.

The operating loss was $1.3 million for the nine month period ended September
30, 1998, compared to income of $6.0 million for the nine months September 30,
1997, due to the results discussed above.

Interest expense, net of investment income, was $28.2 million in the nine months
ended September 30, 1998, compared to $743,000 for the nine months ended
September 30, 1997, primarily as a result of incurrence of additional debt
related to the 1998 Acquisitions and the debt assumed in connection with the
Meadows and Sunshine acquisitions.

Minority interest was $1.3 million for the nine months ended September 30, 1998
as a result of the 1998 Acquisitions.

                                       24
<PAGE>


Income from equity investees was $4.0 million for the nine months September 30,
1998 as a result of the 1998 Acquisitions.

Income tax expense was $3.3 million for the nine month period ended September
30, 1998. The provision is primarily for state and local taxes and reflects the
impact of non-deductible goodwill amortization and other non-cash charges. No
federal tax benefit has been recognized due to the uncertainty of realizing a
tax benefit for the Company's losses.

The Company's net loss increased to $30.2 million for the nine month period
ended September 30, 1998, as compared to net income of $3.7 million for the nine
months ended September 30, 1997, due to the factors discussed above.

EBITDA defined as earnings before interest, taxes, other income, net equity
income (loss) from investments and depreciation and amortization, and excluding
non-cash charges, increased to $72.0 million for the nine month period ended
September 30, 1998, compared to $10.0 million for the nine months ended
September 30, 1997, primarily as a result of the 1998 Acquisitions and the
acquisition of Sunshine in June 1997. On a pro forma basis, EBITDA including
certain cost savings related to the 1998 Acquisitions would have been $112.4 
million for the nine month period ended September 30, 1998.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal need for funds has been for acquisitions, interest
expense, working capital needs, certain payments in connection with the Spin-Off
and capital expenditures. The Company's principal sources of funds has been
proceeds from the Note Offering, the Equity Offering, borrowings under the
Credit Agreement and cash flows from operations. The Company will require
additional financing to complete the Pending Acquisitions and to make certain
other payments, as discussed below.

   Historical Cash Flows

Net cash provided by operations was $22.3 million for the nine months ended
September 30, 1998 as compared to $789,000 for the nine months ended September
30, 1997. The increase was primarily attributable to an increase in operating
income, before depreciation and amortization and non-cash charges of $40.4
million, related to the 1998 Acquisitions partially offset by other changes in
working capital.

Net cash used in investing activities for the nine months ended September 30,
1998 was $852.2 million as compared to $72.0 million for the nine months ended
September 30, 1997. The increase was primarily the result of the 1998
Acquisitions. During the nine months ended September 30, 1997, the Company
completed the acquisitions of Delsener/Slater, the Meadows and Sunshine.

Net cash provided by financing activities for the nine months ended September
30, 1998 was $889.5 million as compared to $78.3 million for the nine months
ended September 30, 1997. During 1998, the Company completed the issuance of its
Senior Subordinated Notes for $350.0 million, borrowed $346.0 million under the
Credit Agreement and completed the Equity Offering for $329.0 million, net,
offset by tax indemnification payments and Spin-Off related payments to SFX
Broadcasting of $113.9 million and the payment of debt issuance costs of $17.5
million.

   Pending Acquisitions

The aggregate cash consideration in the Pending Acquisitions is expected to
consist of approximately $78.5 million (including $8.5 million to be paid over
five years). In addition, the Company will be required to refinance
approximately $33.1 million of Marquee's debt and expects to incur approximately
$7.5 million in fees and expenses related to the Pending Acquisitions.

The Company expects to complete the Pending Acquisitions during the first
quarter of 1999. However, the timing and completion of the Pending Acquisitions
is subject to a number of closing conditions, certain of which are beyond the
control of the Company.

   Future Contingent Payments

Certain of the agreements relating to the 1998 Acquisitions provide for purchase
price adjustments and other future contingent payments under certain
circumstances. The PACE acquisition agreement provides that each PACE seller
will have an option, exercisable for 90 days after the fifth anniversary of the
closing of the PACE Acquisition, to require the Company to repurchase


                                       25
<PAGE>

up to 500,000 shares of the Class A Common Stock received by that seller for
$33.00 in cash per share (an aggregate of up to $16.5 million). Pursuant to the
terms of Brian Becker's employment agreement with the Company, during the period
between December 12, 1999 and December 27, 1999, Mr. Becker, an Executive Vice
President, Director and a Member of the Office of the Chairman of the Company,
will have the option to, among other things, require the Company to purchase any
stock or portion thereof (including vested and unvested options) granted to him
by the Company and/or pay him an amount equal to the present value of the
compensation payable during the remaining term of his employment agreement.

 Moreover, pursuant to the Contemporary acquisition agreement, if the average
trading price of the 1,402,850 shares of Class A Common Stock issued in the
Contemporary acquisition is less than $13.33 during the twenty days prior to the
second anniversary of the Contemporary acquisition, the Company will be required
to pay one-half of such difference for each share held by the sellers of
Contemporary on such date. Pursuant to the Network acquisition agreement, the
Company has agreed to increase the purchase price for Network based on Network's
actual 1998 EBITDA (as defined in the acquisition agreement) as follows: (a) by
$4.0 million if the 1998 EBITDA equals or exceeds $9.0 million; (b) by an
additional $4 for each $1 of additional 1998 EBITDA between $9.0 million and
$10.0 million; and (c) by an additional $6 for each $1 of additional 1998 EBITDA
between $10.0 million and $11.0 million. This contingent consideration of up to
$14.0 million is payable in shares of Class A Common Stock or, in certain
circumstances, in cash by no later than March 20, 1999.

Pursuant to the agreement relating to the acquisition of FAME, the Company is
obligated to pay to the FAME sellers additional amounts up to $15.0 million in
equal annual installments over five years contingent on the achievement by FAME
of certain EBITDA targets. The FAME agreement also provides for additional
payments by the Company to the FAME sellers if FAME's EBITDA performance exceed
the targets by certain amounts. Futhermore, if the Company disposes of all or
substantially all of the assets or voting interests of FAME during the five
years following the closing of the FAME acquisition, certain payments may become
due to the FAME sellers out of the proceeds of such sale.

Pursuant to the agreement relating to the acquisition of certain assets of
Oakdale, if the combined EBITDA (as defined in the Oakdale acquisition
agreement) of the Oakdale Music Theater and Meadows exceeds $5.5 million in
1999, the Company will be obligated to pay the Oakdale sellers between 5.0 to
5.8 times the amount of such excess. In addition, pursuant to the agreement
relating to the Other Acquisitions, if the EBITDA (as defined in the acquisition
agreement) exceeds $14.3 million in 1998 and $30.0 million in 1999, the Company
will be obligated to pay the sellers such excess. No assurance can be given that
the Company will have sufficient cash or other available sources of capital to
make any or all of the future or contingent payments described above.

   Spin-Off

In connection, with the Spin-Off, the Company entered into a tax sharing
agreement with SFX Broadcasting. Pursuant to the tax sharing agreement, as
amended, the Company is responsible for certain taxes incurred by SFX
Broadcasting, including income taxes imposed with respect to income generated by
the Company for periods prior to the Spin-Off and taxes resulting from gain
recognized by SFX Broadcasting in the Spin-Off. The Company believes that the
amount of taxes it will be required to pay in connection with the Spin-Off will
be approximately $120.0 million, of which $93.7 million was paid as of September
30, 1998. The remaining $26.2 million portion of the tax indemnity payment is 
payable on December 31, 1998. Management's estimates of the amount of the
indemnity payment are based on assumptions which management believes are
reasonable. However, upon the completion of all final tax returns, including any
potential tax audits, such assumptions could be modified in a manner that would
result in a significant variance in the actual amount of the tax indemnity.

   Interest On Notes and Borrowings Under The Credit Facility

On February 11, 1998, the Company completed the private placement of $350.0
million of 9 1/8% Senior Subordinated Notes, which were subsequently exchanged
for the Exchange Notes on July 15, 1998. Interest is payable on the Exchange
Notes on February 1 and August 1 of each year. In addition, the Company borrowed
$346.0 million under the Credit Facility at an interest rate of approximately
7.89%.

The degree to which the Company is leveraged will have material consequences to
the Company. The Company's ability to obtain additional financing in the future
for acquisitions, working capital, capital expenditures, general corporate or
other purposes are subject to the covenants contained in the instruments
governing its indebtedness. A substantial portion of the Company's cash flow
from operations will be required to be used to pay principal and interest on its
debt and will not be available for other purposes. The Indenture and the credit
agreement with respect to the credit facility (the "Credit Agreement") 


                                       26
<PAGE>

contain restrictive financial and operating covenants, and the failure by the
Company to comply with those covenants would result in an event of default under
the applicable instruments, which in turn would permit acceleration of the debt
under the instruments (and in some cases acceleration of debt under other
instruments that contain cross-default or cross-acceleration provisions).
Although the Company believes that it is currently in compliance with the
covenants under the Indenture and the Credit Facility, there can be no assurance
that it will be able to maintain such compliance in the future. The Company will
be more vulnerable to economic downturns and could also be limited in its
ability to withstand competitive pressures and in its flexibility in reacting to
changes in its industry and general economic conditions. These consequences are
not exhaustive; the Company's indebtedness could also have other adverse
consequences.

The Company's ability to make scheduled payments of principal, to pay interest
on or to refinance its debt depends on its future financial performance, which,
to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond its control, as well as the
success of the businesses to be acquired and the integration of these businesses
into the Company's operations. There can be no assurance that the Company will
be able to make planned borrowings (including under the Credit Agreement), that
the Company's business will generate sufficient cash flow from operations, or
that future borrowings will be available in an amount to enable the Company to
service its debt and to make necessary capital or other expenditures. The
Company may be required to refinance a portion of the principal amount of its
indebtedness prior to their respective maturities. There can be no assurance
that the Company will be able to raise additional capital through the sale of
securities, the disposition of assets or otherwise for any refinancing.

   Capital Expenditures

Capital expenditures totaled $44.6 million for the nine months ended September
30, 1998. The Company expects that capital expenditures for the full fiscal year
1998 will be substantially higher than historical levels, due to the planned
capital expenditures of approximately $48 million for 1998 at existing venues
(including $20.0 million for the expansion and renovation of the Jones Beach
Amphitheater and $9.5 million for the expansion and renovation of the PNC Bank
Arts Center) and capital expenditures requirements of the acquired businesses,
including $2.5 million for the construction of a new amphitheater serving the
Seattle, Washington market. The Company expects to fund its remaining capital
expenditures for 1998 (estimated by the Company to be approximately $3.4 million
(including $2.4 million of major projects and $1.0 million of other capital
expenditures)) from its cash on hand.

   Year 2000 Compliance

The Company is currently working to resolve the potential impact of the Year
2000 on the processing of date-sensitive information by the Company's computer
systems. The Year 2000 problem is the result of computer programs being written
using two digits (rather than four) to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the Year 1900 rather than the Year 2000, which could result in
miscalculations or system failures.

The Company's exposure to potential Year 2000 problems exists in two general
areas: technological operations which are in sole control of the Company, and
technological operations which are dependent in some way on one or more third
parties. Failure to achieve high levels of Year 2000 compliance in either area
could have a material adverse impact on the Company.

In the area of technological operations which are under the Company's exclusive
control, the Company is currently involved in the identification and remediation
of affected technological functions. The Company is addressing the risks
associated with respect to its accounting and financial reporting systems and is
in the process of installing new accounting and reporting systems. These systems
will provide improved reporting, allow for more detailed analysis, handle both
the 1998 Acquisitions and the Pending Acquisitions and be Year 2000 compliant.
The Company anticipates that the cost of implementing these systems will be
approximately $4.5 million, of which approximately $2.4 million has been spent
to date. The Company expects that business segments representing 88% of the
Company's pro forma revenue for the year ended September 30, 1998 will have had
the new year 2000 complaint accounting and financial systems installed as of
January 1, 1999. At present, it is anticipated that the Company's action plan
for addressing Year 2000 problems will be successfully completed in all material
respects in advance of January 1, 2000.

In the area of technological operations dependent in some way on one or more
third parties, the situation is much less in the Company's ability to predict or
control, although the Company has been in the process of examining Year 2000
compliance issues with respect to its vendors. The Company is making efforts to
ensure that the third parties on which it is heavily reliant are 



                                       27
<PAGE>

Year 2000 compliant, but cannot predict the likelihood of such compliance
occurring nor the direct or indirect costs to the Company of non-compliance by
those third parties or of securing such services from compliant third parties.
However, the Company does not anticipate that it will be subject to a material
impact in this area.

Sources of Liquidity

As of September 30, 1998, the Company's cash and cash equivalents totaled $65.6
million and its working capital was a negative $8.0 million. In February of
1998, the Company received the proceeds from the $350.0 million Note Offering
and borrowed $150.0 million under the Credit Facility. On May 27, 1998, the
Company received approximately $326.5 million in net proceeds from the Equity
Offering. A portion of the proceeds were used to repay certain indebtedness and
consummate the FAME Acquisition and Oakdale Acquisition. On May 29, 1998, the
Company received a third party payment, net of the estimated Working Capital
payment by the Company, of approximately $2.0 million in connection with the
Meadows Repurchase. In the third quarter, the Company used the remaining
proceeds of the Equity Offering and borrowed an additional $196.0 million under
the Credit Facility to complete the Don Law Acquisition, the Magicworks
Acquisition and the Other Acquisitions.

The Company has incurred and will continue to incur substantial amounts of
indebtedness. As of September 30, 1998, the Company's consolidated indebtedness
was approximately $732.0 million. The Company will incur additional indebtedness
to finance the Pending Acquisitions and may incur indebtedness from time to time
to finance acquisitions, for capital expenditures or for other purposes.

On February 26, 1998, the Company executed the Credit Agreement which
established a $300.0 million senior secured credit facility comprised of (i) a
$150.0 million eight-year term loan (the "Term Loan") and (ii) a $150.0 million
seven-year reducing revolving credit facility (the "Revolver"). On September 10,
1998, the Company entered into an agreement with its lenders to increase its
borrowing availability under the revolver portion of the credit facility by
$50.0 million, which increased the aggregate amount of borrowing availability
under the Credit Agreement to approximately $350.0 million. As of November 13,
1998, the Company had borrowed $346.0 million. Loans outstanding under the
Credit Facility will bear interest, at the Company's option, at 1.875 to 2.375
percentage points over LIBOR or the greater of the Federal Funds rate plus 0.50%
or the lender's prime rate. The interest rate spreads on the Term Loan and the
Revolver will be adjusted based on the Company's Total Leverage Ratio (as
defined in the Credit Agreement). The Company will pay a per annum commitment
fee on unused availability under the Revolver of 0.50% (to the extent that the
Company's Leverage Ratio is greater than or equal to 4.0 to 1.0), or 0.375% (if
such ratio is less than 4.0 to 1.0) and a per annum letter of credit fee equal
to the Applicable LIBOR Margin (as defined in the Credit Agreement) for the
Revolver then in effect.

The Revolver and Term Loan contain usual and customary covenants, including
limitations on (a) line of business, (b) additional indebtedness, (c) liens, (d)
acquisitions, (e) asset sales, (f) dividends, repurchases of stock and other
cash distributions, (g) total leverage, (h) senior leverage and (i) ratios of
Operating Cash Flow (as defined in the Credit Agreement) to pro forma interest
expense, debt service and fixed charges. The Company's obligations under the
Revolver and Term Loan are secured by substantially all of its assets, including
property, stock of subsidiaries and accounts receivable and are guaranteed by
the Company's subsidiaries.

In addition, the Company has received a commitment letter from its lenders to
replace its existing credit facility with a new $600.0 million credit facility.
The new facility is subject to the execution of a definitive agreement, and will
differ from the current credit facility in several respects, including
applicable financial ratios, interest rate margins and term of repayment. The
Company and its lenders are presently reviewing the pending commitment in light
of recent developments in the credit markets. The Company may renegotiate the
existing commitment, which renegotiations may significantly alter the principal
terms, or the Company may consider alternative forms of debt financing.

The Company will require additional financing in order to consummate the Cellar
Door Acquisition and to repay the indebtedness of Marquee upon the consummation
of the Marquee Merger (including any indebtedness which Marquee may incur in
connection with its pending acquisitions). Although the Company is reviewing a
pending commitment for a new credit facility and considering alternative forms
of debt financing, there can be no assurance that the Company will be able to
consummate the new credit facility or the alternative debt financing or that the
Company will be able to meet the financial requirements to borrow under any new
credit facility or debt financing. If the Company is unable to borrow the
necessary funds under a new credit facility or debt financing, it will be
required to seek alternative financing in order to consummate the Cellar Door
Acquisition and repay Marquee's indebtedness. There can be no assurance that the
Company will be able to obtain such 


                                       28
<PAGE>

alternative financing on terms acceptable to the Company or at all. If the
Company is unable to complete the Cellar Door Acquisition, it may be required
to pay the seller $10.0 million in liquidated damages.

The Company intends to finance the final tax indemnity payment due on December
31, 1998 ($26.3 million) with its cash in hand. Management's estimate of the
amount of the indemnity payment are based on assumptions that management
believes are reasonable. However, upon the completion of all final tax returns,
including any potential tax audits, such assumptions could be modified in a
manner that would result in a significant variance in the actual amount of the
tax indemnity. Furthermore, certain agreements of the Company, including the
Distribution Agreement, the Tax Sharing Agreement, Employee Benefits Agreement,
certain employment agreements and the agreements relating to the completed
acquisitions and the Pending Acquisitions, provide for tax and other
indemnities, purchase price adjustments, repurchase of Company stock and future
contingent payments in certain circumstances. There can be no assurance that the
Company will have sufficient sources of funds to make such payments should they
come due.

In addition, consistent with its operating strategy, the Company is currently
negotiating additional acquisitions and expects to pursue additional
acquisitions in the live entertainment business in the future. However, the
Company has not entered into any definitive agreements with respect to such
acquisitions and there can be no assurance that it will do so. Any such
acquisitions could result in the Company (i) issuing more of its stock (which
may dilute the value of existing stock of the Company), (ii) incurring a
substantial amount of additional debt and/or (iii) amortizing expenses related
to goodwill and other intangible assets. However, there can be no assurance that
the Company will be able to obtain financing for such acquisitions on terms
acceptable to the Company or at all. Any or all of these actions could have a
material adverse impact on the Company's business, financial condition and
results of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of An
Enterprise and Related Information" ("FAS 131"), which is effective for years
beginning after December 15, 1997. FAS 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. FAS 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and therefore the
Company will adopt the new requirements in 1998. Management has completed its
review of FAS 131 and as such has preliminarily determined that its reportable
segments will be music, theater, sports and other.


                                       29
<PAGE>


                                     PART II
                                OTHER INFORMATION

Item 1. Legal Proceedings.

         On May 5, 1998, a class action complaint was filed in Chancery Court in
the State of Delaware, New Castle County, CA #16355NC against the Company,
certain of its directors and Marquee (collectively, the "Defendants"). The
complaint alleged that the Company proposed an acquisition of Marquee and that
the proposed acquisition would be unfair to Marquee's public stockholders. The
complaint sought an order enjoining the proposed transaction, or, in the
alternative, awarding rescissory and compensatory damages.

         On July 22, 1998, the parties entered into a Memorandum of
Understanding, pursuant to which the parties have reached an agreement providing
for a settlement of the action (the "Settlement"). Pursuant to the Settlement,
the Company acknowledged that the legal action was a significant factor in
improving the terms of its offer to acquire Marquee. The Settlement also
provides for the Defendants to pay plaintiffs" counsel an aggregate of $310,000,
including all fees and expenses as approved by the court. The Settlement is
conditioned on the (1) closing of the merger, (2) completion of confirmatory
discovery and (3) approval of the court. Pursuant to the Settlement, the
Defendants have denied, and continue to deny, that they have acted improperly in
any way or breached any fiduciary duty.

         On October 16, 1998, the Company and Marquee entered into amendment no.
3 to the Marquee Merger Agreement ("Amendment No. 3"). In entering into
Amendment No. 3, the Company and Marquee took into consideration the concerns
and interests of the plaintiffs in the litigation and, it is therefore their
intention to attempt to finalize a revised Memorandum of Understanding with
plaintiff's counsel. There can be no assurance, however, that the parties will
enter into a revised Memorandum of Understanding or that the court will approve
any settlement on the terms and conditions provided for therein, or at all.

         On October 8, 1998, Universal Concerts II, Inc. ("Universal") brought
suit in the Superior Court of the State of California, Los Angeles County,
against PACE Amphitheaters, Inc., PACE Entertainment Group, Inc., the Company,
Brian Becker and Allen Becker alleging, among other things, that the Company's
acquisitions of Pace Entertainment Corporation ("PACE") and Concert/Southern
Promotions caused breaches of certain agreements with Universal. The compliant
alleges that PACE is in breach of a co-promotion agreement, that Brian and Allen
Becker are in breach of non-competition agreements and that the Company has
intentionally interfered with contracts between the plaintiff and certain of the
defendants. The defendants have not answered the complaint and there has been no
discovery as yet. Although the lawsuit seeks damages in an unspecified amount,
in management's view, the realistic amount in controversy is not material to the
business or prospects of the Company. The defendants intend to defend the case
vigorously.

Item 2.  Changes in Securities and Use of Proceeds.

(c)      In July 1998, the Company issued an aggregate of 300,000 shares of
the Company's Class A common stock in connection with the acquisition of a
company in the music business (with such shares being subject to piggyback and
demand registration rights).

         The above transaction was a private transaction not involving a public
offering and was exempt from the registration provisions of the Securities Act
of 1933, as amended (Securities Act), pursuant to Section 4(2) thereof. The sale
of securities was without the use of an underwriter, and the shares bear a
restrictive legend permitting the transfer thereof only upon registration of the
shares or an exemption under the Securities Act.


Item 6.  Exhibits and Reports on Form 8-K.

         (a)  Exhibits:

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<PAGE>


Exhibit
Number            Description
------            -----------
3.1               Amended and Restated Certificate of Incorporation of SFX
                  Entertainment, Inc. (incorporated by reference to Amendment
                  No. 1 to Form S-1 (File No. 333-50079) filed with the
                  Commission on May 5, 1998) .

3.2               Bylaws of SFX Entertainment, Inc. (incorporated by reference
                  to Amendment No. 2 to Form S-1 (File No. 333-43287) filed with
                  the Commission on February 2, 1998).

4.1               Indenture dated February 11, 1998, by and among SFX
                  Entertainment, Inc., certain of its subsidiaries and the Chase
                  Manhattan Bank (incorporated by reference to Report on Form
                  8-K of SFX Broadcasting, Inc. (File No. 000-22486) filed with
                  the Commission on February 18, 1998).

10.1              Agreement and Plan of Merger, dated as of July 23, 1998, among
                  SFX Entertainment, Inc., SFX Acquisition Corp. and The Marquee
                  Group, Inc. (incorporated by reference to the Company's Report
                  on Form 8-K (File No. 0-24017) filed with the Commission on
                  August 5, 1998).

10.2              Agreement and Plan of Merger, dated as of August 6, 1998,
                  among SFX Entertainment, Inc., MWE Acquisition Corp. and
                  Magicworks Entertainment Incorporated (incorporated by
                  reference to the Company's Schedule 14D-1 filed with the
                  Commission on August 13, 1998).

10.3              Increase Supplement to the Credit and Guarantee Agreement,
                  dated as of September 10, 1998, by and among SFX
                  Entertainment, Inc., the Subsidiary Guarantors party thereto,
                  the Lenders party thereto, Goldman Sachs Partners, L.P., as
                  co-documentation agent, Lehman Commercial Paper, Inc., as
                  co-documentation agent and The Bank of New York, as
                  administrative agent (incorporated by reference to the
                  Company's Report on Form 8-K filed with the Commission on
                  September 22, 1998).

10.4              Amendment No. 1, dated as of September 21, 1998, to the
                  Agreement and Plan of Merger among SFX Entertainment, Inc.,
                  SFX Acquisition Corp. and The Marquee Group, Inc.
                  (incorporated by reference to The Marquee Group, Inc. Report
                  on Form 8-K (File No. 0-21711) filed with the Commission on
                  October 9, 1998).

10.5              Amendment No. 2, dated as of October 5, 1998, to the Agreement
                  and Plan of Merger among SFX Entertainment, Inc., SFX
                  Acquisition Corp. and The Marquee Group, Inc. (incorporated by
                  reference to The Marquee Group, Inc. Report on Form 8-K (File
                  No. 0-21711) filed with the Commission on October 9, 1998).

10.6              Amendment No. 3, dated as of October 16, 1998, to the
                  Agreement and Plan of Merger among SFX Entertainment, Inc.,
                  SFX Acquisition Corp. and The Marquee Group, Inc.
                  (incorporated by reference to the Company's Report on Form 8-K
                  filed with the Commission on October 20, 1998).

11.1*             Statement Regarding Computation of Per Share Earnings.

27*               Financial Data Schedule
*Filed herewith


(b)               Reports on Form 8-K:

On July 10, 1998, the Company filed a Report on Form 8-K pursuant to Item 2
disclosing the consummation of its acquisition of Blackstone Entertainment LLC.
The Form 8-K was amended on September 11, 1998, to include certain pro-forma
financial information with respect to such acquisition.

On August 5, 1998, the Company filed a Report on Form 8-K pursuant to Item 5
disclosing its entry into an agreement to acquire The Marquee Group, Inc.

On September 22, 1998, the Company filed a Report on Form 8-K pursuant to Item 5
disclosing the consummation of its acquisition of Magicworks Entertainment
Incorporated and the Company's notification by the Antitrust Division of the
U.S. 

                                       31
<PAGE>

Department of Justice of a preliminary inquiry relating to the proposed
acquisitions of The Marquee Group, Inc. and the Cellar Door group of companies.

On October 20, 1998, the Company filed a Report on Form 8-K pursuant to Item 5
disclosing the execution of amendments to the agreement to acquire The Marquee
Group, Inc.

























                                       32
<PAGE>


                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                                  SFX ENTERTAINMENT, INC.



Date:  November 13, 1998                        By:  /s/ Thomas P Benson
                                                    ---------------------------
                                                     Thomas P. Benson
                                                     Chief Financial Officer and
                                                     Vice President




                                       33