<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   Form 10-K
                       FOR ANNUAL AND TRANSITION REPORTS
     PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)

      [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  
      EXCHANGE ACT OF 1934
      For the fiscal year ended December 31, 1998
                                       OR

      [ ] 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                (I.R.S. Employer
            of Incorporation)                     Identification No.)

      650 MADISON AVENUE, 16TH FLOOR                     10022
            NEW YORK, NEW YORK                        (ZIP CODE)
 (Address of Principal Executive Offices)

                                 (212) 838-3100
              (Registrant's telephone number, including area code)


          Securities registered pursuant to Section 12(b) of the Act:
                                      None
          Securities registered pursuant to Section 12(g) of the Act:

                      Class A Common Stock, $.01 par value
                                (Title of Class)

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

     Aggregate market value as of the close of business on March 24, 1999 of
the common equity held by non-affiliates of the registrant was $1,768,313,085.

     The number of shares of the registrant's Class A Common Stock, $.01 par
value, and Class B Common Stock, $.01 par value, outstanding as of March 24,
1999 was 35,548,238 and 1,697,037 respectively.


                      DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the registrant's Proxy Statement for its Annual Meeting of
Stockholders, as described in the Cross Reference Sheet and Table of Contents
included herewith, are incorporated by reference into Part III of this Report.


<PAGE>




                             CROSS REFERENCE SHEET
                                      AND
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                              Page Number
                                                                                                           or Reference (1)

                                                                PART I

<S>                <C>                                                                                     <C>
ITEM 1.           Business................................................................................          3
ITEM 2.           Properties..............................................................................         17
ITEM 3.           Legal Proceedings.......................................................................         17
ITEM 4.           Submission of Matters to a Vote of Security Holders.....................................         18

                                                                PART II
ITEM 5.           Market for the Company's Common Stock and Related Stockholder
                  Matters.................................................................................         18
ITEM 6.           Selected Consolidated Financial Data of the Company ....................................         19
ITEM 7.           Management's Discussion and Analysis of Financial Condition and
                  Results of Operations...................................................................         20
ITEM 7A.          Quantitative and Qualitative Disclosures About Market Risk..............................         38
ITEM 8.           Financial Statements and Supplementary Data.............................................         38
ITEM 9.           Changes in and Disagreements with Accountants on Accounting and
                  Financial Disclosure....................................................................         38

                                                               PART III
ITEM 10.          Directors and Executive Officers of the Registrant (2)..................................
ITEM 11.          Executive Compensation (3)..............................................................
ITEM 12.          Security Ownership of Certain Beneficial Owners and Management (4)......................
ITEM 13.          Certain Relationships and Related Transactions (5)......................................

                                                                PART IV
ITEM 14.          Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................          39
</TABLE>


-------------------------
1.   Certain information is incorporated by reference, as indicated below, from
     the registrant's Proxy Statement for its Annual Meeting of Stockholders
     (the "Proxy Statement").
2.   Proxy Statement section entitled "Election of Directors."
3.   Proxy Statement sections entitled "Director Compensation" and "Executive
     Compensation." 
4.   Proxy Statement section entitled "Stock Ownership."
5.   Proxy Statement section entitled "Certain Relationships and Related
     Transactions."


                                       2

<PAGE>


                                     PART I
ITEM 1.  BUSINESS

GENERAL

         SFX Entertainment, Inc. ("SFX" or the "Company") is the world's
largest diversified promoter, producer and venue operator for live
entertainment events. In addition, SFX is a leading fully-integrated sports
marketing and management company specializing in the representation of athletes
and broadcasters, integrated event management, television programming and
production and marketing consulting services. SFX owns, partially or entirely,
and/or operates under lease or exclusive booking arrangements, the largest
network of venues used principally for music concerts and other live
entertainment events in the United States, with 82 venues in 31 of the top 50
markets, including 16 amphitheaters in the top 10 markets. SFX operates in four
major business segments within the live entertainment industry: music, theater,
sports and family entertainment and other. For financial information about
SFX's business segments see Note 16 to SFX's Consolidated Financial Statements.

         SFX has benefited from significant growth in the live entertainment
industry over the last several years. SFX believes that its ability to provide
integrated services as a promoter, producer, venue operator and manager of live
entertainment events will encourage wider use of its venues by performers. SFX
further believes that this ability will allow SFX to capture a greater
percentage of revenues generated by those events and may contribute to the
overall growth of the live entertainment industry.

         Through its large number of venues, its strong, branded presence in
each market served and its long operating history, SFX is able to provide
integrated promotion and production services for a broad variety of live
entertainment events locally, regionally and nationally. During 1998, giving
effect to SFX's 1998 and 1999 acquisitions described herein, approximately 37
million people attended approximately 13,200 events promoted and/or produced by
SFX, including approximately 6,250 music concerts, 5,800 theatrical shows, over
800 family entertainment shows and over 350 specialized motor sports shows.
These events included:

     o    music concerts featuring artists such as The Rolling Stones, Tom
          Petty, Rod Stewart, Ozzy Osbourne and Alanis Morissette;

     o    music festivals such as the George Strait Country Music Festival;

     o    touring theatrical productions such as Jekyll & Hyde, Rent and
          Cabaret;

     o    specialized motor sports events, such as Truck Fest and U.S.
          Supercross racing events; and

     o    family-orientated productions such as The Magic of David Copperfield
          and Lord of the Dance.

         SFX's core business is the promotion and production of live
entertainment events, most significantly for concert and other music
performances in venues owned and/or operated by SFX and in third-party venues.
As promoter, SFX typically markets events and tours, sells tickets, rents or
otherwise provides event venues and arranges for local production services,
such as stage, set, sound and lighting. As producer, SFX:

     o    creates tours for music concerts, theatrical events, specialized
          motor sports and other events;

     o    develops and manages touring Broadway touring theatrical shows; and

     o    develops specialized motor sports and other live entertainment
          events.

         As venue owner/operator, SFX books and promotes events in the venues
which it controls. SFX believes that its leadership position in the industry
enhances its ability to maximize ancillary revenue opportunities, including
corporate sponsorship sales, advertising, concession sales and product
merchandising. For the year ended December 31, 1998, SFX had pro forma net
revenue of approximately $1.345 billion, assuming all of the 1998 and 1999
acquisitions described herein were completed as of January 1, 1998.

         SFX also represents over 650 professional athletes and broadcasters
for contract and marketing services. In addition, SFX's event marketing
programs demonstrated products to over 10 million people in 1998.

         The following table presents each segment's percentage of SFX's total
revenues for the year ended December 31, 1998, on a pro forma basis for the
1998 and the 1999 acquisitions described herein:


                                       3
<PAGE>



                                                        YEAR ENDED
                                                     DECEMBER 31, 1998
                                                      (% OF PRO FORMA
                                                         REVENUES)
                                                         ---------
    SEGMENTS
    -------- 
    Music, including venue operations..........             58%
    Theater......................................           18%
    Sports.......................................           11%
    Family Entertainment and Other...............           13%

         Unless otherwise indicated, all references in this Annual Report on
Form 10-K to "SFX" means SFX Entertainment, Inc., and its subsidiaries, after
giving effect to the 1998 Acquisitions and the 1999 Acquisitions, each as
defined below. See "--1998 Acquisitions" and "--1999 Acquisitions." SFX's
executive offices are located at 650 Madison Avenue, New York, New York 10022.
Its telephone number at such location is (212) 838-3100.

FORMATION OF SFX

         SFX's predecessor, SFX Concerts, Inc., was formed in January 1997 by
SFX's former parent, SFX Broadcasting, Inc. On April 27, 1998, SFX was spun-off
from SFX Broadcasting and became a separate publicly-traded company. Since its
formation, SFX has grown rapidly through acquisitions. The following is a
summary of certain of SFX's material businesses that SFX acquired in 1997, 1998
and 1999. The following descriptions are not intended to be complete
descriptions of the terms of the acquisition agreements and are qualified by
reference to the acquisition agreements. Copies of certain of these acquisition
agreements are filed as exhibits to this Annual Report on Form 10-K and are
incorporated herein by reference. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."

1997 ACQUISITIONS

         In January 1997, SFX Concerts acquired Delsener/Slater, a leading
concert promotion company. Delsener/Slater has long-term leases or is the
exclusive promoter for several of the major concert venues in the New York City
metropolitan area, including the Jones Beach Amphitheater, which is a
14,000-seat complex located in Wantagh, New York, and the PNC Bank Arts Center,
which is a 17,500-seat complex located in Holmdel, New Jersey. In March 1997,
Concerts acquired the stock of certain companies which own and operate the
Meadows Music Theater, a 25,000-seat indoor/outdoor complex located in
Hartford, Connecticut. In June 1997, Concerts acquired the stock of Sunshine
Promotions, one of the largest concert promoters in the Midwest. Sunshine
Promotions owns the Deer Creek Music Theater, a 21,000-seat complex located in
Indianapolis, Indiana, and 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

1998 ACQUISITIONS

         BGP

         On February 24, 1998, SFX acquired BG Presents, one of the oldest
promoters and producers of live entertainment in the United States and the
principal promoter of live entertainment in the San Francisco Bay area.

         PACE and Pavilion Partners

         On February 25, 1998, SFX acquired all of the outstanding capital
stock of PACE Entertainment Corporation, one of the largest diversified
promoters and producers of live entertainment in the United States. PACE has
what SFX believes to be the largest distribution network in each of its music,
theatrical and sports business segments. In connection with the acquisition of
PACE, SFX has obtained 100% of Pavilion by acquiring one-third of Pavilion
through the acquisition of PACE and the remaining two-thirds of Pavilion from
Sony and Blockbuster. Under certain circumstances, SFX may be required to sell
either its motor sports or theatrical lines of business. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Safe Harbor for Forward Looking Statements--Risk Factors--SFX may
be forced to sell some of its subsidiaries, which may prevent SFX from
realizing the full value of these subsidiaries."

         Prior to its acquisition by SFX, PACE entered into a co-promotion
agreement with its partner in connection with PACE's acquisition of partnership
interests in Lakewood Amphitheater in Atlanta, Georgia and Starplex
Amphitheater in Dallas, Texas. The co-promotion agreement contains a provision
that purports, under certain circumstances, to require PACE to co-promote, and
share one-half of the profits and losses, with such partnership certain
concerts which are presented by PACE or any of its affiliates in another venue
located in either Atlanta, Georgia or Dallas, Texas. In connection with the
Concert/Southern 



                                       4
<PAGE>

acquisition described below, SFX acquired an interest in Chastain Park
Amphitheater, located in Atlanta. SFX is currently involved in litigation with
PACE's partner. See "Item 3. Legal Proceedings."

         Contemporary

         On February 27, 1998, SFX acquired by merger and asset acquisition the
music concert, live entertainment, event marketing, computerized ticketing and
related businesses of Contemporary Group and the remaining 50% interest in the
Riverport Amphitheater Joint Venture not owned by Contemporary. Contemporary is
a vertically-integrated live entertainment and special event promoter and
producer, venue operator and consumer marketer. Contemporary is also one of the
top special event sales promotion and marketing companies in the country.
Contemporary develops programs for national consumer product companies and for
demonstrating, sampling and selling products to consumers. Contemporary's
clients have included CBS TV, Radio Shack, Coca Cola USA, Reebok, Nabisco and
the NBA.

         Network

         On February 27, 1998, SFX acquired Album Network, Inc., SJS
Entertainment Corporation and the assets of The Network 40 as well as an office
building and related property. Network is engaged in music marketing, research
and artist development activities, the production and distribution of radio
programming, and is a publisher of trade magazines for radio broadcasters,
music retailers, performers and record industry executives.

         FAME

         On June 4, 1998, SFX acquired all of the outstanding capital stock of
Falk Associates Management Enterprises, Inc. and Falk Advisory Management
Enterprises, Inc., collectively defined as "FAME", a leading full-service
marketing and management company which specializes in the representation of
team sports athletes, primarily in professional basketball. In addition, FAME
provides specialized financial advisory services to its clients.

         Don Law

         On July 2, 1998, SFX acquired certain assets of Blackstone
Entertainment LLC, herein referred to as Don Law, a concert and theater
promoter which owns and/or operates three venues in New England.

         Magicworks

         On September 11, 1998, SFX purchased all of the outstanding shares of
common stock of Magicworks Entertainment Incorporated. Magicworks specializes
in the production and promotion of live entertainment events such as theatrical
shows, musical concerts, ice skating shows and other forms of live
entertainment. Magicworks also provides personal representation and sports
marketing services to professional athletes in such sports as figure skating,
baseball and tennis.

         Other Acquisitions

         In 1998, SFX completed the acquisition of thirteen additional
companies in the music, theatrical, sports and family entertainment and other
segments. These acquisitions included four concert promotion and venue owner/
operators, two concert promotion companies, three theatrical presenters, a
theatrical presenter and venue owner/operator, a motor sports promoter and
presenter, a concert merchandising company and an equity owner of an SFX
amphitheater.

         The foregoing acquisitions are referred to herein as the "1998
Acquisitions."

1999 ACQUISITIONS

         Cellar Door

         On February 19, 1999, SFX acquired all of the issued and outstanding
capital stock of the Cellar Door group of companies. Cellar Door is a leading
promoter and producer of live entertainment events. Jack Boyle, the founder and
former chairman of Cellar Door, was appointed as a non-voting observer to the
board of directors of SFX and the chairman of SFX's music segment.


                                       5
<PAGE>

         Nederlander

         On March 16, 1999, SFX acquired certain interests in seven venues
and other assets from entities controlled by members of the Nederlander family
and other persons. In addition, SFX acquired 100% interests in entities that
provide concert performances and hold rights to construct the Mesa del Sol
Centre for the Performing Arts in Albuquerque, New Mexico.

         Marquee

         On March 16, 1999, a wholly owned subsidiary of SFX was merged with
and into Marquee Group, Inc. and Marquee became a wholly owned subsidiary of
SFX. Marquee provides integrated event management, television programming and
production, marketing, talent representation and consulting services in the
sports, news and other entertainment industries. Marquee's event management,
television programming and production, consulting and marketing services
involve:

     o    producing television programs, principally sports entertainment and
          children's programs;

     o    managing sporting events, such as The Breeders' Cup Championship,
          AT&T Challenge, The Guardian Direct Cup and the Isuzu Celebrity Golf
          Championship;

     o    marketing professional and collegiate athletic leagues and
          organizations; and

     o    consulting to clients engaged in, or seeking exposure in, sports and
          entertainment related industries.

         Other Acquisitions

         During the first quarter of 1999, SFX also completed the acquisitions
of: The Entertainment Group, Inc., a concert and theatrical producer and
promoter with operations in Chicago and Mexico City; Integrated Sports
International, L.P. ("ISI"), a full-service sports marketing company; and a
company involved in business management and tour production in music and the
performing arts. In addition, SFX entered into a long-term agreement to provide
booking, group sales and marketing consultation services for the Rosemont
Horizon, a 17,500 seat arena, and the Rosemont Theater, a 4,000 seat theater,
both located in suburban Chicago.

         SFX is also currently pursuing certain additional acquisitions;
however, as of the date of this report, it has not entered into any definitive
agreements with respect to such acquisitions, and there can be no assurance
that it will do so.

         The foregoing acquisitions are referred to herein as the "1999
Acquisitions."

BUSINESS SEGMENTS OF SFX

         SFX operates in four major business segments within the live
entertainment industry: music, theater, sports and family entertainment and
other. See Note 16 to SFX's Consolidated Financial Statements.

       MUSIC

         Within its music segment, SFX is engaged in:

         o    booking and promoting music events and tours;

         o    producing music events and tours;

         o    owning and/or operating concert and other entertainment venues; 
              and

         o    selling corporate sponsorships and advertising

         Booking and Promotion

         Promotion of music 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. As a promoter, SFX generally receives revenues from
the sale of tickets and sponsorships. When SFX promotes an event at a venue
which it owns or manages, it also generally receives a percentage of revenues
from concessions, merchandising, parking and premium box seats. See "--Venue
Operations."

         SFX books and promotes music concerts in a number of types of venues
that are owned and/or operated by SFX or by third parties. See "--Venue
Operations." SFX primarily promotes concerts performed by newer performers
having widespread popularity--such as the Dave Matthews Band, the Spice Girls
and N SYNC--and by more established performers having relatively long-standing
and more stable bases of popularity--such as Billy Joel and Jimmy Buffett. SFX
believes that its large distribution network will enable it to set an aggregate
guarantee for a series of shows, mitigating the risk of loss 


                                       6
<PAGE>

associated with a single show. SFX also believes that the market research and
audience demographics databases that it acquired in the 1998 Acquisitions, when
combined with its existing audience data collection efforts, will permit
highly-effective, targeted marketing, such as direct-mail and subscription
series campaigns, which SFX believes will increase ticket pre-sales and overall
sales in a cost-efficient manner.

         The following table identifies artists whose events SFX recently
promoted:
<TABLE>
<CAPTION>

<S>                                   <C>                          <C>                            <C> 
Aerosmith                            Elton John                    Lauryn Hill                    Rod Stewart*
Alabama                              Fleetwood Mac*                Melissa Etheridge              The Rolling Stones
Alanis Morissette                    Hanson                        Metallica                      Sheryl Crow
Billy Joel                           James Taylor                  N SYNC*                        Smashing Pumpkins
Black Sabbath*                       Dave Matthews                 Ozzy Osbourne*                 Spice Girls
Brooks & Dunn                        Depeche Mode                  Pearl Jam                      Stone Temple Pilots
Chris Rock*                          Janet Jackson                 Pink Floyd                     Tim Allen*
Clint Black                          Jerry Seinfeld*               Phish                          Tina Turner
Crosby, Stills & Nash                Jimmy Buffett                 R.E.M.                         U2
</TABLE>
---------------------
*SFX produced tour.

         Production

         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. As a producer, SFX generally receives
revenues from guarantees and from profit sharing agreements with promoters, a
percentage of the promoters' ticket sales, merchandising, sponsorships,
licensing and the exploitation of intellectual property and other rights
related to the production.

         SFX's acquired businesses produce tours on a national or regional
basis and, in 1998, structured national tours for Rod Stewart and Ozzy
Osbourne, among others. SFX plans to increase its production of national music
tours.

         Venue Operations

         SFX derives revenues from its venue operations primarily from
corporate sponsorships and advertising, concessions, merchandise, parking and
other related items. A venue operator typically receives for each event it
hosts a fixed fee or percentage of ticket sales for use of the venue, as well
as a fee representing approximately 50% of total concession sales from the
vendors and 10-25% of total merchandise sales from the performer. As a venue
owner, SFX typically receives 100% of sponsorship and advertising revenues.

         SFX believes that it controls the largest network of venues used
principally for music concerts and other live entertainment events in the
United States. SFX wholly or partially owns and/or operates 82 venues in 31 of
the top 50 markets, including 16 amphitheaters in the top 10 markets. The
following chart sets forth certain information with respect to the venues that
SFX wholly or partially owns and/or operates:

<TABLE>
<CAPTION>
                                    MARKET    TYPE OF                                                                 TOTAL
MARKET AND VENUE                    RANK(1)   VENUE                     SFX'S INTEREST                         SEATING CAPACITY
----------------                    -------   -------                   --------------                         ----------------- 
<S>                                <C>       <C>                        <C>                                    <C>
NEW YORK-NORTHERN NEW JERSEY-LONG       1
ISLAND:
PNC Bank Arts Center ...............          Amphitheater              22-year lease that expires October           17,500
                                                                        31, 2017

Jones Beach Theatre  ...............          Amphitheater              10-year license agreement that               14,400
                                                                        expires December 31, 1999

Roseland Ballroom ..................          Theater                   Exclusive booking agent                       3,600

Westbury Music Fair ...............           Theater                   43-year lease that expires December           2,870
                                                                        31, 2034

Irving Plaza ......................           Theater                   10-year lease that expires July 30,           1,121
                                                                        2007

Beacon Theatre ....................           Theater                   49% partnership interest in 15-year           2,849
                                                                        lease that expires December 31, 2006

                                       7
<PAGE>

                                    MARKET    TYPE OF                                                                 TOTAL
MARKET AND VENUE                    RANK(1)   VENUE                     SFX'S INTEREST                         SEATING CAPACITY
----------------                    -------   -------                   --------------                         ----------------- 
LOS ANGELES-RIVERSIDE-ORANGE            2
COUNTY:
Glen Helen Blockbuster Pavilion ...           Amphitheater              25-year lease that expires July 1,          25,000(2)
                                                                        2018
Irvine Meadows Amphitheater .......           Amphitheater              Facility owned; 20-year land lease           15,500
                                                                        that expires February 28, 2017
Thousand Oaks Civic Arts Plaza ....           Theater                   5-year exclusive booking agent that           1,800
                                                                        expires May 2003
CHICAGO-GARY-KENOSHA:                   3
The Palace Theater(3) ............            Theater                   50% partnership interest in 49-year           2,350
                                                                        lease that expires May, 2048
Rosemont Horizon ..................           Arena                     10-year consulting agreement that            17,500
                                                                        expires January 1, 2009 (4)
Rosemont Theater ..................           Theater                   10-year consulting agreement that             4,000
                                                                        expires January 1, 2009 (4)
The World Music Theatre............           Amphitheater              50% interest in 19-year lease that           28,000
                                                                        expires December, 2013 and 19-year
                                                                        booking and management agreement
                                                                        that expires November, 2013
WASHINGTON-BALTIMORE:                   4
Nissan Pavilion at Stone Ridge ....           Amphitheater              20-year lease that expires June 9,           25,000
                                                                        2014
Merriweather-Post Pavilion.........           Amphitheater              10-year lease that expires December          18,000
                                                                        31, 2007
SAN FRANCISCO-OAKLAND-SAN JOSE:         5
Shoreline Amphitheater ............           Amphitheater              Facility owned; land lease expires           22,000
                                                                        November 30, 2021
Concord Pavilion ..................           Amphitheater              10-year exclusive outside booking            12,500
                                                                        agent until December 31, 2005
Greek Theater .....................           Theater                   4-year promotion agreement that               8,500
                                                                        expires October 31, 2002
Warfield Theatre ..................           Theater                   10-year lease that expires May 31,          2,250(5)
                                                                        2008
Fillmore Auditorium ...............           Theater                   10-year lease that expires August             1,249
                                                                        31, 2007
Punch Line Comedy Club ............           Club                      5-year lease that expires September            175
                                                                        15, 2001
PHILADELPHIA-WILMINGTON-                6
 ATLANTIC CITY:
Blockbuster/SONY Music                        Amphitheater              31-year lease that expires September         25,000
 Entertainment Centre at the                                            29, 2025
Waterfront ........................

BOSTON-WORCESTER-LAWRENCE:              7

Tweeter Center for the Performing             Amphitheater              Owned                                        19,500
Arts ..............................
Bank Boston Pavilion (formerly                Amphitheater              Five- year license agreement that             5,000
Harborlights Pavilion).............                                     expires January 29, 2004
Orpheum Theatre ...................           Theater                   4-year operating agreement that               2,700
                                                                        expires December 31, 2000
Avalon ............................           Club                      5-year exclusive booking agreement            1,350
                                                                        that expires June 30, 2003
Charles Playhouse (main stage) ....           Theater                   Owned                                          525
Charles Playhouse (basement) ......           Theater                   Owned                                          200
Wilbur Theatre ....................           Theater                   5-year lease that expires August 25,          1,223
                                                                        2001
Colonial Theatre ..................           Theater                   8-year lease that expires August 31,          1,704
                                                                        2001

                                       8
<PAGE>


                                    MARKET    TYPE OF                                                                 TOTAL
MARKET AND VENUE                    RANK(1)   VENUE                     SFX'S INTEREST                         SEATING CAPACITY
----------------                    -------   -------                   --------------                         ----------------- 
DETROIT-ANN ARBOR-FLINT:                8
Pine Knob Music Theatre ...........           Amphitheater              Preferred booking arrangement                16,646
The Palace at Auburn Hills ........           Arena                     Preferred booking arrangement               15,000(6)
Detroit State Theatre                         Theater                   Exclusive booking arrangement                74,075
Meadowbrook Amphitheater                      Amphitheater              Exclusive booking arrangement                18,850
DALLAS-FORT WORTH:                      9
Starplex Amphitheater .............           Amphitheater              32.5% partnership interest in                20,500
                                                                        31-year lease that expires December
                                                                        31, 2028
HOUSTON-GALVESTON-BRAZORIA:            10
Cynthia Woods Mitchell Pavilion ...           Amphitheater              15-year management contract that             13,000
                                                                        expires December 31, 2009
Aerial Theater at Bayou Place .....           Theater                   50% partnership interest in 10-year           2,800
                                                                        lease that expires December 31, 2007
ATLANTA:                               11
Lakewood Amphitheater .............           Amphitheater              32.5% partnership interest in                19,000
                                                                        35-year lease that expires January
                                                                        1, 2019
Chastain Park Amphitheater ........           Amphitheater              10-year lease that expires December           7,000
                                                                        31, 2000
Roxy Theater ......................           Club                      7-year lease that expires March 31,           1,500
                                                                        2004
Cotton Club .......................           Club                      Presently month-to-month relocating            650
                                                                        to new premises under 10-year lease
                                                                        that expires July 31,  2009
MIAMI-FORT LAUDERDALE:                 12
Sunrise Musical Theatre ...........           Theater                   Owned                                         3,968
Parker Playhouse ..................           Theater                   4-year exclusive booking agreement            1,185
                                                                        that expires October 17, 2000
SEATTLE-TACOMA-BREMERTON:              13


White River Amphitheatre (7).......           Amphitheater              Long-term management agreement               20,000
PHOENIX-MESA:                          16

Desert Sky Blockbuster                        Amphitheater              60-year lease that expires June 30,          19,900
 Pavilion .........................                                     2049
ST. LOUIS:                             18
Riverport Amphitheater ............           Amphitheater              Owned                                        21,000
American Theater ..................           Theater                   10-year lease that expires July 31,           2,000
                                                                        2004
Westport Playhouse ................           Theater                   Year-to-year lease, that expires May          1,100
                                                                        31, 1999
PITTSBURGH:                            19
Star Lake Amphitheater ............           Amphitheater              45-year lease that expires December          22,500
                                                                        31, 2034
I.C. Light Amphitheater ...........           Amphitheater              License agreement that expires                4,235
                                                                        December 31, 2004
DENVER:                                21
Mammoth Events Center .............           Theater                   Owned                                         3,000
CINCINNATI:                            23
Bogart's...........................           Club                      5-year lease that expires August 31,          1,450
                                                                        2002
Crown Arena........................           Arena                     1/3 ownership interest of arena, and         16,200
                                                                        5-year management agreement that
                                                                        expires February 12, 2002

                                       9
<PAGE>


                                    MARKET    TYPE OF                                                                 TOTAL
MARKET AND VENUE                    RANK(1)   VENUE                     SFX'S INTEREST                         SEATING CAPACITY
----------------                    -------   -------                   --------------                         ----------------- 
Riverbend Amphitheater.............           Amphitheater              13-year management and booking               19,000
                                                                        agreement that expires after 2011
                                                                        season
Taft Theater.......................           Theater                   10-year lease that expires July 31,           2,500
                                                                        2005

KANSAS CITY:                           24

Sandstone Amphitheater ............           Amphitheater              10-year lease that expires December          18,000
                                                                        31, 2002
Starlight Theater .................           Theater                   Concert presentation agreement that           9,000
                                                                        expires September 30, 2000
Memorial Hall .....................           Theater                   5-year management contract that               3,000
                                                                        expires January 1, 2004
MILWAUKEE-RACINE:                      25

Marcus Amphitheater ...............           Amphitheater              50% partnership in lease that                22,828
                                                                        expires in 2000
Modjeska Theater ..................           Theater                   Exclusive booking                             1,800
Alpine Valley Music Theatre........           Amphitheater              50% interest in 26-year lease that           35,000
                                                                        expires August 31, 2019; 19-year
                                                                        booking and management agreement
                                                                        that expires November, 2013
SACRAMENTO-YOLO:                       26
Punch Line Comedy Club ............           Club                      9-year lease that expires December             245
                                                                        31, 2000
Yuba County Amphitheatre (7) ......           Amphitheater              Owned                                        18,500
NORFOLK-VIRGINIA BEACH-NEWPORT         27
NEWS:
GTE Virginia Beach Amphitheater ...           Amphitheater              30-year lease that expires in 2026           20,000
The Boathouse .....................           Concert Hall              Lease that expires in 2013                    2,460
The Abyss                                     Club                      Exclusive booking                               900
INDIANAPOLIS:                          28
Deer Creek Music Center ...........           Amphitheater              Owned                                        21,000
Murat Theatre .....................           Theater and Ballroom      50-year lease that expires August             2,700
                                                                        31, 2045
COLUMBUS:                              30
Polaris Amphitheater ..............           Amphitheater              Owned                                        20,000
CHARLOTTE-GASTONIA-ROCK HILL:          32
Charlotte Blockbuster Pavilion ....           Amphitheater              Owned                                        18,000
HARTFORD:                              37
Meadows Music Theater .............           Amphitheater              Facility owned; land lease that              25,000
                                                                        expires September 13, 2034
Oakdale Theater ...................           Theater                   Facility owned; 15-year land lease            4,800
                                                                        that expires June 3, 2013
NASHVILLE:                             40
Starwood Amphitheater .............           Amphitheater              Owned                                        17,000
ROCHESTER:                             41
Finger Lakes Amphitheater .........           Amphitheater              Year to year co-promotion agreement          12,700
                                                                        that expires December 31, 1999
Harro East Theater ................           Theater                   7-year exclusive booking agreement            1,050
                                                                        that expires November 4, 2005
RALEIGH-DURHAM-CHAPEL HILL:            45
Alltel Pavilion at Walnut Creek....           Amphitheater              40-year lease that expires October           20,000
                                                                        31, 2030

                                      10
<PAGE>


                                    MARKET    TYPE OF                                                                 TOTAL
MARKET AND VENUE                    RANK(1)   VENUE                     SFX'S INTEREST                         SEATING CAPACITY
----------------                    -------   -------                   --------------                         ----------------- 
WEST PALM BEACH-BOCA RATON:            48
SONY Music/Blockbuster                        Amphitheater              Lease that expires December 31, 2005         20,000
 Coral Sky Amphitheater ...........
Royal Poinciana Playhouse .........           Theater                   6-year lease that expires October              878
                                                                        31, 2004
LOUISVILLE:                            49
Palace Theatre ....................           Theatre                   50% ownership                                 2,700
ALBUQUERQUE:                           62
Mesa Del Sol Centre (7)............           Amphitheater              Owned                                        15,000
SPRINGFIELD:                           70
Tanglewood ........................           Amphitheater              Exclusive booking agreement that             13,802
                                                                        expires July 27, 1999
RENO:                                  125
Reno Hilton Amphitheater ..........           Amphitheater              4-year exclusive promotion agreement          8,500
                                                                        that expires December 31, 2001
</TABLE>

----------------------------------------

(1)  Based on the July 1996 population of metropolitan statistical areas as set
     forth in the Internet Press Release, dated December 1997, by the
     Population Estimates Program, Population Division, U.S. Bureau of the
     Census. Excludes venues where SFX sells subscriptions for touring Broadway
     shows.
 
(2)  Additional seating of approximately 40,000 is available for certain
     events.

(3)  Venue is closed for renovation and is scheduled to re-open in Summer 1999.

(4)  Consulting agreement provides for booking, group sales and marketing
     consultation services. Venue is available for rental by all promoters.

(5)  Most shows have standing room, which increases capacity.

(6)  Additional seating of approximately 5,000 is available for certain events.

(7)  Venue is currently under development.

         Because SFX operates a number of its venues under leasing or booking
agreements, its long-term success will depend on its ability to renew these
agreements when they expire or end. There can be no assurance that it will be
able to renew these agreements on acceptable terms or at all, or that it will
be able to obtain attractive agreements with substitute venues.

         Sponsorships and Advertising

         To maximize revenues, SFX actively pursues the sale of local, regional
and national corporate sponsorships, including naming venues such as the
BankBoston Pavilion (formerly known as the Harborlights Pavilion). In addition,
SFX designates "official" event or tour sponsors, credit card companies, phone
companies, film manufacturers and radio stations, among others. Sponsorship
arrangements can provide significant additional revenues at negligible
incremental cost, and many of SFX's venues currently have no sponsorship
arrangements in many of the available categories, including naming rights. SFX
believes that the national venue network it has assembled will likely attract a
larger number of major corporate sponsors and enable SFX to sell national
sponsorship rights at a premium over local or regional sponsorship rights. SFX
also pursues the sale of corporate advertising at its venues, and believes that
it has substantial billboard and other advertising space available that it has
not yet begun to utilize. SFX also believes that its relationships with
advertisers will enable it to better utilize available advertising space, and
that the aggregation of its audiences nationwide will create the opportunity
for advertisers to access a nationwide market.

         Competition and Seasonality

         SFX competes with other venues in markets where SFX owns or operates a
venue, and competes with venues in markets where SFX does not own or operate a
venue for dates for popular national tours. Consequently, touring artists have
significant alternatives to SFX venues in scheduling tours. In addition, in the
markets in which SFX promotes musical concerts, it faces competition from other
local, regional or national promoters, as well as from certain artists that
promote their own concerts. SFX believes that barriers to entry into the
promotion services business are low, and that certain local promoters are
increasingly expanding the geographic scope of their operations.

         SFX's outdoor venues are primarily used in the summer months and do
not generate substantial revenue in the late fall, winter and early spring.
Similarly, the musical concerts that SFX promotes largely occur in the second
and third quarters.

                                      11
<PAGE>


      Theater

     SFX produces touring and original Broadway shows by acquiring the stage
and touring rights from authors or owners, hiring the creative and technical
staff, assembling the cast, and arranging for the construction and design of
sets and costumes. Touring Broadway shows are typically revivals of previous
commercial successes or new productions of theatrical shows currently playing
on Broadway in New York City. SFX invests in original Broadway productions as a
lead producer or as a limited partner in productions produced by others.
Frequently, SFX obtains touring rights and favorable scheduling for the
productions in order to distribute them across its presenting network. SFX
generally invests from $150,000 to $750,000 in the productions. In addition,
SFX owns certain theaters in which the touring Broadway shows are presented.
See "--Venue Operations."

                The touring Broadway show production and presentation industry
is highly fragmented. SFX believes it is the largest multiple-market producer
and presenter of touring Broadway shows in the United States. After giving
effect to the 1998 and 1999 Acquisitions, SFX would have had a producing
interest or investment in the following shows for 1998 and/or 1999, among
others:

SHOW TITLE                         TYPE                       SFX'S INVOLVEMENT
----------                         ----                       -----------------
Big                                Touring                       Production
Blue Man Group                     Boston                        Production
Blues Clues                        Touring                       Production
Cabaret                            Touring                       Production
The Civil War                      Broadway                      Production
Evita                              Touring                       Production
Fame                               Touring                       Production
Fiddler on the Roof                Touring                       Production
The Gin Game                       Touring                       Production
Harmony                            Development                   Production
Havana                             Development                   Production
Jekyll & Hyde                      Broadway & Touring            Production
Rugrats, A Live Adventure          Touring                       Production
Smokey Joe's Cafe                  Touring                       Production
Sunset Blvd.                       Touring                       Production
The Sound of Music                 Broadway                      Production
Tony and Tina's Wedding            Touring                       Production
Victor, Victoria                   Touring                       Production
West Side Story                    Touring (US & UK)             Production
A Chorus Line                      Touring (US & UK)             Investment
Annie                              Touring                       Investment
Cirque Ingenieux                   Touring                       Investment
Chicago                            Broadway, Touring (UK)        Investment
Death of a Salesman                Broadway                      Investment
Fascinating Rhythm                 Broadway                      Investment
Footloose                          Broadway & Touring            Investment
Rent                               Broadway & Touring            Investment
Steel City                         Touring                       Investment
Swan Lake                          Broadway                      Investment
You're a Good Man, Charlie Brown   Broadway                      Investment

         SFX believes that there are approximately 50 domestic markets that can
provide the potential audience and gross ticket revenues for a full scale
touring Broadway show to be profitable, and an additional 50 markets where
smaller scale productions with shorter runs can be presented profitably. These
cities have only a limited number of venues that can accommodate a touring
Broadway show.


                                      12
<PAGE>

         SFX currently sells subscription series for its touring Broadway shows
in the following 38 markets that maintain active touring schedules:
<TABLE>
<CAPTION>

<S>                              <C>                            <C>                       <C>
Albuquerque, NM                  Costa Mesa, CA                 Minneapolis, MN           San Antonio, TX
Atlanta, GA                      Dallas, TX                     Nashville, TN             Seattle, WA
Austin, TX                       Eugene, OR                     New Orleans, LA           Tampa, FL
Baltimore, MD                    Ft. Lauderdale, FL             Omaha, NE                 Tempe, AZ
Boise, ID                        Houston, TX                    Orlando, FL               Wallingford, CT
Boston, MA                       Indianapolis, IN               Palm Beach, FL            Wichita, KS
Chicago, IL                      Jacksonville, FL               Pensacola, FL             Ottawa, Canada
Cincinnati, OH                   Louisville, KY                 Pittsburgh, PA            Edmonton, Canada
Colorado Springs, CO             Miami, FL                      Portland, OR
Columbus, OH                     Milwaukee, WI                  Salt Lake City, UT
</TABLE>

         Competition and Seasonality

         SFX competes with a number of other entities to acquire the rights to
produce and/or present Broadway and touring Broadway theatrical shows,
including such large national competitors as Walt Disney Theatrical
Productions, Really Useful Group Ltd., Cameron Mackintosh, The Nederlander
Organization and Dodger Endemol Theatricals. In addition, SFX competes with
many smaller local and regional presenters. As a producer of a Broadway show,
SFX competes with producers of other Broadway shows for box office sales,
talent and theatre space. As the producer of a touring show, SFX competes with
producers of other touring Broadway shows to book the production in desirable
presentation markets.

         The Theatrical presenting season generally runs from September through
May.

         SPORTS

         Upon consummation of the FAME acquisition in June 1998, SFX became a
leading full-service provider of marketing and management services,
specializing in the representation of team sports athletes, primarily in
professional basketball. SFX expanded its presence in the sports industry
through its acquisition of ISI in February 1999 and Marquee in March 1999. ISI
is a full service sports marketing company which offers an extensive array of
services, including athlete marketing and representation. Marquee represents
over 500 professional athletes, broadcasters, musicians and entertainers and
its services encompass the negotiation of employment agreements and the
creation and evaluation of endorsement, promotional and other business
opportunities for such personalities. SFX's sports segment primarily generates
revenues through the negotiation of professional sports contracts and
endorsement contracts for its clients. SFX's clients have endorsed products for
companies such as Nike, McDonald's, Coca-Cola and Chevrolet. In addition, SFX
generates a small portion of its sports-related revenues by providing certain
financial management and planning services to its clients, through its
investment affiliate that was also acquired in the FAME acquisition and which
is a registered investment advisor. SFX's sports segment also generates
revenues from the sale of entitlements or naming rights to third party venues.
SFX believes that it will be able to capitalize on the synergies, which exist
between the representation of athletes in corporate marketing opportunities and
the sale of corporate sponsorships and other marketing rights at its existing
venues.

         SFX's sports segment has derived a significant portion of its revenues
to date from a small number of its clients, primarily in professional
basketball. SFX estimates that five of FAME's basketball clients accounted for
approximately 27% of SFX's sports related revenue for the year ended December
31, 1998. On a pro forma basis giving effect to the ISI and Marquee
acquisitions the same five clients would have accounted for approximately 5% of
SFX's sports-related revenues for the same period. The amount of endorsement
and other sports related revenues that these clients generate is a function of,
among other things, the clients' professional performance and public appeal.
Factors beyond SFX's control, such as injuries to clients, declining skill or
labor unrest, among others, could have a material adverse affect on SFX's
operations. Representation agreements with clients are generally for a term of
one year with automatic renewal options. A significant number of SFX's
representation agreements are terminable on 15 days' notice, although SFX would
continue to be entitled to the revenue streams generated during the remaining
term of any contracts that it negotiated. The termination or expiration of
SFX's contracts with certain clients could have a material adverse affect on
SFX's operations.

         The owners of the teams in the NBA locked out their players from
participation in league activities from July 1, 1998, to January 6, 1999, which
caused cancellation of some of the games for the 1998/1999 basketball season.
This NBA season began on February 5, 1999, with a reduced game schedule. The
cancellation of over 30 games per team for the current NBA season had a
negative impact on FAME's revenues and EBITDA.

                                      13
<PAGE>

         SFX's sports segment also produces over 350 motor sports events, such
as monster truck events, tractor pulls, mud races, demolition derbies and motor
cross races, and designs tracks and other elements for those events.

         Competition and Seasonality

         The marketing and athlete representation industry is highly
competitive. SFX's competitors include several large companies, such as
Advantage International and International Management Group. In addition, SFX
competes with several smaller entities. In the specialized motor sports
industry, SFX generally competes with various local and regional companies.

                The sports marketing and athlete representation businesses
primarily earn revenue ratably over the year, whereas the motor sports business
operates primarily in the winter.

         FAMILY ENTERTAINMENT AND OTHER

         SFX formed its family entertainment segment in the fourth quarter of
1998. SFX's family entertainment segment produces and presents family-oriented
entertainment such as children's theatrical shows, dance shows, ice-skating,
and gymnastics shows. In 1998, SFX's family entertainment segment produced and
presented events such as The Magic of David Copperfield and Lord of the Dance
both domestically and internationally. The family entertainment segment also
produces ice skating and gymnastics television specials and tours such as Ice
Wars and the Reese's Rock n' Roll Gymnastics Championship. In 1999, SFX will
produce and present the Radio City Christmas Spectacular in Chicago and Mexico
City and will open a new themed attraction in Orlando, Florida named "Titanic
Ship of Dreams."

         In addition, SFX provides a variety of marketing and consulting
services derived from or complementary to its live entertainment operations,
including local, regional and national live marketing programs and subscription
or fee based radio and music industry data compilation and distribution. Live
marketing programs are generally specialized advertising campaigns designed to
promote a client's product or service by providing samples or demonstrations in
a live format, typically at malls and college campuses. Additionally, SFX
believes that it is one of the leading producers of national mall touring
events, producing over 65 events every year in the country's shopping malls.
These events, either in stores or mall congregation areas, are designed to
promote brand awareness and drive follow-up sales. SFX believes that, along
with mall events, it is one of the industry leaders in events produced on
college campuses.

         SFX is also engaged in music marketing, research and artist
development activities, and is a publisher of trade magazines for radio
broadcasters, music retailers, performers and record industry executives. Each
of SFX's magazines focuses on research and insight common to a specific
contemporary radio format. SFX also provides radio airplay and music retail
research services to record labels, artist managers, retailers and radio
broadcasters.

         SFX, through Network, creates and distributes network radio special
events and live concert programming for over 400 music radio stations in the
top 200 United States radio markets. Additionally, SFX produces eight daily
radio "show prep" services that stations use to supplement in-house content
production. Network also provides consulting and entertainment marketing
services to corporate clients with music business interests.

         Competition and Seasonality

         For a description of the competition with respect to SFX's Family
Entertainment business, see "--Theater--Competition and Seasonality." SFX's
marketing and consulting business generally competes with other specialized
promotion agencies, such as Momentum, GMR, Market Source and Super Marketing.
SFX's radio trade publications and related market research business generally
competes with other such publications, including Radio & Records and Hits
Magazine.

         The family entertainment and other segment generally earns revenue
ratably over the year.

AGREEMENTS WITH TICKETMASTER AND OGDEN

               On November 13, 1998, SFX and Ticketmaster entered into a
binding agreement pursuant to which SFX granted Ticketmaster the exclusive
right to sell and distribute tickets for SFX's events worldwide. SFX is
currently evaluating its existing internal ticket operations, which were
acquired in the 1998 Acquisitions; however, SFX does not believe that its
ticketing operations are material to its financial condition or results of
operation.



                                      14
<PAGE>

         On December 23, 1998, SFX and Ogden Corporation entered into a
long-term agreement pursuant to which Ogden will become the exclusive food and
beverage concessionaire at all entertainment venues owned or controlled by SFX.
SFX anticipates that the revenues associated with its ticket and food and
beverage sales will increase in 1999 as a result of these agreements.

OPERATING STRATEGY

         SFX's principal objectives are to maximize revenue and cash flow
growth opportunities by being a leading promoter and producer of live
entertainment events and a leading provider of talent representation services
and owning and/or operating leading live entertainment venues in the United
States. SFX's specific strategies include the following:

         Own And/Or Operate Leading Live Entertainment Venues in Nation's Top
50 Markets

         A key component of SFX's strategy is to own and/or operate a network
of leading live entertainment venues in the nation's top 50 markets. SFX
believes that this strategy will enhance its ability to:

     o    utilize its nationwide venue footprint, significant industry
          expertise and access to a large aggregate audience to secure more
          events and distribute content on a national scale;

     o    sell additional products and maximize numerous other related revenue
          sources, including sponsorships and other marketing opportunities;

     o    position itself to produce national tours by leading performers to
          capture a greater percentage of revenues from those tours;

     o    encourage wider use by performers of SFX's venues by providing
          centralized access to a nationwide network of venues; and

     o    take advantage of economies of scale to increase, for example,
          concession and related revenues.

         SFX believes that it controls the largest network of venues used
principally for music concerts and other live entertainment events in the
United States. SFX wholly or partially owns and/or operates under lease or
exclusive booking arrangements 82 venues, including 16 amphitheaters in the top
10 markets.

         Maximize Ancillary Revenue Opportunities

         SFX intends to enhance revenues and cash flows by maximizing revenue
sources arising from and related to its leadership position in the live
entertainment business. Management believes that these related revenue sources
generally have higher margins than promotion and production revenues and
include, among others, the sale of corporate sponsorship, naming and other
rights, concessions, merchandise, parking and other products and services and
the sale of rights to advertise to SFX's large aggregate national audience.
Categories available for sponsorship arrangements include the naming of the
venue itself and the designation of "official" event or tour sponsors,
concessions providers, credit card companies, phone companies, film
manufacturers and radio stations, among others. Sponsorship arrangements can
provide significant additional revenues at negligible incremental cost, and
many of SFX's venues currently have no sponsorship arrangements in many of the
available categories, including naming rights. SFX also intends to maximize
related revenues by developing and exploiting intellectual property rights
associated with its production of musical concert tours and themed events such
as regional music festivals and branded characters created as an integral part
of the content, marketing and merchandising of certain motor sports events. In
addition, SFX intends to develop Internet opportunities, including affinity
clubs, through the creation of a common SFX web site.

         SFX has recently entered into memoranda of understanding covering the
sale of naming rights with respect to four venues. SFX has also recently
entered into approximately 20 national sponsorships with respect to national
tours arranged by SFX or for the exploitation of the SFX national network of
venues. The majority of these sponsorships are for clients that are either new
to SFX or to the entertainment industry generally.

         Exploit Synergies of the Acquired Businesses

         SFX plans to maximize revenues by exploiting synergies among, and
incorporating the best business practices of, its various businesses. SFX also
intends to exploit synergies resulting from the consolidation of venue
ownership and SFX's expanding overall size. For example, SFX believes that the
radio industry trade publications of Network will enable SFX to introduce new
acts and new musical releases to radio programming directors nationwide. This
exposure can enhance recorded music sales and, in turn, music concert
attendance, particularly for artists having relationships with SFX. In
addition, SFX believes that it will be able to capitalize on the
cross-marketing opportunities that may arise by virtue of representing
prominent team athletes while selling corporate sponsorships and other
marketing rights at its existing venues.

                                      15
<PAGE>

         Increase Use of Venues; Diversification of Acts and Venues

         Typically, a venue is not used for many of the dates available for
live entertainment events in any given season. SFX believes that it will be
able to increase the utilization of its venues through:

o        its ability to affect scheduling on a nationwide basis;
o        its local knowledge, relationships and expertise; and
o             its presentation of a variety of additional events, including
              comedy acts, magic acts, motivational speeches, national figure
              skating and gymnastics competitions and exhibitions and bull
              riding competitions, among others.

         SFX believes that a diversified portfolio of performers, events and
venues reduces reliance on the commercial success of any one performer, event
or venue.

         Innovative Event Marketing

         SFX plans to use innovative event marketing to increase admissions,
sponsorship and advertising revenues and to develop ticketing strategies more
accurately reflecting demand, resulting in increases in both lower prices and
premium priced tickets. In particular, SFX believes that it can increase the
profitability of its venues by offering premium ticket packages, including:

     o    season ticket packages that include amenities such as preferred
          seating, VIP parking, waiter service, private club and/or "upscale"
          concession menus;

     o    subscription series packages, allowing customers to purchase tickets
          for a set of performances; and

     o    preferred seating, such as box seating and VIP seating areas, which
          typically generate higher revenues per seat.

         SFX acquired market research and audience demographics databases
through certain of the 1998 Acquisitions. These databases, when combined with
SFX's existing audience data collection efforts, will permit highly-effective
targeted marketing, such as direct-mail and subscription series campaigns,
which SFX believes will increase ticket pre-sales and overall sales in a
cost-efficient manner.

         Strict Cost Controls; Nationally Coordinated Booking, Marketing &
Accounting

         SFX's senior management imposes strict financial reporting
requirements and expense budget limitations on all of its businesses, enabling
senior management to monitor the performance and operations of all of its
businesses, to eliminate duplicative administrative costs and to realize
expense savings. Moreover, SFX believes that its size will enable it to achieve
substantial economies of scale by:

     o    completing the implementation of a nationally coordinated booking
          system for contracting for and scheduling acts, while continuing to
          utilize the substantial local expertise of the acquired businesses;

     o    establishing a centralized marketing team to exploit ancillary
          revenue streams on local, regional and national levels, including
          from sponsorship, advertising and merchandising opportunities; and

     o    implementing a centralized accounting system.

         Pursue Complementary Acquisition Opportunities

         The live entertainment business is characterized by numerous
participants, including booking agents, promoters, producers, venue owners and
venue operators, many of which are entrepreneurial, capital-constrained local
or regional businesses that do not achieve significant economies of scale from
their operations. SFX believes that the fragmented nature of the industry
presents attractive acquisition opportunities, and that its larger size will
provide it with improved access to the capital markets that will give it a
competitive advantage in implementing its acquisition strategy. Through
consolidation, SFX believes that it will be better able to coordinate
negotiations with performers and talent agents, addressing what SFX believes is
a growing desire among performers and talent agents to deal with fewer, more
sophisticated promoters. SFX intends to pursue additional strategic
acquisitions of:

     o    amphitheaters and other live entertainment venues;

     o    local and regional promoters and producers of music concert,
          theatrical, specialized motor sports and other live entertainment
          events; and

     o    companies in the sports marketing and talent representation industry.

                                      16
<PAGE>

         SFX is currently in the process of negotiating certain additional
acquisitions of live entertainment and related businesses; however, it has not
entered into definitive agreements with respect to any of such acquisitions and
there can be no assurance that it will do so.

REGULATORY MATTERS

         Because SFX relies on acquisitions of existing businesses and assets
for its growth, restrictions imposed by local, state and federal regulatory,
licensing, approval and permit requirements, including those relating to
zoning, operation of public facilities, consumer protection and antitrust, will
significantly affect its ability to acquire and operate its business. For
example, the Federal Trade Commission and the Antitrust Division of the U.S.
Department of Justice have the authority to challenge SFX's acquisitions on
antitrust grounds before or after the acquisitions are completed. Each state
where SFX operates may also challenge an acquisition under state or federal
antitrust laws. SFX may be unable to obtain the licenses, approvals and permits
it requires, including approvals under the HSR Act, from time to time to
acquire and operate live entertainment businesses in accordance with its
expansion strategy.

         SFX received a preliminary inquiry from the Department of Justice
seeking information on SFX's acquisitions of live entertainment venues and
businesses throughout the United States. The Department of Justice is
investigating whether these acquisitions might give SFX undue market power in
producing, promoting or exhibiting live entertainment events. No assurances can
be given regarding the outcome of this inquiry.

EMPLOYEES

         As of December 31, 1998, SFX had approximately 1,200 full-time
employees. Giving effect to the 1999 Acquisitions, SFX has approximately 1,650
full-time employees. SFX will also, from time to time, hire or contract for
part-time or seasonal employees or independent contractors, although its
staffing needs will vary. Management believes that its relations with its
employees are good. A number of the employees of SFX are covered by collective
bargaining agreements.

ITEM 2.  PROPERTIES

         SFX's executive offices are located at 650 Madison Avenue, 16th Floor,
New York, New York 10022. SFX wholly or partially owns and/or operates 82
venues as more fully described under "Item 1. Business--Business Segments of
SFX--Music--Venue Operations." In addition, SFX owns or leases office space
throughout the United States and abroad in connection with its operations.

ITEM 3.  LEGAL PROCEEDINGS

         In a complaint filed October 8, 1998 in the Superior Court of the
State of California, Los Angeles County, Universal Concerts II, Inc., a
California corporation formerly named MCA Concerts II, Inc., brought suit
against PACE Amphitheaters, Inc., PACE Entertainment Group, Inc., SFX
Entertainment, Inc., Brian Becker and Allen Becker. The complaint alleged,
among other things, that SFX's acquisitions of PACE and Concert/Southern caused
breaches of PACE's various agreements with Universal. The complaint alleged
that PACE is in breach of a co-promotion agreement, that Brian and Allen Becker
are in breach of non-competition agreements and that SFX has intentionally
interfered with contracts between the plaintiff and certain of the defendants.
The defendants have removed the case from the State Court to the Federal Court
for the Central Division of California and have answered the complaint denying
liability. Although the lawsuit seeks damages in an unspecified amount, in SFX
management's view, the realistic amount in controversy is not material to the
business or prospects of SFX. The defendants intend to defend the case
vigorously.

         On November 20, 1998, a group of plaintiffs filed a complaint against
11 talent agencies and 29 promoters, including SFX and several of its
subsidiaries. According to the complaint, the plaintiffs are five individual
African-Americans and five corporations owned by such individuals. The
compliant alleges action by the defendants to exclude African-Americans from
promoting concerts and seeks injunctive relief and damages for civil rights and
antitrust violations. The focus of the action appears to be industry-wide,
rather than specifically directed at SFX. SFX intends to defend the action
vigorously.

         Although SFX is involved in several suits and claims in the ordinary
course of business, it is not currently a party to any legal proceeding that it
believes would have a material adverse effect on its business, financial
condition or results of operations.

                                      17
<PAGE>


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of the stockholders during the
fourth quarter of 1998.


                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF CLASS A COMMON STOCK

         Since April 21, 1998, SFX's Class A Common Stock has been quoted on
Nasdaq National Market under the symbol "SFXE." Between April 21, 1998 and
April 27, 1998, the Class A Common Stock traded on a when-issued basis in which
shares can be traded before certificates are actually issued. Between February
18, 1998 and April 20, 1998, the Class A Common Stock traded on a when-issued
basis on the over-the-counter market under the symbol "SFXAV." The Class B
Common Stock is not publicly traded.

         The following table sets forth the high and the low closing bid
information for the shares of Class A Common Stock as reported on the
over-the-counter market through April 20, 1998, and as reported by the Nasdaq
National Market subsequent to such date. Bid quotations reflect interdealer
prices, without retail mark-up, mark-down or commissions, and may not represent
actual transactions.


                                                       CLASS A COMMON STOCK
                                                  --------------------------
1998                                                HIGH              LOW
                                                  --------          --------
First Quarter, since February 18, 1998            $25 1/4           $19 5/8
Second Quarter                                     45 7/8            25
Third Quarter                                      55                26 15/16
Fourth Quarter                                     54 7/8            22 5/8

         On March 24, 1999, the last reported sales price of the Class A Common
Stock on the Nasdaq National Market was $55.00 per share. As of March 24, 1999,
SFX had 228 holders of record of the Class A Common Stock and two holders of
record of the Class B Common Stock.

DIVIDEND POLICY

         SFX has no present plans to declare any dividends on common stock. The
terms of SFX's note indentures significantly restrict, and the Senior Credit
Facility prohibits, SFX's ability to pay dividends on common stock in the
future. The decision to declare a dividend and the amount thereof, if any, will
be in the sole discretion of the board of directors of SFX.

RECENT SALES OF UNREGISTERED SECURITIES

         On November 25, 1998, SFX sold $200.0 million in aggregate principal
amount of its 9 1/8% Senior Subordinated Notes due 2008. Morgan Stanley & Co.
Incorporated, Lehman Brothers Inc., Bank Boston Robertson Stephens Inc. and BNY
Capital Markets, Inc. were the initial purchasers of the notes and resold the
notes to certain "qualified institutional buyers," as defined in Rule 144A of
the Securities Act, and outside the United States to certain persons in
reliance upon Regulation S promulgated under the Securities Act. The aggregate
cash offering price of the notes was $200.0 million. SFX relied upon an
exemption from registration under Section 4(2) of the Securities Act as a
transaction not involving a public offering. SFX has filed a registration
statement under the Securities Act with respect to an exchange offer of the
existing Notes for a new series of Notes substantially identical to the
existing Notes. The registration statement has not yet been declared effective
by the Securities and Exchange Commission.


                                      18
<PAGE>



ITEM 6.  SELECTED COMBINED FINANCIAL DATA OF THE COMPANY

         The Selected Consolidated Financial Data of SFX includes the
historical financial statements of Delsener/Slater and affiliated companies,
the predecessor of SFX, for each of the three years ended December 31, 1996 and
the historical consolidated financial statements of SFX for each of the years
ended December 31, 1998 and 1997. The financial information has been derived
from the audited and unaudited financial statements of SFX and Delsener/Slater,
and should be read in conjunction therewith.
<TABLE>
<CAPTION>

                                                                            YEAR ENDED DECEMBER 31,
                                                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                            ----------------------------------------------------------------------------------------
                                                                 PREDECESSOR
                                            -------------------------------------------------------
                                                  1994              1995              1996               1997             1998
                                                  ----              ----              ----               ----             ----
<S>                                         <C>                   <C>               <C>                <C>              <C>      
STATEMENT OF OPERATIONS DATA:
Revenue                                          $92,785           $47,566           $50,362            $96,144        $ 884,286
Cost of revenue                                   83,361            39,691            41,584             73,881          678,756
Selling, general and administrative expenses       7,237             7,487             9,102              9,536          111,748
Depreciation & amortization (1)                      755               750               747              5,431           62,197
Corporate expenses (2)                                 -                 -                 -              2,206           11,194
Non-cash charges                                       -                 -                 -                  -           34,051
Non-recurring charges                                  -                 -                 -                  -            5,600
                                             ---------------- ----------------- -----------------  ----------------- ---------------

Operating income (loss)                            1,432              (362)           (1,071)             5,090          (19,260)
Interest expense                                    (144)             (144)              (60)            (1,590)         (50,759)
Other income, net                                    138               178               198                295            2,455
Equity income (loss) from investments                 (9)              488               524                509            4,630
                                             ---------------- ----------------- -----------------  ----------------- --------------
Income (loss) before income taxes                  1,417               160              (409)             4,304          (62,934)
Provision for income taxes                             5                13               106                490            3,000
                                             ---------------- ----------------- -----------------  ----------------- ---------------
Net income (loss)                                $ 1,412             $ 147            $ (515)            $3,814        $ (65,934)
                                             ================ ================= =================  ================= ===============
Net income (loss) per common share                                                                       $  .26        $   (2.75)
                                                                                                   ================= ===============

OTHER OPERATING DATA:
EBITDA (3)                                       $ 2,187              $ 388           $ (324)           $10,521         $ 42,937
                                             ================ ================= =================  ================= ===============

CASH FLOW FROM:
Operating activities                             $ 2,959           $ (453)           $ 4,214            $ 1,005         $ 27,441
Investing activities                                   -                -               (435)           (73,296)        (891,920)
Financing activities                                (477)            (216)            (1,431)            78,270          906,521

BALANCE SHEET DATA:
Current assets                                    $4,453           $3,022             $6,191            $11,220         $148,733
Property and equipment, net                        3,728            2,978              2,231             59,685          292,626
Intangible assets, net                             --                 --               --                60,306          898,433
Total assets                                       8,222            6,037              8,880            146,942        1,383,452
Current liabilities                                3,423            3,138              7,973             22,437          163,414
Long-term debt, including current  portion                                                                           
                                                   1,830                _                  _             16,178          773,776
Temporary equity                                       _                _                  _                  _           16,500
Stockholders' equity                               2,969             2,900               907            102,144          378,536
</TABLE>

(1)  Includes $2,406 of integration and start-up costs for the year ended
     December 31, 1998

(2)  Net of Triathlon Broadcasting Company, a related party, fees of $1,794 and
     $530 for the years ended December 31, 1997 and 1998, respectively.

(3)  "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 principals ("GAAP"), SFX believes that
     EBITDA is accepted by the entertainment 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 SFX's operating performance or liquidity which is
     calculated in accordance with GAAP. SFX believes that the operating
     performance of entertainment companies, such as SFX, is measured, in part,
     by their ability to generate EBITDA. Further, SFX uses EBITDA as its
     primary indicator of operating performance and as a measure of liquidity.


                                      19
<PAGE>




     ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
              RESULTS OF OPERATIONS

         The following discussion of the financial condition and results of
operations of SFX should be read in conjunction with the consolidated financial
statements and related notes thereto included in this report. The following
discussion contains certain forward-looking statements that involve risks and
uncertainties. SFX's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to the differences are
discussed in "--Safe Harbor for Forward-Looking Statements--Risk Factors" and
elsewhere in this report. SFX undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements made to reflect
any future events or circumstances.

GENERAL

         SFX operates primarily in four major business segments within the live
entertainment industry:

o    the music segment, which includes booking and promoting music events and
     tours, producing music events and tours, owning and operating concert and
     other entertainment venues and selling corporate sponsorships and
     advertising;

o    the theater segment, which includes the promotion and production of
     theatrical events, particularly touring Broadway shows;

o    the sports segment, which includes talent representation and marketing of
     professional athletes and broadcasters and the promotion and production of
     motor sports events; and

o    the family entertainment and other segment, which includes the production
     and promotion of family-orientated events, marketing and consulting
     services, publishing of music related trade magazines and the production
     and distribution of network radio special events and concert programming.

         Music

         SFX'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. SFX's primary source of revenues
from its concert promotion activities is from ticket sales at events promoted
by SFX. As a venue operator, SFX's primary sources of revenue are sponsorships,
concessions, parking and other ancillary services, derived principally from
events promoted by SFX.

         Revenue from ticket sales is affected primarily by the number of
events SFX promotes, the average ticket price and the number of tickets sold.
The average ticket price depends on the popularity of the artist whom SFX 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 SFX
assumes the risk of ticket sales, although profits per event would tend to be
lower. Operating margins can vary from period to period.

         SFX'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.

         Theater

         SFX's theatrical operations are directed mainly towards the promotion
and production of touring Broadway shows, which generate revenues primarily
from ticket sales and sponsorships. SFX 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 


                                      20
<PAGE>

the particular market and venue where the production is presented. To reduce
its dependency on the success of any single touring production, SFX sells
advance annual subscriptions that provide the purchaser with tickets for all of
the shows that SFX intends to tour in the particular market during the touring
season. Historically, approximately 28% of ticket sales for touring Broadway
shows presented by SFX were sold through advance annual subscriptions.
Subscription related revenues received before 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 event expenses until the event
occurs. Subscriptions for touring Broadway shows typically cover approximately
two-thirds of SFX'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.

         SFX also makes less than 50% equity investments in original Broadway
productions, principally as a means to obtain the touring rights for such
shows. These investments are generally accounted for using either the equity
method or the cost method of accounting, based on the percentage of ownership.
SFX monitors the recoverability of these investments on a regular basis, and
SFX may be required to take write-offs if the original production closes or if
SFX determines that the production will not recoup the investment. The timing
of any write-off could adversely affect operating results in a particular
quarter.

         Sports

         SFX's talent representation and marketing activities consist
principally of the representation of team sports athletes and broadcasters in
contract and endorsement negotiations. SFX also provides certain investment
advisory services to its clients. SFX 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 ratably over the period of the negotiated agreement. Revenue from
these sources is dependent upon a number of variables, many of which are
outside SFX'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.

         The owners of the teams in the NBA had locked out their players from
participation in league activities and suspended the 1998-99 basketball season
indefinitely, causing cancellation of some of the games for the 1998-99
basketball season. The suspension of the NBA season ended on January 6, 1999,
and the NBA season began February 5, 1999 with a reduced game schedule. The
cancellation of over 30 games per team for the current NBA season had a
negative impact on FAME's revenues and EBITDA.

         SFX'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 before 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 event 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, SFX may be required to sell either its
motor sports or theatrical lines of business. See "--Safe Harbor for
Forward-Looking Statements--Risks Factors--SFX may be forced to sell some of
its subsidiaries which may prevent SFX from realizing the full value of these
subsidiaries."

         Family Entertainment and Other

         The family entertainment segment produces and presents family-oriented
entertainment such as children's theatrical shows, dance shows, ice-skating,
and gymnastics shows. SFX's other principal businesses include the production
and distribution of radio industry trade magazines, the production of radio
programming content and show-prep material and the provision of radio air play
and music retail research services. The primary sources of revenues from these
activities include the sale of advertising space in its publications and the
sale of advertising time on radio stations that carry its syndicated shows,
subscription fees for its trade publications and subscription fees for access
to its database of radio play lists and audience data. Revenues generally vary
based on the overall advertising environment and competition.

                                      21
<PAGE>

         SFX 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.

FORMATION OF SFX

         SFX's predecessor, SFX Concerts, Inc., was formed in January 1997 by
SFX's former parent, SFX Broadcasting, Inc. On April 27, 1998, SFX was spun-off
from SFX Broadcasting and became a separate publicly-traded company. Since its
formation, SFX has grown rapidly through acquisitions. The following is a
summary of certain of the material businesses that SFX acquired in 1997, 1998
and 1999.

1997 ACQUISITIONS

         SFX entered the live entertainment business in January 1997 with SFX
Broadcasting's acquisition of Delsener/Slater, a New York-based concert
promotion company, for an aggregate consideration of $26.8 million. In March
1997, Delsener/Slater acquired, for aggregate consideration of $23.8 million,
companies which hold a 37-year lease to operate the Meadows. In June 1997, SFX
Broadcasting acquired Sunshine Promotions, a concert promoter in the Midwest,
for an aggregate cash consideration of $57.5 million and shares of SFX
Broadcasting stock having a value of $4.0 million. As a result of the
acquisition of Sunshine Promotions, SFX owns the Deer Creek Music Theater and
the Polaris Amphitheater, and has a long-term lease to operate the Murat
Centre. The cash portion of the purchase price for SFX's 1997 acquisitions was
financed through capital contributions from SFX Broadcasting.

1998 ACQUISITIONS

          PACE and Pavilion Partners

         On February 25, 1998, SFX acquired all of the outstanding capital
stock of PACE. In connection with the PACE acquisition, SFX acquired 100% of
Pavilion, a partnership that owns interests in ten venues, by acquiring
one-third of Pavilion through the acquisition of PACE and acquiring two-thirds
of Pavilion through separate agreements between SFX and (a) Pavilion, PACE and
Blockbuster and (b) PACE and Sony. The total consideration for the PACE
acquisition was approximately $109.5 million in cash, the repayment of
approximately $20.6 million of debt and the issuance of 1.5 million shares of
Class A Common Stock having a negotiated value of approximately $20.0 million.
The total consideration for the Pavilion acquisition was approximately $90.6
million, comprised of $41.4 million in cash, the repayment of $43.1 million of
debt and the assumption of approximately $6.1 million of debt related to a
capital lease. SFX financed the purchase price with borrowings under its Senior
Credit Facility and with a portion of the proceeds of the $350.0 million note
offering.

          Contemporary

         On February 27, 1998, SFX acquired Contemporary. The Contemporary
acquisition involved the merger of Contemporary International Productions
Corporation with and into SFX, the acquisition by a wholly-owned subsidiary of
SFX of substantially all of the assets, excluding certain cash and receivables,
of the remaining members of Contemporary and the acquisition of the 50%
interest in the Riverport Amphitheatre Joint Venture not owned by Contemporary.
The total consideration for the Contemporary acquisition was approximately
$101.4 million, including $72.8 million in cash, a payment for working capital
of $9.9 million, and the issuance of 1,262,850 shares of Class A Common Stock
having a negotiated value of approximately $16.8 million. See "--Liquidity and
Capital Resources--Future Contingent Payments." In May 1998, SFX and the
Contemporary sellers agreed to place 140,000 of the shares issued in connection
with the Contemporary acquisition into an escrow account and reduced the
purchase price accordingly. SFX may, at any time before May 18, 1999, cancel
the escrowed shares in full settlement of certain claims which SFX has made
against the Contemporary sellers. SFX financed the purchase price with
borrowings under the Senior Credit Facility and with a portion of the proceeds
of the $350.0 million note offering.

         BGP

         On February 24, 1998, SFX acquired all of the outstanding capital
stock of BGP for a total consideration of $60.8 million in cash, $12.0 million
in repayment of debt, which amount was at least equal to BGP's working capital,
and 562,640 shares of Class A Common Stock having a negotiated value of
approximately $7.5 million. SFX financed the purchase price with borrowings
under the Senior Credit Facility and with a portion of the proceeds of the
$350.0 million note offering.


                                      22
<PAGE>



          Network

         On February 27, 1998, SFX acquired Network. In the Network
acquisition, SFX 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. The total purchase
price was approximately $66.8 million, including approximately $52.0 million in
cash, a payment for working capital of $1.8 million, reimbursed seller's costs
of $500,000, the purchase of an office building and related property for
approximately $2.5 million and the issuance of approximately 750,000 shares of
Class A Common Stock having a negotiated value of approximately $10.0 million.
The purchase price is subject to an increase based on Network's actual EBITDA,
as defined in the acquisition agreement, up to a maximum of $14.0 million. In
1998, the Company recorded $8.0 million related to this agreement as additional
purchase price. See "--Liquidity and Capital Resources--Future Contingent
Payments." The $2.5 million purchase of the office building and related
property used in connection with Network's business was comprised of cash of
$700,000 and the assumption of debt of $1.8 million. SFX financed the purchase
price with borrowings under the Senior Credit Facility and with a portion of
the proceeds of the $350.0 million note offering. In connection with the
Network acquisition, the selling stockholders were reimbursed for working
capital in excess of $500,000.

          FAME

         On June 4, 1998, SFX acquired all of the outstanding capital stock of
FAME. The aggregate purchase price for FAME was approximately $82.2 million in
cash and 1.0 million shares of Class A Common Stock having a negotiated value
of approximately $35.9 million. The cash portion of the purchase price includes
$7.9 million which SFX paid in connection with certain taxes to which FAME will
be subject and excludes approximately $4.7 million of taxes paid which will be
refunded to SFX in 1999. Under the FAME acquisition agreement, SFX is obligated
to pay to the FAME sellers additional amounts up to an aggregate of $15.0
million in equal annual installments over 5 years contingent on the achievement
of certain EBITDA targets, as described in the acquisition agreement. See
"--Liquidity and Capital Resources--Future Contingent Payments." The agreement
also provides for additional payments by SFX if FAME's EBITDA performance
exceeds the targets by certain amounts. In 1998, SFX recorded $750,000 related
to this agreement as additional purchase price. The additional payments are to
be made within 120 days after the end of the year to which they relate. SFX
financed the purchase price with a portion of the proceeds from the 1998 Equity
Offering, as defined below.

          Don Law

         On July 2, 1998, SFX acquired certain assets of Don Law, for an
aggregate cash consideration of approximately $92.2 million, including the
repayment of approximately $7.0 million in debt. SFX financed the purchase
price with a portion of the proceeds of the 1998 Equity Offering.

         Magicworks

         On September 11, 1998, SFX purchased all of the outstanding shares of
common stock of Magicworks, a publicly traded company, for a total
consideration of approximately $115.7 million in cash. SFX consummated the
acquisition by means of a tender offer, in which it purchased approximately
98.7% of the Magicworks shares, followed by a merger in which the remaining
shares were converted into cash consideration. SFX financed the acquisition
with available cash and borrowings under the Senior Credit Facility.

         Other Acquisitions

         In 1998, SFX completed the acquisition of thirteen additional
companies in the music, theatrical, sports and family entertainment and other
segments. The thirteen acquisitions included four concert promotion and venue
owner/operators, two concert promotion companies, three theatrical presenters,
a theatrical presenter and venue owner/operator, a motor sports promoter and
presenter, a concert merchandising company and an equity owner of an SFX
amphitheater. The aggregate purchase price for these acquisitions was $169.5
million in cash, $8.5 million in deferred purchase consideration and 375,019
shares of Class A Common Stock having a negotiated value of approximately $11.0
million, which are subject to piggyback and demand registration rights. SFX may
also be required to make additional payments to the sellers of certain of the
acquired companies based on the companies' EBITDA, as defined in the
acquisition agreements, for the years 1998 through 2003. In 1998, SFX recorded
$2.7 million of such payments as additional purchase price. SFX financed the
purchase prices with available cash and a portion of the proceeds of the 1998
Equity Offering.

                                      23
<PAGE>

1999 ACQUISITIONS

          Cellar Door

         On February 19 1999, SFX purchased all of the issued and outstanding
capital stock of the Cellar Door group of companies for a purchase price of
$70.0 million in cash payable at closing, less an amount equal to Cellar Door's
"secured fund" indebtedness and capitalized leases, shares of Class A Common
Stock with a value of $20.0 million, and $8.5 million payable in five equal
annual installments beginning on the first anniversary of the closing date. In
addition, SFX issued to the seller options to purchase 100,000 shares of Class
A Common Stock. SFX financed this acquisition with the proceeds of the 1999
Equity Offering.

         Nederlander

         On March 16, 1999, SFX acquired certain interests in seven venues and
other assets of Nederlander for an aggregate purchase price of approximately
$95.6 million in cash. The agreement relating to the venues in Cincinnati
requires SFX to make an earn-out payment to the sellers in 2000 of up to $3.2
million depending on the level of earnings generated by operation of the Crown
Arena. If SFX sells or transfers any of the interests in Crown Arena within ten
years of the closing, SFX will be obligated to pay a portion of the
consideration it receives to the sellers of Nederlander. The agreement relating
to Mesa del Sol Centre for the Performing Arts provides for earn-out payments
based on the financial performance of this venue. SFX financed this acquisition
with the proceeds of the 1999 Equity Offering and borrowings under the Senior
Credit Facility.

         Marquee

         On March 16, 1999, a wholly owned subsidiary of SFX was merged with
and into Marquee and Marquee became a wholly owned subsidiary of SFX. In
connection with the merger, SFX issued approximately 1.4 million shares of SFX
Class A Common Stock with a value of approximately $84.0 million and repaid
$33.5 million of Marquee's debt. SFX financed this acquisition with borrowings
under the Senior Credit Facility.

         Other Acquisitions

         During the first quarter of 1999, SFX also completed the acquisitions
of: The Entertainment Group, Inc., a concert and theatrical producer and
promoter with operations in Chicago and Mexico City; Integrated Sports
International, Inc., a full-service sports marketing company; and a company
involved in business management and tour production in music and the performing
arts. In addition, SFX entered into a long-term marketing and consulting
agreement with respect to the Rosemont Horizon and Rosemont Theater. The total
consideration for these acquisitions and the long-term marketing and consulting
agreement consisted of $67.0 million in cash and 95,177 shares of Class A Common
Stock. SFX financed these acquisitions with the proceeds from its 1999 Equity
Offering. In addition, SFX may be required to make additional payments of up to
$13.0 million in cash and 50,000 shares of Class A Common Stock based on the
financial performance of certain of these acquired companies.

         SFX is also currently pursuing certain additional acquisitions;
however, it has not entered into any definitive agreements with respect to such
acquisitions, and there can be no assurance that it will do so. See "--Safe
Harbor for Forward-Looking Statements--Risk Factors--if SFX is unable to
complete other acquisitions in the future, SFX's business and stock price may
suffer."

         The foregoing descriptions do not purport to be complete descriptions
of the terms of the acquisition agreements and are qualified by reference to
the acquisition agreements. Copies of certain of these acquisition agreements
are exhibits to this Annual Report on Form 10-K and are incorporated herein by
reference. Pursuant to the acquisition agreements and the related agreements,
SFX:

     o    under certain circumstances, may be required to repurchase shares of
          its Class A Common Stock or make additional payments in connection
          therewith (see "--Liquidity and Capital Resources--Future Contingent
          Payments");

     o    has granted certain rights of first refusal, certain of which are
          exercisable at 95% of the proposed purchase price; and

     o    in connection with the PACE acquisition, has granted Brian Becker, an
          Executive Vice President, a Member of the Office of the Chairman and
          a director of SFX, the option to acquire, after February 25, 2000,
          SFX's then existing motor sports line of business -or, if that
          business has previously been sold, SFX's then existing theatrical
          line of business -at its then fair market value.

                                      24
<PAGE>

         See "--Safe Harbor for Forward-Looking Statements--Risk Factors--SFX
may be forced to sell some of its subsidiaries which may prevent SFX from
realizing the full value of these subsidiaries."

         SFX's 1998 and 1999 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, if any, over
periods up to 15 years. The amount of amortization will be substantial and will
continue to affect SFX's operating results in the future. These expenses,
however, do not result in an outflow of cash by SFX and do not impact EBITDA.

         The consummation of the acquisitions by SFX 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 December 31, 1998, SFX's net intangible assets was
$898.3 million. This balance will substantially increase due to the 1999
Acquisitions. Goodwill and other intangible assets are being amortized using
the straight-line method over periods up to 15 years.

FINANCINGS

         Senior Subordinated Notes

         On February 11, 1998, SFX completed an offering of $350.0 million in
principal amount of 9 1/8% Senior Subordinated Notes due February 1, 2008.
Interest is payable on these notes on February 1 and August 1 of each year. SFX
used the proceeds from this note offering and the initial borrowings under
SFX's credit facility to consummate certain of the 1998 Acquisitions. On July
15, 1998, SFX consummated the exchange of substantially identical publicly
registered notes for all outstanding old notes. All original notes from this
offering were tendered for exchange and were canceled upon the issuance of the
same principal amount of exchange notes.

         On November 25, 1998, SFX completed an offering of $200.0 million in
principal amount of 9 1/8% Senior Subordinated Notes due December 1, 2008.
Interest is payable on these notes on June 1 and December 1 of each year. SFX
used the proceeds from this note offering to repay substantially all
outstanding borrowings under the revolving portion of the Senior Credit
Facility. SFX is obligated to offer to exchange substantially identical
publicly registered notes for all outstanding notes from this offering.

         Senior Credit Facility

         On February 26, 1998, SFX executed a Credit and Guarantee Agreement
(the "Senior Credit Facility") which established a $300.0 million senior
secured credit facility comprised of a $150.0 million eight-year term loan and
a $150.0 million seven-year reducing revolving credit facility. On September
10, 1998, SFX entered into an agreement with The Bank of New York to increase
the revolving portion of the Senior Credit Facility for a total borrowing
availability of $350.0 million under its credit facility. SFX was required to
obtain the consent of the lenders under the Senior Credit Facility to
consummate its recent note offering as described above. In connection with such
consent, the applicable interest rate margins under the Senior Credit Facility
were amended. See "--Sources of Liquidity."

         SFX has had discussions with its lenders regarding an amendment to the
Senior Credit Facility that would increase total borrowing availability
thereunder to $550.0 million and modify certain covenants. Although no
assurances can be given, SFX expects to enter into this amendment by the end of
the second quarter of 1999.

         1998 Equity Offering

         On May 27, 1998, SFX consummated an offering of 8,050,000 shares of
Class A Common Stock at an offering price of $43.25 per share (the "1998 Equity
Offering") and received net proceeds of approximately $329.0 million. SFX used
the proceeds to consummate certain of its 1998 Acquisitions, to fund $109.7
million of tax indemnity payments and to pay fees and other expenses. See
"--Liquidity and Capital Resources."

         1999 Equity Offering

         In February, 1999, SFX consummated an offering of 4,949,000 shares of
Class A Common Stock at an offering price of $55.50 per share (the "1999 Equity
Offering") and received net proceeds of approximately $263.7 million. SFX used
the proceeds to finance certain of the 1999 Acquisitions and to repay
indebtedness under the revolving portion of the Senior Credit Facility. See
"--Liquidity and Capital Resources."


                                      25
<PAGE>

RESULTS OF OPERATIONS

         The operating performance of entertainment companies, such as SFX, is
measured, in part, by their ability to generate EBITDA. Further, SFX uses
EBITDA as its primary indicator of its operating performance, and as a measure
of liquidity. "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 GAAP, SFX believes that the entertainment industry accepts
EBITDA as a generally recognized measure of performance and analysts who report
publicly on the performance of entertainment companies use EBITDA.
Nevertheless, you should not consider this measure in isolation or as a
substitute for operating income, net income, net cash provided by operating
activities or any other measure for determining our operating performance or
liquidity that is calculated in accordance with GAAP. EBITDA, as SFX calculates
it, may not be comparable to calculations of similarly titled measures
presented by other companies.

         SFX's operations and revenues have been largely seasonal in nature,
with generally higher revenues generated in the second and third quarters. For
example, on a pro forma basis for the 1998 Acquisitions, SFX generated
approximately 63% of its revenues in the second and third quarters for the
twelve months ended December 31, 1998. SFX's outdoor venues are primarily used
in the summer months and do not generate substantial revenue in the late fall,
winter and early spring. Similarly, the musical concerts that SFX promotes
largely occur in the second and third quarters. SFX's entertainment marketing
and consulting in connection with musical concerts also predominantly generate
revenues in the second and third quarters.

         Therefore, the seasonality of SFX's business causes - and will
probably continue to cause -a significant variation in SFX's quarterly
operating results. These variations in demand could have a material adverse
effect on the timing of SFX's cash flows and, therefore, on its ability to
service its obligations with respect to its indebtedness. However, SFX 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. For a discussion of the season effects on SFX's
various business segments, see "Item 1. Business."

HISTORICAL RESULTS

         Prior to 1998, SFX did not operate in any business segment other than
the music segment. Therefore, a discussion of the results of each segment's
actual performance as compared to the prior period has not been presented. In
addition, during 1998 SFX made significant acquisitions in the music segment,
which was the primary reason for the increases in revenue, EBITDA and operating
income, before corporate charges, in the segment. The following table
summarizes each segment's operating performance for 1997 and 1998 (in
thousands):
<TABLE>
<CAPTION>

                                        Revenue                          EBITDA (1)                  Operating (Loss) income
                                  1998            1997              1998             1997             1998             1997
                             ------------    -------------     -------------    -------------    -------------    -------------
<S>                             <C>            <C>              <C>               <C>               <C>             <C>      
 Segments:
     Music.................     $587,843       $ 96,144         $ 61,204          $ 12,727          $  24,598       $   7,953
     Theatrical............      147,482              -           15,576                 -              4,208               -
     Sports................       24,829              -            2,466                 -             (2,897)              -
     Family Entertainment
        and other..........      124,132              -           19,166                 -             10,095               -
                             ------------    -------------     -------------    -------------    -------------    -------------
 Segment Performance.......      884,286         96,144           98,412            12,727             36,004           7,953
     Corporate expenses and
        noncash charge.....            -              -          (11,194)           (2,206)           (55,264)         (2,863)
                             ------------    -------------     -------------    -------------    -------------    -------------
Total......................   $  884,286       $ 96,144        $  87,218          $ 10,521          $ (19,260)      $   5,090
                             ============    =============     =============    =============    =============    =============
</TABLE>
-------------------------

         (1) As used in this table, EBITDA includes equity in earnings of
         investees and excludes non-cash and non-recurring charges.

For additional financial information about SFX's business segments see Note 16
to SFX's Consolidated Financial Statements.

         Year ended December 31, 1998 as compared to the year ended December
31, 1997

         SFX's revenue increased by $788.2 million to $884.3 million for the
year ended December 31, 1998, compared to $96.1 million for the year ended
December 31, 1997, primarily as a result of $695.7 million attributable to the
1998 Acquisitions, $12.4 million attributable to the acquisitions of the
Meadows in March 1997 and Sunshine Promotions in June 1997 and $80.1 million
attributable to increased tour production and concert activity at
Delsener/Slater. The 1998 Acquisitions significantly increased the concert
promotion and venues operation business and expanded SFX's business to include
theatrical promotion and production, motor sports promotion and production,
sports marketing and management, family entertainment and radio magazine
publishing, programming and research.

                                      26
<PAGE>

         Cost of revenue increased by $604.9 million to $678.8 million for the
year ended December 31, 1998, compared to $73.9 million for the year ended
December 31, 1997, primarily as a result of $521.1 million attributable to the
1998 Acquisitions and $7.1 million attributable to the acquisition of Sunshine
Promotions.

         Selling, general and administrative expenses increased by $102.2
million to $111.7 million for the year ended December 31, 1998 as compared to
$9.5 million for the year ended December 31, 1997, primarily as a result of
$89.2 million attributable to the 1998 Acquisitions and $5.3 million
attributable to the acquisition of Sunshine Promotions.

         Depreciation and amortization expense increased to $62.2 million for
the year ended December 31, 1998, compared to $5.4 million for the year ended
December 31, 1997, due to the inclusion of $47.6 million of depreciation and
amortization expense related to the 1998 Acquisitions and $1.7 million related
to the acquisition of Sunshine Promotions and the Meadows. In addition, SFX
recorded a $2.7 million write down of an asset relating to the Triathlon
Broadcasting Company agreement as described below and recorded $2.4 million of
integration and start-up costs for the year ended December 31, 1998. SFX
recorded the fixed assets of its 1998 Acquisitions and the Sunshine Promotions
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 periods ranging up to 15 years.

         Corporate expenses were $11.2 million for the year ended December 31,
1998, net of $530,000 in fees earned from Triathlon, compared to $2.2 million
for the year ended December 31, 1997, net of Triathlon fees of $1.8 million.
The increase in corporate expenses reflects the additional administrative
overhead needed to support the growth of SFX's operations and the formation of
SFX Live, the national marketing division of SFX. The fees earned from
Triathlon are based on consulting services provided by or on behalf of SCMC, a
private investment company in which certain officers of SFX have economic
interests, that makes investments in and provides financial consulting services
to companies engaged in the media business. These fees fluctuate above the
minimum annual fee of $500,000 based on the level of acquisition and financing
activities of Triathlon. SCMC previously assigned its rights to receive fees
payable from Triathlon to SFX Broadcasting, and SFX Broadcasting assigned its
rights to receive the fees to SFX, pursuant to the distribution agreement.
Triathlon has announced that it has agreed to be acquired by a third party.
When Triathlon is acquired, it will cease paying consulting fees.

         In 1998 SFX recorded $5.6 million of non-recurring charges related to
certain fees paid to Livent for the Ragtime and Showboat touring productions
and certain related deferred expenses which, as a result of the Livent
bankruptcy, will not be recovered.

         Non-cash compensation and other non-cash charges of $34.1 million
consisted of:

     o    $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;

     o    $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;

     o    $2.4 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; and

     o    $300,000 related to a deferred compensation plan for each
          non-employee director, adopted in January 1998, whereby each director
          was credited with the right to receive 5,455 shares of Class A Common
          Stock based upon a stock price of $5.50 per share.

         Of these options, 345,000 vest over three years and have an exercise
price of $5.50 per share. SFX is recording non-cash compensation charges of
approximately $3.3 million annually over the three-year exercise period.

         The operating loss was $19.3 million for the year ended December 31,
1998, compared to income of $5.1 million for the year ended December 31, 1997,
due to the matters discussed above.

         Interest expense, net of investment income, was $46.3 million in the
year ended December 31, 1998, compared to $1.3 for the year ended December 31,
1997, primarily as a result of $746.5 million attributable to the incurrence of
additional debt related to the 1998 Acquisitions and $16.2 million attributable
to the debt assumed in connection with the Meadows and Sunshine Promotions
acquisitions.

                                      27
<PAGE>

         Minority interest was $2.0 million for the year ended December 31,
1998, compared to no minority interest for the year ended December 31, 1997
relating to minority interests in two amphitheaters, certain theatrical
productions and a merchandising company which were acquired in 1998.

         Income from equity investments was $4.6 million for the year ended
December 31, 1998, compared to income of $509,000 for the year ended December
31, 1997, as a result of the 1998 Acquisitions.

         Income tax expense was $3.0 million for the year ended December 31,
1998. The provision is primarily for state and local taxes and reflects the
impact of non-deductible goodwill amortization and other non-cash compensation
and other non-cash charges. No federal tax benefit has been recognized due to
the uncertainty of realizing a tax benefit for SFX's losses.

         SFX's net loss increased to $65.9 million for the year ended December
31, 1998, as compared to net income of $3.8 million for the year ended December
31, 1997, due to the factors discussed above. SFX's net loss applicable to
common shares increased to $68.7 million for the year ended December 31, 1998,
as a result of the accretion of stock subject to redemption.

         EBITDA was $42.9 million for the year ended December 31, 1998. EBITDA,
excluding non-cash compensation and other non-cash charges of $34.1 million and
non-recurring charges of $5.6 million and including income from equity
investments of $4.6 million increased to $87.2 million for the year ended
December 31, 1998, compared to $11.0 million for the year ended December 31,
1997, primarily as a result of the 1998 Acquisitions.

         Year ended December 31, 1997 as compared to the year ended December
31, 1996

         SFX's concert promotion revenue increased by $45.7 million to $96.1
million for the year ended December 31, 1997, compared to $50.4 million for the
year ended December 31, 1996, as a result of the acquisitions of Sunshine
Promotions and Meadows, which increased concert promotion revenue by $45.5
million.

         Cost of revenue increased by $32.3 million to $73.9 million for the
year ended December 31, 1997, compared to $41.6 million for the year ended
December 31, 1996, primarily as a result of the acquisitions of Sunshine
Promotions and Meadows.

         Selling, general and administrative expenses increased by $434,000 to
$9.5 million for the year ended December 31, 1997, compared to $9.1 million for
the year ended December 31, 1996, primarily as a result of the acquisitions of
Sunshine Promotions and Meadows, offset in part by $4.4 million in decreased
officer salary expense paid to the former owners of Delsener/Slater.

         Depreciation and amortization expense increased to $5.4 million for
the year ended December 31, 1997, compared to $747,000 for the year ended
December 31, 1996, due to the inclusion of $2.6 million of depreciation and
amortization expense related to the acquisitions of Sunshine Promotions and
Meadows and $1.4 million in depreciation and amortization recorded in 1997
related to the purchase of Delsener/Slater on January 2, 1997 and $657,000 of
depreciation and amortization relating to the corporate office. In 1997, SFX
recorded the fixed assets of Delsener/Slater at fair value and recorded an
intangible asset equal to the excess of purchase price over the fair value of
net tangible assets of Delsener/Slater, which was amortized over a 15-year
period.

         Corporate expenses were $2.2 million for the year ended December 31,
1997, net of $1.8 million in fees received from Triathlon, compared to no
corporate expenses for the year ended December 31, 1996. These expenses
represent the incremental costs of operating SFX's corporate offices, and
therefore did not exist in 1996.

         Operating income was $5.1 million for the year ended December 31,
1997, compared to a loss of $1.1 million for the year ended December 31, 1996,
due to the results discussed above.

         Interest expense, net of investment income, was $1.3 million in the
year ended December 31, 1997, compared to net interest income of $138,000 for
the year ended December 31, 1996, primarily as a result of assumption of
additional debt related to the acquisitions of the Meadows and Sunshine
Promotions. Equity income in unconsolidated subsidiaries decreased by $15,000
to $509,000 for the year ended December 31, 1997, compared to $524,000 for the
year ended December 31, 1996.

         Income tax expense increased to $490,000 for the year ended December
31, 1997, compared to $106,000 for the year ended December 31, 1996, primarily
as a result of higher operating income.

         SFX's net income increased to $3.8 million for the year ended December
31, 1997, as compared to a net loss of $515,000 for the year ended December 31,
1996, due to the factors discussed above.

                                      28
<PAGE>

         EBITDA increased to $10.5 million for the year ended December 31,
1997, compared to a negative $324,000 for the year ended December 31, 1996, as
a result of $8.3 million attributable to SFX's 1997 acquisitions, $4.4 million
attributable to the reduction in officers' salary expense and $340,000
attributable to improved operating results.

PRO FORMA RESULTS

         Year Ended December 31, 1998

         On a pro forma basis assuming all 1998 Acquisitions and related
financings were completed as of January 1, 1998, revenue for the year ended
December 31, 1998 would have been $1.1 billion, as compared to the actual
results of $884.3 million. Cost of revenue would have been $858.3 million, as
compared to the actual results of $678.8 million. Selling, general and
administrative expenses would have been $140.9 million as compared to the
actual results of $111.7 million. Assuming all 1998 Acquisitions and the 1999
Acquisitions were completed during the first quarter of 1999 and all related
financing were completed as of January 1, 1998, revenue for the year ended
December 31, 1998 would have been approximately $1.345 billion.

         On a pro forma basis assuming all the 1998 Acquisitions and related
financings were completed as of January 1, 1998, depreciation and amortization
would have been $78.2 million as compared to the actual results of $62.1
million.

         The increases in revenue, cost of revenue, selling, general and
administrative expenses and depreciation and amortization resulted primarily
from the inclusion of the operating results from each of the acquired
businesses and the pending acquisitions for the entire period.

         On a pro forma basis for the 1998 Acquisitions, corporate expenses
would have been $11.4 million, net of Triathlon fees, as compared to the actual
results of $11.2 million, reflecting the incremental cost to the corporate
office of operating a larger enterprise.

         On a pro forma basis for the 1998 Acquisitions and on an actual basis,
non-cash compensation and other non-cash charges would have been $34.1 million.

         On a pro forma basis assuming all 1998 Acquisitions, operating income
would have been $8.2 million, as compared to the actual loss of $19.3 million,
due to the factors discussed above.

         On a pro forma basis assuming all 1998 Acquisitions and the related
financings were completed as of January 1, 1998, interest expense would have
been $72.3 million for the year ended December 31, 1998, as compared to the
actual results of $50.8 million.

         On a pro forma basis for the 1998 Acquisitions, income from equity
investments would have been $5.8 million, as compared to the actual results of
$4.6 million.

         On a pro forma basis assuming all 1998 Acquisitions and the related
financings were completed as of January 1, 1998, income tax expense would have
been $3.3 million, as compared to the actual provision of $3.0 million. 

         On a pro forma basis assuming all 1998 Acquisitions and the related
financings were completed as of January 1, 1998, SFX's net loss would have been
$62.0 million, as compared to the actual results of $65.9 million, due to the
results discussed above.

         On a pro forma basis for the 1998 Acquisitions, EBITDA, excluding
non-cash charges of $34.1 million, would have been $126.5 million, as compared
to EBITDA, excluding non-cash charges of $34.1 million, of $87.2 million on a
historical basis.

LIQUIDITY AND CAPITAL RESOURCES

         SFX'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. SFX's principal sources of funds has been
proceeds from the two note offerings, the 1998 Equity Offering, the 1999 Equity
Offering, borrowings under the Senior Credit Facility and cash flows from
operations.


                                      29
<PAGE>
         Historical Cash Flows

         Net cash provided by operations was $27.4 million for the year ended
December 31, 1998, as compared to $1.0 for the year ended December 31, 1997.
The increase was primarily attributable to an increase in the operating results
of SFX's business segments, partially offset by other changes in working
capital.

         Net cash used in investing activities for the year ended December 31,
1998 was $891.9 million as compared to $73.3 million for the year ended
December 31, 1997. The increase in the use of funds was primarily the result of
the 1998 Acquisitions and capital expenditures at certain amphitheaters.

         Net cash provided by financing activities for the year ended December
31, 1998, was $906.5 million as compared to $78.3 million for the year ended
December 31, 1997. During 1998, SFX completed the note offerings for $550.0
million, had net borrowings of $196.0 million under the Senior Credit Facility
and repaid other debt of $9.7 million. In addition, SFX completed the 1998
Equity Offering for $329.0 million, net, offset by tax indemnification and
related payments to SFX Broadcasting of $135.7 million and the payment of debt
issuance costs of $22.7 million. In 1999, SFX completed the 1999 Equity
Offering for $263.7 million. The proceeds of the 1999 Equity Offering and
Senior Credit Facility borrowings of $79.0 were used to complete the 1999
Acquisitions.

         Future Acquisitions

         Consistent with its operating strategy, SFX is currently negotiating
additional acquisitions and expects to pursue additional acquisitions in the
live entertainment business in the future. However, SFX 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 SFX:

     o    issuing more of its stock, which may dilute the value of existing
          stock of SFX;

     o    incurring a substantial amount of additional debt; and/or

     o    amortizing expenses related to goodwill and other intangible assets.

         However, there can be no assurance that SFX will be able to obtain
financing for such acquisitions on terms acceptable to SFX or at all. Any or
all of these actions could have a material adverse impact on SFX's business,
financial condition and results of operations. See "--Safe Harbor for
Forward-Looking Statements--Risk Factors--If SFX is unable to complete other
acquisitions in the future, SFX's business and stock price may suffer."

         Interest on Notes and Borrowings under the Senior Credit Facility

         SFX has incurred and will continue to incur substantial amounts of
indebtedness. On February 11, 1998, SFX completed the private placement of the
$350.0 million 9 1/8% notes, which were subsequently exchanged for the publicly
registered notes on July 15, 1998. Interest of approximately $16.0 million is
payable on the exchange notes on February 1 and August 1 of each year, and the
exchange notes mature on February 1, 2008. On November 25, 1998, SFX completed
the offering of the $200.0 million 9 1/8% notes, which are required to be
exchanged for publicly registered notes. In the event these notes are not so
exchanged, liquidated damages to the holders of these notes will become
payable. Interest of $9.1 million is payable on these notes on June 1 and
December 1 of each year, and the notes mature on December 1, 2008.

         In addition, as of March 29, 1999, SFX had indebtedness of $241.0
million outstanding under the Senior Credit Facility. Loans outstanding under
the Senior Credit Facility bear interest, at SFX's option, at 1.625 to 3.625
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 revolving portion of the Senior Credit Facility will be adjusted
based on SFX's Total Leverage Ratio, as defined in the Senior Credit Facility.
As of March 29, 1999 the average interest rate for borrowings under the credit
facility was 7.99%. SFX will pay a per annum commitment fee on unused
availability under the revolver of 0.375% to 0.5% and a per annum letter of
credit fee equal to the Applicable LIBOR Margin, as defined in the Senior
Credit Facility, for the revolver then in effect.

              In addition, as of December 31, 1998, the Company had $38.1
million of other debt consisting of debt and capital leases assumed in
acquisitions and deferred purchase consideration.


                                      30
<PAGE>

         SFX's indebtedness under the Senior Credit Facility is secured by a
pledge of the stock of its subsidiaries and by liens on substantially all of
its and its subsidiaries' tangible assets. Most of SFX's subsidiaries have also
guaranteed the notes and borrowings under the Senior Credit Facility. If SFX
were unable to repay any borrowings when due, the lenders could attempt to
seize SFX's and its subsidiaries' assets and the capital stock of SFX's
subsidiaries.

         SFX may incur additional indebtedness from time to time to finance
future acquisitions, for capital expenditures or for other purposes.

         Capital Expenditures

         Capital expenditures totaled $60.8 million for the year ended December
31, 1998. SFX expects capital expenditures for 1999 to be approximately $40.0
million, including $28.0 million of major projects. These capital expenditures
are expected to be funded by cash flows from operations.

         Future Contingent Payments

         Certain of the agreements relating to SFX's 1998 and 1999 Acquisitions
provide for purchase price adjustments and other future contingent payments
based on the financial performance of the acquired companies. See "--1998
Acquisitions" and "--1999 Acquisitions." In 1998, SFX recorded $11.5 million
related to such contingent payments. SFX will continue to accrue additional
amounts related to such contingent payments if and when it becomes probable
that the applicable financial performance targets will be met.

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

         If SFX 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. In addition, if SFX sells or transfers any of the
interests in Crown Arena within ten years of the closing, SFX will be obligated
to pay a portion of the consideration it receives to the sellers of
Nederlander. The agreement relating to Mesa del Sol Centre for the Performing
Arts also provides for earn-out payments based on the financial performance of
this venue.

         No assurance can be given that SFX 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 SFX spin-off, SFX entered into the tax sharing
agreement with SFX Broadcasting. Pursuant to such agreement, SFX is responsible
for certain taxes incurred by SFX Broadcasting, including income taxes imposed
with respect to income generated by SFX for periods before the spin-off and
taxes resulting from gain recognized by SFX Broadcasting in the spin-off. SFX
has made estimated payments of $109.7 million in federal and state taxes in
connection with the spin-off. The amount of the indemnity payment was
approximately $10.0 million less than the amount originally estimated and
disclosed by SFX as a result of updated financial information with respect to
the spin-off. 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.

Sources of Liquidity

         As of December 31, 1998, SFX's cash and cash equivalents totaled $48.0
million, and its working capital was a negative $14.7 million. The negative
working capital reflects SFX's policy of funding acquisitions, to the extent
possible, with available cash on hand, in order to maintain minimum borrowings
under the revolving portion of the senior credit facility. On February 18, 1999
SFX received approximately $263.7 million in net proceeds from the 1999 Equity
Offering, which it used primarily to complete the Cellar Door, ISI, Nederlander
and Marquee acquisitions and to repay a portion of the revolving portion of the
Senior Credit Facility.

                                      31
<PAGE>

         As of March 16, 1999, SFX had approximately $122.0 million in
borrowing availability remaining under its Senior Credit Facility. The Senior
Credit Facility originally consisted of a $150.0 million seven-year reducing
revolving facility and a $150.0 million eight-year term loan. On September 10,
1998, SFX entered into an agreement with The Bank of New York to increase its
borrowing availability under the revolving portion of the Senior Credit
Facility by an additional $50.0 million, which increased the aggregate amount
of borrowing availability under the Senior Credit Facility to approximately
$350.0 million, of which $228.0 million is currently outstanding.

         SFX has had discussions with its lenders to amend the Senior Credit
Facility to increase borrowing availability to $550.0 million and amend certain
covenants. The new facility is subject to the execution of a definitive
agreement, which SFX expects to enter into by the end of the second quarter of
1999, although no assurances can be given in this regard.

         SFX believes that its cash from operations and borrowing availability
will be sufficient to satisfy existing commitments and plans, including those
described above. However, there can be no assurance that SFX will be able to
make planned borrowings, that SFX's business will generate sufficient cash flow
from operations, or that future borrowings will be available in an amount to
enable SFX to service its debt and to make necessary capital or other
expenditures.

YEAR 2000 COMPLIANCE

         SFX is currently working to resolve the potential impact of the Year
2000 on the processing of date-sensitive information by SFX'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 SFX'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 problem is not limited to computer systems. Year 2000
issues will also potentially affect every non-information technology system
that has an embedded microchip, such as elevators.

         Assessment. SFX management has been conducting a review of its
exposure to the Year 2000 problem. Based on SFX's internal review and
discussions with third parties regarding the Year 2000 problem, SFX believes
that its exposure to potential Year 2000 problems exists in two general areas:
(1) technological operations, including non-information technology systems,
which are in the sole control of SFX, and (2) 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 SFX.

               Remediation and Implementation. In the area of technological
operations, which are under SFX's exclusive control, SFX is currently involved
in the identification and remediation of affected technological functions,
including non-information technology systems. SFX is addressing the risks
associated with Year 2000 compliance 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 SFX's 1998 and 1999 Acquisitions and be Year
2000 compliant. Business segments representing 88% of SFX's pro forma revenue
for acquisitions completed as of December 31, 1998 had the new year 2000
compliant accounting and financial systems installed as of January 1, 1999. SFX
expects its remaining business segments and the businesses acquired in the 1999
Acquisitions to have the new year 2000 compliant accounting and financial
systems installed by the fall of 1999. SFX is in the identification and
assessment phase with respect to its non-information technology systems, which
is projected to continue until the fall of 1999.

               Testing. SFX will begin updating and testing its systems after
their installation, and expects that all testing will be complete by the summer
of 1999. Upon completion, SFX will be able to identify any internal computer
systems that remain non-compliant. At present, it is anticipated that SFX's
action plan for addressing Year 2000 problems will be successfully completed in
all material respects in advance of January 1, 2000.

         Estimated Costs. The total financial effect that Year 2000 issues will
have on SFX cannot be predicted with any certainty at this time. In fact, in
spite of all efforts being made to rectify these problems, the success of SFX's
efforts will not be known with certainty until the year 2000 actually arrives.
SFX anticipates that the cost of implementing the new accounting and reporting
systems will be approximately $7.2 million, of which approximately $4.2 million
has been spent to date. Based on its assessment to date, SFX does not believe
that expenses related to addressing the Year 2000 problem will have a material
effect on the operations and financial condition of SFX.

         Third Parties. In the area of technological operations dependent in
some way on one or more third parties, including vendors, suppliers, joint
venture partners or major customers, the situation is much less in SFX's
ability to predict or control. SFX has begun to assess the level of Year 2000
problems associated with their various vendors, suppliers, joint venture
partners and major customers. SFX's significant vendors are ticketing
companies, payroll processors, utility companies and banks. SFX is
communicating with some of these third parties to assess their compliance
efforts and SFX's exposure resulting from Year 2000 issues. SFX is in the
process of requesting written assurances of Year 2000 compliance from each of
its significant suppliers as a 


                                      32
<PAGE>

part of SFX's contingency planning process. Although SFX is making these
efforts to ensure that the third parties on which it is heavily reliant are
Year 2000 compliant, it cannot predict the likelihood of such compliance
occurring nor the direct or indirect costs to SFX of non-compliance by those
third parties or of securing such services from compliant third parties. SFX
has no control over these third parties' compliance and cannot give assurances
that these third parties' representations to SFX are accurate. Therefore, there
can be no guarantee that Year 2000 problems originating with a third party will
not occur and no absolute assurance that third parties will convert their
systems in a timely manner. Assuming that such third parties are not or do not
become Year 2000 compliant in a timely manner, to the extent SFX is unable to
replace the goods, services or customers with alternate sources of supply and
demand on a timely and economically equivalent basis, such failure would likely
have a material adverse effect on SFX's business and results of operations.
However, SFX does not anticipate that it will be subject to a material impact
in this area.

         Contingency Plan. SFX has not completed its implementation and testing
of Year 2000 compliant systems. However, a reasonably likely worst case
scenario is that certain of SFX's material suppliers or customers will be
unable to fully become Year 2000 compliant in a timely manner, which will
disrupt SFX's ability to provide services and generate revenues in certain
areas in which it does business. For example, disruptions in ticketing
operations would significantly reduce attendance. Disruptions in transportation
could affect the provision of concessions for sale at SFX's venues. These
disruptions would continue until alternate sources of supply and demand could
be located. Based on the results of the implementation and testing of SFX's
Year 2000 affected systems and the ongoing assessment of the readiness of its
vendors, suppliers, joint venture partners and major customers, SFX will
develop appropriate contingency plans that address the most reasonably likely
worst case scenarios. SFX expects to have such contingency plans in place by
the fall of 1999. A failure to address Year 2000 issues successfully could have
a material adverse effect on SFX's business, financial condition or results of
operations.

OTHER MATTERS

             Following a recommendation of SFX's compensation committee, SFX
has, subject to stockholder approval, adopted a new incentive stock option plan
covering options to acquire up to three million shares of Class A Common Stock
and, in November of 1998, approved the grant of options thereunder to acquire
approximately 2.3 million shares of Class A Common Stock. SFX anticipates that
the proposed stock option plan will be submitted to a vote of the stockholders
at SFX's first annual meeting scheduled to be held in the spring of 1999.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"), which is effective for fiscal years beginning after
December 15, 1998. Under SOP 98-5, the costs of start-up activities, including
organizational costs, would be expensed as incurred. SOP 98-5 broadly defines
start-up activities as those one-time activities related to opening a new
facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer or beneficiary,
initiating a new process in an existing facility or beginning a new operation.
SOP 98-5 is effective for financial statements for fiscal years beginning after
December 15, 1998. Earlier application is encouraged. The initial application
of SOP 98-5 is to be reported as a cumulative effect of a change in accounting
principle. Management has preliminarily determined that SOP 98-5 will not have
a material effect on its financial position.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

          SFX believes that certain statements contained in this report are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and are considered prospective. These include
statements contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." The following statements
are or may constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995:

     o    statements before, after or including the words "may," "will,"
          "could," "should," "believe," "expect," "future," "potential,"
          "anticipate," "intend," "plan," "estimate" or "continue" or the
          negative or other variations of these words; and

     o    other statements about matters that are not historical facts.

          SFX may be unable to achieve future results covered by the
forward-looking statements. The statements are subject to risks, uncertainties
and other factors that could cause actual results to differ materially from the
future results that the statements express or imply. Please do not put undue
reliance on these forward-looking statements, which speak only as of the date
of this report. The following risk factors should be considered carefully in
evaluating SFX and its business and the forward looking statements contained
herein. SFX does not undertake to release publicly any revisions to forward
looking 


                                      33
<PAGE>

statements that may be made to reflect events or circumstances after the date
of this report or to reflect the occurrence of unanticipated events.

RISK FACTORS

IF SFX IS UNABLE TO INTEGRATE THE OPERATIONS OF ITS VARIOUS BUSINESSES, ITS
OVERALL BUSINESS MAY SUFFER.

         SFX has grown rapidly since it was formed in December 1997, mainly by
acquiring established live entertainment businesses. If SFX is unable to
integrate its various businesses effectively, then SFX's business, financial
condition and operating results may suffer. As of December 31, 1998, on a pro
forma basis, the 1999 Acquisitions represented 17% of SFX's revenues and 22% of
its assets.

         As you evaluate SFX's prospects, you should consider the many risks
SFX will encounter during its process of integrating these acquired businesses,
including:

     o    the distraction of management's attention from other business
          concerns;

     o    SFX's entry into markets where it has previously limited or no
          experience; and

     o    potential loss of key employees or customers of the acquired
          businesses.

         Although SFX's management has significant experience, it may be unable
to effectively integrate the acquired businesses without encountering the
difficulties described above, and the combined companies may not benefit as
expected from the integration.

SFX HAS A SUBSTANTIAL AMOUNT OF DEBT, WHICH MAY HARM IT AND ITS STOCKHOLDERS.

         SFX has a substantial amount of debt, and the amount of its debt is
likely to substantially increase in the future. SFX's consolidated debt as of
March 29, 1999 was approximately $838.6 million.

The amount of SFX's debt could harm the holders of its Class A Common Stock by,
among other things:

     o    making SFX more vulnerable to general adverse economic and industry
          conditions;

     o    limiting SFX's ability to obtain money to pay for future
          acquisitions, working capital, capital expenditures and other general
          corporate requirements.

     o    dedicating more of SFX's cash flow to paying off its debt, which will
          reduce the amount of cash available to pay for working capital,
          capital expenditures or other general corporate needs;

     o    limiting SFX's flexibility in planning for, or reacting to, changes
          in its business and the industry; and

     o    placing SFX at a competitive disadvantage to competitors that have
          less debt.

         SFX's ability to pay principal and interest on its debt on time, to
refinance its debt, or to pay for planned expenditures will depend on various
factors, some of which it will not be able to control. These factors include
restrictions contained in the Senior Credit Facility and the indentures
relating to its notes, which may limit SFX's ability to, among other things,
borrow additional funds. SFX may be unable to generate enough money to pay its
debts because of insufficient cash flow from operations or because it is not
able to raise additional capital funds by selling securities. SFX may also be
required to refinance a part of its debt before the debt matures. For more
details about SFX's financial resources, see "--Liquidity and Capital
Resources."

SFX's credit facility and indentures restrict its operations.

         SFX's indentures and its credit facility restrict its and its
subsidiaries' ability to, among other things:

     o    sell or transfer assets;

     o    incur additional debt;

                                      34
<PAGE>

     o    repay other debt;

     o    pay dividends;

     o    make certain investments or acquisitions;

     o    repurchase or redeem capital stock;

     o    engage in mergers or consolidations; and

     o    engage in certain transactions with subsidiaries and affiliates.

         The indentures and the Senior Credit Facility also require SFX to
comply with certain financial ratios, as discussed in "--Liquidity and Capital
Resources." These restrictions may interfere with SFX's ability to obtain
financing or to engage in other necessary or desirable business activities.

         If SFX cannot comply with the requirements in the Senior Credit
Facility, then the lenders may require SFX to repay immediately all of its
outstanding debt under the Senior Credit Facility. If SFX's debt payments were
accelerated, SFX's assets might not be sufficient to fully repay its debt.
These lenders may also require SFX to use all of its available cash to repay
its debt or may prevent SFX from making payments to other creditors on certain
portions of its outstanding debt.

         SFX may not be able to obtain a waiver of these provisions or
refinance its debt, if needed. In such a case, SFX's business, results of
operations and financial condition would suffer.

IF SFX IS UNABLE TO COMPLETE OTHER ACQUISITIONS IN THE FUTURE, SFX'S BUSINESS
AND STOCK PRICE MAY SUFFER.

SFX is currently negotiating additional acquisitions and expects to seek
additional acquisitions of live entertainment and related businesses in the
future. However, it may be unable to:

     o    identify and acquire additional suitable businesses;

     o    obtain the financing necessary to acquire the businesses; or

     o    obtain lenders' consents under its credit facility to acquire the
          businesses.

         SFX's inability to obtain financing for future acquisitions or to
complete acquisitions due to regulatory concerns could damage SFX's business,
financial condition and results of operations, and, therefore, adversely affect
its stock price.

         Even if SFX is able to complete future acquisitions, they could result
in SFX: issuing more of its stock, which may dilute the value of existing
common stock; incurring a substantial amount of additional debt; and/or
amortizing expenses related to goodwill and other intangible assets. Any or all
of these actions could damage SFX's business, financial condition and results
of operations.

SFX WILL BE REQUIRED TO MAKE LARGE PAYMENTS UPON A CHANGE OF CONTROL, WHICH MAY
HARM SFX'S FINANCIAL CONDITION.

         SFX has obligations to make payments upon certain change of control
events. If it makes the payments, it may lose necessary operating funds. If it
cannot make the payments, it may be sued or forced into bankruptcy.

         If Mr. Sillerman directly or indirectly owns less than 30% of the
combined voting power of the Class A and Class B Common Stock, then a "Change
in Control" will occur under the Senior Credit Facility. This would require SFX
to repay all outstanding debt under the Senior Credit Facility. Mr. Sillerman
currently holds approximately 33.9% of SFX's voting power. This amount will
decrease if SFX sells additional voting stock to third parties or issues it in
acquisitions.

         Additionally, if anyone other than Mr. Sillerman becomes the
beneficial owner of over 35% of the voting power of SFX's outstanding common
stock, then a "Change in Control" will occur under SFX's indentures. This would
require SFX to offer to repurchase its outstanding notes at a premium.


                                      35
<PAGE>

SFX MAY BE FORCED TO SELL SOME OF ITS SUBSIDIARIES, WHICH MAY PREVENT SFX FROM
REALIZING THE FULL VALUE OF THESE SUBSIDIARIES.

         SFX has granted rights to re-purchase some of its subsidiaries. These
rights may discourage potential bidders for the affected assets from
negotiating with SFX, and may keep SFX from realizing the full productive value
of these subsidiaries over time.

         PACE
          In connection with SFX's acquisition of PACE Entertainment
Corporation, Brian Becker received an option to acquire PACE's motor sports
business--or, if that business is sold, PACE's theatrical business--at its fair
market value. Mr. Becker may only exercise this option within 15 days after
February 25, 2000. Mr. Becker's exercise of this option would result in
termination of his employment agreement. Mr. Becker's exercise of this option
could damage SFX's business, financial condition and results of operations.

         In addition, from February 25, 1999 to February 25, 2000, Mr. Becker
will also have a right of first refusal under certain circumstances to acquire
PACE's theatrical or motor sports line of business at a price equal to 95% of
any proposed purchase price by a third party. On a pro forma basis for SFX's
1998 and 1999 Acquisitions, specialized motor sports would have accounted for
approximately 4.1%, and theatrical would have accounted for approximately 17%,
of SFX's total net revenues for the year ended December 31, 1998.

          DON LAW
          In connection with SFX's acquisition of Blackstone Entertainment,
LLC, also known as "Don Law," SFX granted the seller a right of first offer and
refusal. The right allows the seller to purchase, with certain exceptions, the
assets SFX acquired in the acquisition if SFX elects to sell those assets
before July 2, 2000.

          BGP
          SFX has agreed that it will not sell the assets of BG Presents, Inc.
before February 24, 2001, without giving the sellers the opportunity to
purchase the assets on the same terms.

          OTHER ACQUISITIONS
          In addition, SFX has granted similar rights of first refusal to
sellers in certain other acquisitions.

SFX MAY HAVE LOWER REVENUES BECAUSE IT IS UNABLE TO SECURE APPROPRIATE ARTISTS,
EVENTS AND VENUES.

         As a participant in the live entertainment industry, SFX's ability to
generate revenues is highly sensitive to public tastes, which are
unpredictable. A change in public tastes, an increase in competition or a lack
of performer or event availability could damage SFX's business, financial
condition and results of operations. Similarly, SFX's ability to generate
revenues from live entertainment events may be limited if other competitive
forms of entertainment are available. Since SFX relies on unrelated parties to
create and perform live entertainment content, any lack of availability of
popular musical artists, touring Broadway shows, specialized motor sports
talent and other performers could limit SFX's ability to generate revenues.

         SFX requires access to venues to generate revenues from live
entertainment events. It operates a number of its live entertainment venues
under leasing or booking agreements. SFX's long-term success will depend in
part on its ability to renew these agreements when they expire or end. SFX may
be unable to renew these agreements on acceptable terms or at all, and may be
unable to obtain favorable agreements with new venues.

SFX MAY HAVE ENVIRONMENTAL LIABILITIES THAT COULD AFFECT ITS RESULTS OR
OPERATIONS OR FINANCIAL CONDITION.

         SFX may be subject to significant environmental liabilities. SFX owns
or leases, or has other contractual interests in, numerous pieces of real
property, many of which SFX recently acquired. SFX's properties are subject to
environmental laws and regulations relating to the use, storage, disposal,
emission and release of hazardous and non-hazardous substances or materials.
SFX's properties may also be subject to noise level restrictions, which may
affect, among other things, the hours of operation of SFX's venues.
Additionally, certain laws and regulations could hold SFX strictly, jointly and
severally responsible for the correction of hazardous substance contamination
at its facilities or at third-party waste disposal sites, and could hold it
responsible for any personal or property damage related to the contamination.

THE DEPARTMENT OF JUSTICE INVESTIGATION.

         SFX has received a preliminary inquiry from the Department of Justice
seeking information on SFX's acquisitions of live entertainment venues and
businesses throughout the United States. The Department of Justice is
investigating whether these acquisitions might give SFX undue market power in
producing, promoting or exhibiting live entertainment events. SFX 


                                      36
<PAGE>

has cooperated with the Department of Justice, and believes that its operations
and plan of acquisitions comply with applicable antitrust laws. However, if the
Department of Justice disagrees, it might file a lawsuit to force SFX to divest
itself of some of its operations. If such a lawsuit were filed, SFX would
vigorously defend the case. However, if such lawsuit were decided adversely to
SFX, it could have a material adverse impact on SFX's business, results of
operations and financial condition. For more information concerning the
Department of Justice's preliminary inquiry, see "Item 1. Business--Regulatory
Matters."

BECAUSE A CHANGE OF CONTROL OF SFX WOULD BE DIFFICULT TO ACHIEVE, HOLDERS OF
SFX STOCK MAY NOT HAVE THE OPPORTUNITY TO RECEIVE A PREMIUM FOR THEIR SHARES.

         Holders of Class A Common Stock could receive a premium for their
shares upon a change of control of SFX. The holders of Class A Common Stock may
be less likely to receive a premium for their shares, however, because a change
of control would be difficult to achieve without the cooperation of SFX's
principal stockholders and its board of directors. There are several factors
that would make a change of control difficult, including:

     o    SFX has issued, and may issue in the future, shares of Class B Common
          Stock, which has 10 votes per share in most matters. The two current
          holders of Class B Common Stock will control approximately 38.0% of
          SFX's total voting power. Therefore, they probably will be able to
          block any potential change of control transaction that they oppose.

     o    SFX's certificate of incorporation allows its board of directors to
          issue up to 25 million shares of preferred stock. If SFX issues
          shares of preferred stock with voting rights, this issuance could
          dilute the voting rights of holders of SFX's common stock and could
          delay or prevent a change in control.

     o    Section 203 of the Delaware General Corporation Law prohibits SFX
          from engaging in a "business combination" with an "interested
          stockholder" for three years after the person became an interested
          stockholder, unless the business combination is approved in a
          particular manner. Therefore, Section 203 could delay or prevent a
          change in control of SFX.

     o    SFX's board of directors has also adopted other programs, plans and
          agreements that may make a change of control more expensive, such as
          severance payments and immediate vesting of stock options upon a
          change of control.

SFX'S OPERATIONS MAY SUFFER FROM YEAR 2000 COMPUTER PROBLEMS.

         Year 2000 issues exist when computers record dates using two digits
rather than four, and then use the dates for arithmetic operations, comparisons
or sorting. A two-digit recording may recognize a date using "00" as 1900
rather than 2000, which could cause computer systems to perform inaccurate
computations or fail to operate. Although SFX does not anticipate being subject
to a material impact in this area, if it and the companies with which it does
business do not take adequate preventative action, then the Year 2000 problem
could damage SFX's business, financial condition and results of operations. For
more information concerning SFX's Year 2000 compliance issues. See "--Liquidity
and Capital Resources--Year 2000 Compliance."


                                      37
<PAGE>

ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         In the normal course of business, SFX is exposed to market risk
associated with fluctuations in interest rates. SFX does not enter into market
risk sensitive instruments for trading purposes. SFX's exposure as a result of
variable interest rates relates to its outstanding borrowings under the Senior
Credit Facility which bears interest, at SFX's option, at 1.625 to 3.625
percentage points over LIBOR or the greater of the Federal Funds Rate plus 0.5%
or The Bank of New York's prime rate. As of the March 29, 1999, the outstanding
balance under the Senior Credit Facility was $241.0 million and the average
interest rate was 7.99%. A 15% increase or decrease in the average cost of
SFX's variable rate debt under the Senior Credit Facility would not have a
material effect on SFX's earnings. Additional information relating to SFX's
outstanding financial instruments is included in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The information required by this item is incorporated herein by
reference to the Consolidated Financial Statements filed with this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         There have been no changes in SFX's independent accountants or
disagreements with SFX's independent accountants on accounting matters or
financial disclosures.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by this item will be contained under the
caption "Election of Directors" in SFX's Proxy Statement to be distributed in
connection with its 1999 Annual Meeting of Stockholders and is incorporated
herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

         The information required by this item will be contained under the
captions "Director Compensation" and "Executive Compensation" in SFX's Proxy
Statement to be distributed in connection with its 1999 Annual Meeting of
Stockholders and is incorporated herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this item will be contained under the
caption "Stock Ownership" in SFX's Proxy Statement to be distributed in
connection with its 1999 Annual Meeting of Stockholders and is incorporated
herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item will be contained under the
caption "Certain Relationships and Related Transactions" in SFX's Proxy
Statement to be distributed in connection with its 1999 Annual Meeting of
Stockholders and is incorporated herein by reference.




                                      38
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Exhibits:

EXHIBIT
NO.      DESCRIPTION OF EXHIBIT

2.1      Distribution Agreement between SFX Entertainment, SFX Broadcasting and
         SFX Buyer (incorporated by reference to Amendment No. 1 to Form S-1
         (File No. 333-50079) filed with the SEC on May 5, 1998)

2.2      Amended and Restated Tax Sharing Agreement between SFX Entertainment,
         SFX Broadcasting and SBI Holding Corporation (incorporated by
         reference to Amendment No. 1 to Exhibit 1.1 to Current Report on Form
         8-K (File No. 000-24017) filed with the SEC on June 3, 1998)

2.3      Employee Benefits Agreement between SFX Entertainment and SFX
         Broadcasting (incorporated by reference to Amendment No. 1 to Form S-1
         (File No. 333-50079) filed with the SEC on May 5, 1998)

2.4      Amendment No. 1 to Distribution Agreement among SFX Entertainment,
         Inc., SFX Broadcasting, Inc. and SBI Holding Corporation (incorporated
         by reference to Exhibit 2.1 to Form 8-K (File No. 000-24017) filed
         with the SEC on June 3, 1998)

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

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

3.3*     Amendment No. 1 to the Bylaws of SFX Entertainment, Inc.

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

4.2      Indenture, dated November 25, 1998, by and among SFX Entertainment,
         certain of its subsidiaries and Chase Manhattan Bank (incorporated by
         reference to Exhibit 4.2 to Registration Statement on Form S-4 (File
         No. 333-71195) filed with the SEC on January 26, 1999)

4.3      Registration Rights Agreement, dated as of November 25, 1998, relating
         to the 9 1 /8% Senior Subordinated Notes due December 1, 2008
         (incorporated by reference to Exhibit 4.3 to Registration Statement on
         Form S-4 (File No. 333-71195) filed with the SEC on January 26, 1999)

10.1     Agreement and Plan of Merger and Asset Purchase Agreement, dated as of
         December 10, 1997, by and among SFX Entertainment, Inc., Contemporary
         Investments Corporation, Contemporary Investments of Kansas, Inc.,
         Continental Entertainment Associates, Inc., Capital Tickets, LP,
         Dialtix, Inc., Contemporary International Productions Corporation,
         Steven F. Schankman Living Trust, dated 10/22/82, Irving P. Zuckerman
         Living Trust, dated 11/24/81, Steven F. Schankman and Irving P.
         Zuckerman (incorporated by reference to Registration Statement on Form
         S-1 (File No. 333-43287) filed with the SEC)

10.2     Stock Purchase Agreement, dated as of December 11, 1997, among each of
         the shareholders of BGP Presents, Inc. and BGP Acquisitions, LLC
         (incorporated by reference to Registration Statement on Form S-1 (File
         No. 333-43287) filed with the SEC)

10.3     Stock and Asset Purchase Agreement, dated December 2, 1997, between
         and among SFX Network Group, L.L.C. and SFX Entertainment, Inc., and
         Elias N. Bird, individually and as Trustee under the Bird Family Trust
         u/d/o 11/18/92, Gary F. Bird, individually and as Trustee under the
         Gary F. Bird Corporation Trust u/d/o 2/4/94, Stephen R. Smith,
         individually and as Trustee under the Smith Family Trust u/d/o
         7/17/89, June E. Brody, Steven A. Saslow and The Network 40, Inc.
         (incorporated by reference to Registration Statement on Form S-1 (File
         No. 333-43287) filed with the SEC) 

10.4     Purchase and Sale Agreement, dated as of December 15, 1997, by and
         among Alex Cooley, S. Stephen Selig, III, Peter Conlon, Southern
         Promotions, Inc., High Cotton, Inc., Cooley and Conlon Management,
         Inc., Buckhead Promotions, Inc., Northern Exposure, Inc., Pure Cotton,
         Inc., Interfest, Inc., Concert/Southern Chastain Promotions Joint
         Venture, Roxy Ventures Joint Venture and SFX Concerts, Inc.
         (incorporated by reference to Registration Statement on Form S-1 (File
         No. 333-43287) filed with the SEC)

10.5     Stock Purchase Agreement, dated as of December 12, 1997 by and between
         Pace Entertainment Corporation and SFX Entertainment, Inc.
         (incorporated by reference to Registration Statement on Form S-1 (File
         No. 333-43287) filed with the SEC)

10.6     Agreement and Plan of Merger, dated as of August 24, 1997, as amended
         on February 9, 1998, among SFX Buyer, SFX Buyer Sub and SFX
         Broadcasting, Inc. (composite version) (incorporated by reference to
         Annex A of SFX Broadcasting, Inc.'s Definitive Proxy Statement (File
         No. 000-22486) filed with the SEC on February 17, 1998)

10.7     Partnership Formation Agreement, dated as of January 22, 1988, by and
         among MCA Concerts II, Inc. and Pace Entertainment Group, Inc.
         (incorporated by reference to Amendment No. 1 to Form S-1 (File No.
         333-43287) filed with the SEC on January 22, 1998)

                                      39
<PAGE>

10.8     Lease and Use Agreement, dated as of December 9, 1987, by and between
         City of Dallas and Pace Entertainment Group, Inc. (incorporated by
         reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed
         with the SEC on January 22, 1998)

10.9     Agreement, dated as of October 10, 1988, by and between the City of
         Atlanta and MCA Concerts, Inc. (incorporated by reference to Amendment
         No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January
         22, 1998)

10.10    Amended Indenture of Lease, February 2, 1984, by and between the City
         of Atlanta and Filmworks U.S.A., Inc. (incorporated by reference to
         Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on
         January 22, 1998)

10.11    Amendment to Lease Agreement, dated as of October 10, 1988, between
         the City of Atlanta, Georgia and Filmworks U.S.A., Inc. (incorporated
         by reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed
         with the SEC on January 22, 1998)

10.12    Agreement Regarding Sublease, dated as of January 20, 1988, by and
         between Filmworks U.S.A., Inc. and MCA Concerts, Inc. (incorporated by
         reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed
         with the SEC on January 22, 1998)

10.13    First Amendment to Sublease, dated as of January 21, 1988, between
         Filmworks U.S.A., Inc. and MCA Concerts, Inc. (incorporated by
         reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed
         with the SEC on January 22, 1998)

10.14    Second Amendment to Sublease, dated as of April 19, 1988, between
         Filmworks U.S.A., Inc. and MCA Concerts, Inc. (incorporated by
         reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed
         with the SEC on January 22, 1998)

10.15    Third Amendment to Sublease, dated as of September 15, 1988, between
         Filmworks U.S.A., Inc. and MCA Concerts, Inc. (incorporated by
         reference to Amendment No. 1 to Form S-1 (File No. 333-43287) filed
         with the SEC on January 22, 1998)

10.16    Memorandum of Agreement, dated as of October 10, 1988, by and between
         the City of Atlanta and MCA Concerts, Inc. (incorporated by reference
         to Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC
         on January 22, 1998)

10.17    Assignment of Sublease, dated as of June 15, 1989, by Filmworks
         U.S.A., Inc. and MCA Concerts, Inc. (incorporated by reference to
         Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on
         January 22, 1998)

10.18    Assignment of Sublease, dated as of June 23, 1989, by Filmworks
         U.S.A., Inc. and MCA Concerts, Inc. (incorporated by reference to
         Amendment No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on
         January 22, 1998)

10.19    Assignment of Agreement, dated as of June 15, 1989, by the City of
         Atlanta and MCA Concerts, Inc. (incorporated by reference to Amendment
         No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January
         22, 1998)

10.20    Assignment of Agreement, dated as of June 23, 1989, by the City of
         Atlanta and MCA Concerts, Inc. (incorporated by reference to Amendment
         No. 1 to Form S-1 (File No. 333-43287) filed with the SEC on January
         22, 1998)

10.21    1998 Stock Option and Restricted Stock Plan of the Company
         (incorporated by reference to Form S-8 filed with the SEC)

10.22    Credit and Guarantee Agreement, dated as of February 26, 1998, by and
         among SFX Entertainment, 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 Exhibit 10.2 to Current Report on
         Form 8-K (File No. 333-43287) filed with the SEC on March 10, 1998)

10.23    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 Exhibit
         10.1 to Form 8-K filed with the SEC on September 22, 1998)

10.24    Amendment to the Credit and Guarantee Agreement, dated as of November
         20, 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 Exhibit 10.24 to
         Registration Statement on Form S-4 (File No. 333-71195) filed with the
         SEC January 26, 1999)

10.25    Purchase Agreement, dated November 25, 1998, relating to the 9 1/8%
         Senior Subordinated Notes due December 1, 2008 of SFX Entertainment,
         Inc., by and among SFX Entertainment, Inc., Morgan Stanley & Co.
         Incorporated, Lehman Brothers Inc., BancBoston Robertson Stephens Inc.
         and BNY Capital Markets, Inc. (incorporated by reference to Exhibit
         10.25 to Registration Statement on Form S-4 (File No. 333-71195) filed
         with the SEC January 26, 1999)

10.26    Amendment No. 2 to Agreement and Plan of Merger among SBI Holdings
         Corporation, SBI Radio Acquisition Corporation and SFX Broadcasting,
         Inc., dated March 9, 1998 (incorporated by reference to Annual Report
         on Form 10-K (File No. 333-43287) filed with the SEC on March 18,
         1998)

                                      40
<PAGE>

10.27    Stock Purchase Agreement, dated as of April 29, 1998, among SFX Sports
         Group, Inc., SFX Entertainment, Inc. and David Falk, Curtis Polk and
         G. Michael Higgins (incorporated by reference to Amendment No. 1 to
         Form S-1 (File No. 333-50079) filed with the SEC on May 5, 1998)

10.28    Asset Purchase Agreement, dated April 29, 1998, by and among
         Blackstone Entertainment LLC, its members, DLC Acquisition Corp., and
         SFX Entertainment, Inc. (incorporated by reference to Amendment No. 1
         to Form S-1 (File No. 333-50079) filed with the SEC on May 5, 1998)

10.29    Purchase and Sale Agreement, dated April 22, 1998, by and among
         Oakdale Concerts, LLC, Oakdale Development Limited Partnership and
         Oakdale Theater Concerts, Inc. (incorporated by reference to Amendment
         No. 1 to Form S-1 (File No.
         333-50079) filed with the SEC on May 5, 1998)

10.30    Amended and Restated Employment Agreement, dated as of December 12,
         1997, by and between SFX Entertainment, Inc. and Brian E. Becker
         (incorporated by reference to Amendment No. 1 to Form S-1 (File No.
         333-43287) filed with the SEC on January 22, 1998)

10.31    Employment Agreement between SFX Entertainment, Inc. and David Falk,
         dated as of April 29, 1998 (incorporated by reference to Amendment No.
         2 to Form S-1 (File No. 333-50079) filed with the SEC on May 19, 1998)

10.32    Employment Agreement between SFX Entertainment, Inc. and Robert F.X.
         Sillerman, dated as of May 28, 1998 (incorporated by reference to
         Amendment No. 2 to Form S-4 (File No. 333-50331) filed with the SEC on
         June 9, 1998)

10.33    Employment Agreement between SFX Entertainment, Inc. and Michael G.
         Ferrel, dated as of May 28, 1998 (incorporated by reference to
         Amendment No. 2 to Form S-4 (File No. 333-50331) filed with the SEC on
         June 9, 1998)

10.34    Employment Agreement between SFX Entertainment, Inc. and Thomas P.
         Benson, dated as of May 28, 1998 (incorporated by reference to
         Amendment No. 2 to Form S-4 (File No. 333-50331) filed with the SEC on
         June 9, 1998)

10.35    Employment Agreement between SFX Entertainment, Inc. and Howard J.
         Tytel, dated as of May 28, 1998 (incorporated by reference to
         Amendment No. 2 to Form S-4 (File No. 333-50331) filed with the SEC on
         June 9, 1998)

10.36    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 Exhibit
         99(c)(1) to SFX's Schedule 14D-1 filed with the SEC on August 13,
         1998)

10.37    Agreement and Plan of Merger, as amended, among SFX Entertainment,
         Inc., SFX Acquisition Corp. and The Marquee Group, Inc. (composite
         version) (incorporated by reference to Exhibit 10.37 to Registration
         Statement on Form S-4 (File No. 333-71195) filed with the SEC on
         January 26, 1999)

10.38    Director Deferred Stock Ownership Plan of SFX (incorporated by
         reference to Exhibit 10.38 to Registration Statement on Form S-4 (File
         No. 333-71195) filed with the SEC on January 26, 1999)

10.39    Stock Purchase Agreement, dated as of January 25, 1999, by and among
         SFX Entertainment, Inc. and the sellers party thereto (incorporated by
         reference to Exhibit 10.39 to Amendment No. 1 to Form S-4 (File No.
         333-71195) filed with the SEC on February 5, 1999)

10.40    Purchase Agreement, dated as of February 1, 1999, by and among SFX
         Entertainment, Inc., Concert Acquisition Sub, Inc., Nederlander of New
         Mexico LLC, Nederlander Festivals, Inc. and the other sellers party
         thereto (incorporated by reference to Exhibit 10.40 to Amendment No. 1
         to Form S-4 (File No. 333-71195) filed with the SEC on February 5,
         1999)

10.41    Asset Purchase Agreement, dated as of February 1, 1999, by and among
         SFX Entertainment, Inc., Concert Acquisition Sub, Inc. and Nederlander
         of Ohio, Inc. (incorporated by reference to Exhibit 10.41 to Amendment
         No. 1 to Form S-4 (File No.
         333-71195) filed with the SEC on February 5, 1999)

10.42    Membership Interest Purchase Agreement, dated February 1, 1999, by and
         among SFX Entertainment, Inc., Concert Acquisition Sub, Inc.,
         Nederlander Arena Management LLC, Nederlander Cincinnati, LLC,
         Nederlander Club Management LLC and the sellers party thereto
         (incorporated by reference to Exhibit 10.42 to Amendment No. 1 to Form
         S-4 (File No. 333-71195) filed with the SEC on February 5, 1999)

10.43    Stock Purchase Agreement, dated February 1, 1999 by and among SFX
         Entertainment, Inc., Concert Acquisition Sub, Inc., Greater Detroit
         Theatres, Inc. and the sellers party thereto (incorporated by
         reference to Exhibit 10.43 to Amendment No. 1 to Form S-4 (File No.
         333-71195) filed with the SEC on February 5, 1999)
<PAGE>

21.1*     Subsidiaries of the Company

23.1*     Consent of Ernst & Young, LLP

27.1*     Financial Data Schedule

-------------------------------------------------------------------------------
*  Filed herewith


                                      41
<PAGE>

(b)      Reports on Form 8-K

         The Company filed a Current Report on Form 8-K on October 20, 1998
disclosing its execution of Amendment No. 3, dated October 16, 1998, to the
Agreement and Plan of Merger between the Company and The Marquee Group, Inc.

         The Company filed a Current Report on Form 8-K on November 23, 1998
disclosing its execution of a Purchase Agreement, dated November 19, 1998,
pursuant to which the Company agreed to offer in a private placement $200
million in aggregate principal amount of its 9 1/8% Senior Subordinated Notes
due 2008.


                                      42
<PAGE>


                                  SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                  SFX ENTERTAINMENT, INC.

                                  By: /s/Robert F.X. Sillerman
                                  -------------------------------------------
                                  Name: Robert F.X. Sillerman
                                  Title: Executive Chairman and Member of the
                                           Office of the Chairman

                                  Date: March 30, 1999


         Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature                       Title                                     Date
---------                       -----                                     -----   
<S>                             <C>                                       <C>     
/s/ Robert F.X. Sillerman       Executive Chairman, Member of the         March 30, 1999    
-------------------------       Office of the Chairman and Director                         
Robert F.X. Sillerman           (principal executive officer)                               
                                
/s/ Michael G. Ferrel           President, Chief Executive Officer,       March 30, 1999
---------------------           Member of the Office of the Chairman
Michael G. Ferrel               and Director

/s/ Brian Becker                Executive Vice President, Member of the   March 30, 1999
-----------------
Brian Becker                    Office of the Chairman and Director

/s/ David Falk                  Member of the Office of the Chairman      March 30, 1999
---------------
David Falk                      and Director

/s/ Howard J. Tytel             Executive Vice President, Member of the   March 30, 1999
--------------------
Howard J. Tytel                 Office of the Chairman, General
                                Counsel, Secretary and Director

/s/ Thomas P. Benson            Chief Financial Officer, Senior Vice      March 30, 1999
--------------------            President and Director (principal
Thomas P. Benson                financial and accounting officer)

/s/ Richard A. Liese            Senior Vice President, Associate          March 30, 1999
--------------------            General Counsel and Director
Richard A. Liese

/s/ D. Geoffrey Armstrong       Director                                  March 30, 1999
-------------------------
D. Geoffrey Armstrong

                                Director                                                
-------------------------
James F. O'Grady, Jr.

/s/ Paul Kramer                 Director                                  March 30, 1999
---------------
Paul Kramer

/s/ Edward F. Dugan             Director                                  March 30, 1999
-------------------
Edward F. Dugan
</TABLE>

                                      43
<PAGE>

                            SFX ENTERTAINMENT, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                          PAGE

The following consolidated financial statements are included in Item 8:

Reports of Independent Auditors                                            F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997               F-4
Consolidated Statements of Operations for each of the
  Three Years in the Period Ended December 31, 1998                        F-5
Consolidated Statements of Cash Flows for each of the
  Three Years in the Period Ended December 31, 1998                        F-6
Consolidated Statements of Shareholders' Equity for each of the
  Three Years in the Period Ended December 31, 1998                        F-7
Notes to Consolidated Financial Statements                                 F-8

The following consolidated financial statement schedule is included in
Item 14(a):

Schedule II - Valuation and Qualifying Accounts                            S-1

All other schedules have been omitted because the information is not applicable
or is not material or because the information required is included in the
consolidated financial statements or the notes thereto.

<PAGE>


                         REPORT OF INDEPENDENT AUDITORS



Board of Directors
SFX Entertainment, Inc.

         We have audited the accompanying consolidated balance sheets of SFX
Entertainment, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of operations, cash flows and shareholders' equity for
the years then ended. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits. 1

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

         In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of SFX Entertainment, Inc. at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

                                                   ERNST & YOUNG LLP
New York, New York
February 25, 1999

                                      F-2
<PAGE>



                         REPORT OF INDEPENDENT AUDITORS

Board of Directors
SFX Entertainment, Inc.

         We have audited the accompanying statements of operations and cash
flows of Delsener/Slater Enterprises, Ltd. and Affiliated Companies for the
year ended December 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. 1

         We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

         In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated results of
operations and cash flows of Delsener/Slater Enterprises, Ltd. and Affiliated
Companies for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.

                                                      ERNST & YOUNG LLP


New York, New York
October 2, 1997

                                      F-3

<PAGE>


                                         SFX ENTERTAINMENT, INC.
                                        CONSOLIDATED BALANCE SHEETS
                                    (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                             ---------------------------
ASSETS                                                                           1998             1997
                                                                             ----------         --------
<S>                                                                         <C>                <C>
Current assets:
    Cash and cash equivalents                                                $   48,021         $  5,979
    Accounts receivable, net                                                     53,162            3,831
    Prepaid event expenses                                                       23,043              438
    Investments in and receivables from theatrical and other productions         12,222               --
    Other prepaid expenses                                                        4,475              770
    Notes receivables from related parties and employees                            972               --
    Other current assets                                                          6,838              202
                                                                             ----------         --------
Total current assets                                                            148,733           11,220

Property and equipment, net                                                     292,626           59,685
Goodwill and other intangible assets, net                                       898,433           60,306
Deferred acquisition costs                                                        2,280            6,213
Investment in and receivables from equity investees                              18,450              937
Notes receivable from related parties and employees, less current portion        12,464              900
Other assets                                                                     10,466            7,681
                                                                             ----------         --------
TOTAL ASSETS                                                                 $1,383,452         $146,942
                                                                             ==========         ========
LIABILITIES AND SHAREHOLDERS' EQUITY 
Current liabilities:
    Accounts payable                                                         $   17,712         $  1,345
    Accrued expenses                                                             46,670            1,284
    Accrued interest payable                                                     17,241               86
    Deferred revenue                                                             60,142            3,603
    Income taxes payable                                                          4,217            1,707
    Due to SFX Broadcasting                                                          --           11,539
    Current portion of long-term debt                                             5,581              923
    Current portion of deferred purchase consideration                           11,851            1,950 
                                                                             ----------         --------
Total current liabilities                                                       163,414           22,437

Long-term debt, less current portion                                            768,195           15,255
Deferred purchase consideration, less current portion                             7,983            4,289
Deferred income taxes                                                            38,826            2,817
Other liabilities                                                                 1,940               --
                                                                             ----------         --------
TOTAL LIABILITIES                                                               980,358           44,798

Minority interest                                                                 8,058               --
Temporary equity - stock subject to redemption                                   16,500               --
Commitment and contingencies
Shareholders' equity:
Preferred Stock, $.01 par value, 25,000,000 shares authorized, none issued
     and outstanding as of December 31, 1998 and 1997                                --               --
Class A common stock, $.01 par value, 100,000,000 shares authorized, 
     28,613,194 and 13,579,024 shares issued and outstanding as of 
     December 31, 1998 and 1997, respectively                                       286              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
     December 31, 1998 and 1997, respectively                                        17               10
Additional paid in capital                                                      449,636           98,184
Deferred compensation                                                            (6,533)              --
Accumulated (deficit) earnings                                                  (64,870)           3,814
                                                                             ----------         --------
Total shareholders' equity                                                      378,536          102,144
                                                                             ----------         --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                   $1,383,452         $146,942
                                                                             ==========         ========
</TABLE>

                             See accompanying notes.



                                      F-4

<PAGE>


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

<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                           ---------------------------------------------------------
                                                                                                        Predecessor
                                                                1998                1997                    1996
                                                           -----------          -----------             ------------
<S>                                                        <C>                  <C>                       <C>      
Revenue                                                    $   884,286          $    96,144               $  50,362

Operating expenses:
Cost of revenues                                               678,756               73,881                  41,584
Selling, general and administrative expenses                   111,748                9,536                   9,102
Depreciation and amortization, including $2,406
    of integration and start-up costs in 1998                   62,197                5,431                     747
Corporate expenses, net of Triathlon fees of $530
    in 1998 and $1,794 in 1997                                  11,194                2,206                      --
Non-recurring charges                                            5,600                   --                      --
Non-cash compensation and other non-cash charges                34,051                   --                      --
                                                           -----------          -----------               ---------
                                                               903,546               91,054                  51,433
                                                           -----------          -----------               ---------
Income (loss) from operations                                  (19,260)               5,090                  (1,071)
Income from equity investments                                   4,630                  509                     524
Interest expense                                               (50,759)              (1,590)                    (60)
Investment income                                                4,491                  295                     198
Minority interest                                               (2,036)                  --                      -- 
                                                           -----------          -----------               ---------
Income (loss) before provision for income taxes                (62,934)               4,304                    (409)
Provision for income taxes (1)                                   3,000                  490                     106
                                                           -----------          -----------               ---------
Net income (loss)                                              (65,934)               3,814               $    (515)
                                                                                                          =========

Accretion on stock subject to redemption                         2,750                   --
                                                           -----------          -----------
Net income (loss) applicable to common shares              $   (68,684)         $     3,814
                                                           ===========          ===========

Basic and dilutive earnings (loss) per common share        $     (2.75)              $ 0.26
                                                           ===========          ===========

Weighted average basic and dilutive common shares          
   outstanding                                              24,978,413           14,445,000
                                                           ===========          ===========
</TABLE>

(1)   The provision for income taxes for the year ended December 31, 1997 would
      have been $2,540 if such provision had been calculated on a stand-alone
      basis (see Note 10). This increase in the provision for income taxes
      would have resulted in pro forma net income of $1,764 and basic and 
      dilutive earnings per common share of $0.12.


                             See accompanying notes.


                                      F-5



<PAGE>

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

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                     ----------------------------------------------------
                                                                                                            Predecessor
                                                                            1998             1997               1996
                                                                     ----------------  ----------------   ----------------
<S>                                                                     <C>               <C>                <C>
Operating activities:
Net income (loss)                                                        $  (65,934)       $  3,814           $  (515)
Adjustment to reconcile net income (loss) to net cash provided 
by operating activities:
   Depreciation and amortization, excluding $2,406 of 
     integration and start-up costs in 1998                                  59,791           5,431               746
   Income from equity investments, net of amounts received                    2,809            (479)               16
   Non-cash compensation and other non-cash charges                          34,051              --                --
   Minority interest                                                          2,036              --                --
   Deferred income taxes                                                         --            (427)               --
Changes in operating assets and liabilities, net of amounts acquired:
   Accounts receivable, net                                                   8,463            (923)             (159)
   Prepaid event expenses, prepaid expenses and other current assets        (23,496)            419              (649)
   Other assets                                                                 882            (275)               --
   Notes receivable from related parties and employees                       (1,132)             --                --
   Accounts  payable, accrued expenses and other liabilities                 (1,550)           (325)            4,759
   Accrued interest payable                                                  17,204              --                --
   Income taxes payable                                                          --             917                --
   Deferred revenue                                                          (5,683)         (7,147)               16
                                                                         ----------        --------           -------
Net cash provided by operating activities                                    27,441           1,005             4,214
                                                                         ----------        --------           -------
Investing activities:
   Purchase of  businesses, net of  cash acquired                          (827,147)        (71,213)               --
   Investment in partnership                                                     --              --              (435)
   Purchase of property and equipment                                       (64,773)         (2,083)               --
                                                                         ----------        --------           -------
Net cash used in investing activities                                      (891,920)        (73,296)             (435)
                                                                         ----------        --------           -------
Financing activities:
   Capital contributed by SFX Broadcasting                                       --          79,093                --
   Payments made to SFX Broadcasting pursuant to the Spin-Off              (135,679)             --                --
   Proceeds from issuance of senior subordinated debt and
      borrowings under the credit agreement                                 951,500              --                --
   Proceeds from sale of common stock                                       328,568              --                --
   Repayment of debt and capital lease obligations                         (215,212)           (823)               --
   Other, principally debt issuance costs                                   (22,656)             --            (1,431)
                                                                         ----------        --------           -------
Net cash provided by (used in) financing activities                         906,521          78,270            (1,431)
                                                                         ----------        --------           -------
Net increase in cash and cash equivalents                                    42,042           5,979             2,348
Cash and cash equivalents at beginning of period                              5,979              --             2,905
                                                                         ==========        ========           =======
Cash and cash equivalents at end of period                               $   48,021        $  5,979           $ 5,253
                                                                         ==========        ========           =======
Supplemental disclosure of cash flow information:
Cash paid for interest                                                   $   33,604        $  1,504           $    60
                                                                         ==========        ========           =======
Cash paid for income taxes                                               $      501        $     --           $   106
                                                                         ==========        ========           =======
</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 3).
o  Agreements to pay future cash consideration in connection with certain
   acquisitions (see Note 3). 
o  The balance sheet includes certain assets and liabilities which were 
   contributed by SFX Broadcasting (see Notes 1 and 4).


                             See accompanying notes.


                                      F-6


<PAGE>

                            SFX ENTERTAINMENT, INC.
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                             Class A     Class B      Additional                     Accumulated
                                              Common      Common        Paid-In       Deferred        (Deficit)
                                               Stock       Stock        Capital     Compensation      Earnings        Total
                                            ----------  ----------   ------------  --------------    -----------    ---------

<S>                                        <C>          <C>         <C>            <C>              <C>            <C>      
Balances, January 1, 1997                   $      --    $    --     $      --      $       --       $        --    $      --

Capital contributed by SFX Broadcasting           136         10        98,184              --                --       98,330

Net income                                         --         --            --              --             3,814        3,814
                                            ---------    -------     ---------      ----------       -----------    ---------
Balances, December 31, 1997                       136         10        98,184              --             3,814      102,144

Net liabilities assumed and shares issued                                         
   to employees in the Spin-Off, principally
   income taxes                                    13         --      (109,755)             --                --     (109,742)

Sale of 8,050,000 shares of Class A
   common stock                                    80         --       328,488              --                --      328,568

Issuance of 5,500,697 shares of Class A                              
   common stock for acquisitions                   55         --        95,543              --                --       95,598

Issuance of Class A and Class B common                               
   stock pursuant to employment agreements          2          7        34,426          (8,625)               --       25,810

Amortization of deferred compensation              --         --            --           2,092                --        2,092

Accretion on stock subject to redemption           --         --         2,750              --            (2,750)          --

Net loss                                           --         --            --              --           (65,934)     (65,934)
                                            ---------    -------     ---------      ----------       -----------    ---------
Balances, December 31, 1998                 $     286    $    17     $ 449,636      $   (6,533)      $   (64,870)   $ 378,536
                                            =========    =======     =========      ==========       ===========    =========
</TABLE>


















                             See accompanying notes.


                                      F-7

<PAGE>


                             SFX ENTERTAINMENT, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

         SFX Entertainment, Inc. ("SFX" or the "Company") is the world's
largest diversified promoter, producer and venue operator for live
entertainment events. In addition, SFX is a leading fully integrated sports
marketing and management company specializing in the representation of sports
athletes and broadcasters, integrated event management, television programming
and production and marketing consulting services. SFX owns, partially or
entirely, and/or operates under lease or exclusive booking arrangements, the
largest network of venues used principally for music concerts and other live
entertainment events in the United States, with 82 venues in 31 of the top 50
markets, including 16 amphitheaters in the top 10 markets. SFX operates in four
major business segments within the live entertainment industry: music, theater,
sports and family entertainment and other.

         SFX was formed as a wholly-owned subsidiary of SFX Broadcasting, Inc.
("SFX Broadcasting") 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 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") (See Note 4). The Spin-Off was completed on April 27, 1998 and the
Broadcasting Merger was completed on May 29, 1998. 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. The Company recorded the Spin-Off at the historical cost of the assets
and liabilities contributed by SFX Broadcasting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

PRINCIPLES OF CONSOLIDATION

         The accompanying consolidated financial statements include the accounts
of SFX and its majority-owned subsidiaries. The Company accounts for its
investments in 50 percent or less owned entities, including theatrical
production partnerships, under the equity method. All intercompany transactions
and balances have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS

         The Company considers all investments purchased with a maturity of
three months or less to be cash equivalents. Included in cash and cash
equivalents at December 31, 1997 is $1,235,000 of cash which has been deposited
in a separate account and was used during 1998 to fund committed capital
expenditures.

PREPAID EVENT EXPENSES

         Prepaid event expenses include show advances and deposits, event
advertising costs and other costs directly related to future events. Such costs
are charged to operations upon completion of the related events. As of December
31, 1998 and 1997, prepaid event expenses included advertising costs of $480,000
and $40,000, respectively. The Company recognized event advertising expense of
approximately $51,865,000, $7,109,000, and $4,896,000 in 1998, 1997, and 1996,
respectively.

PROPERTY AND EQUIPMENT

         Land, buildings, improvements and furniture and equipment are stated at
cost. Depreciation is provided on a straight-line basis over the estimated
useful lives of the assets as follows:

                 Buildings and improvements         4-40 years
                 Furniture and equipment             3-7 years

         Leasehold improvements primarily represent the capitalized costs to
renovate leased venues. These costs are being amortized over the shorter of the
useful life of the improvement or the term of their respective leases.
Maintenance and 

                                      F-8


<PAGE>

repairs which do not extend the lives of the respective assets are expensed as 
incurred. Depreciation of assets under capital leases is included in 
depreciation and amortization expense.

GOODWILL AND OTHER INTANGIBLE ASSETS

         Goodwill represents the excess of the purchase price, including
contingent purchase consideration, over the fair market value of the assets
acquired, and is amortized using the straight-line method over 10-15 years.
Other intangible assets, principally debt issuance costs, are amortized over
the term of the related debt and included in interest expense.

         It is the Company's policy to account for goodwill and other
intangible assets at the lower or amortized cost or estimated realizable value.
As part of an ongoing review of the valuation and amortization of goodwill and
other intangible assets of the Company and its subsidiaries, management
assesses the carrying value of goodwill and other intangible assets if facts
and circumstances suggest that there may be impairment. If this review
indicates that goodwill and other intangible assets will not be recoverable as
determined by a non-discounted cash flow analysis of the operating results over
the remaining amortization period, the carrying value of the goodwill and other
intangible assets would be reduced to estimated realizable value.

         Certain of the acquisition agreements require that the Company pay the
sellers additional amounts based upon the achievement of a certain level of
operating results as defined in the respective acquisition agreements. It is
the Company's policy to record these additional amounts when, in management's
opinion, it is probable that the results will be achieved. These amounts are
recorded as additional purchase price or as compensation expense in accordance
with EITF 95-8 "Accounting for Contingent Consideration Paid to the
Shareholders for an Acquired Enterprise in a Purchase Business Combination".

OTHER ASSETS

         In 1997, other assets includes $4,928,000 of costs associated with
acquiring the right to receive fees from Triathlon Broadcasting Company
("Triathlon"), an affiliate, for certain financial consulting, marketing and
administrative services provided by the Company to Triathlon. In 1998, the
Company wrote down these assets by $2.7 million, as a charge to amortization
expense, to the net realizable value upon the expected sale of Triathlon to a
third party in the second quarter of 1999. As of December 31, 1998, $2,032,000
of these costs, which the Company expects to receive in the second quarter of
1999, were recorded as other current assets.

REVENUE RECOGNITION

         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. 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.

         Music, Theatrical and Family Entertainment

         Revenue from the presentation and production of an event is recognized
on the date of the performance. Advance ticket sales are recorded as deferred
revenue until the event occurs. Sponsorship and other revenues that are not
related to any single event are classified as deferred revenue and are
amortized on a straight-line basis over the operating season during the term of
the contract.

         Sports

         Revenue arises primarily from percentage fees or commissions received
for the negotiation of professional sporting contracts and marketing
endorsements. The Company recognizes revenue ratably over the period of the
associated contract. Revenue is deferred when funds are received in advance of
the performance period and is recognized over the period of performance.

                                      F-9


<PAGE>

         Other

         Revenue is recognized as services are performed or as goods are
shipped.

RISKS AND UNCERTAINTIES

         Accounts receivable are due principally from ticket companies and
venue box offices. These amounts are typically collected within 20 days of a
performance. Generally, management considers these accounts receivable to be
fully collectible; accordingly, no allowance for doubtful accounts is required.
Certain other accounts receivable, arising from the normal course of business,
are reviewed for collectibility and allowances for doubtful accounts are
recorded as required. The Company has recorded an allowance for doubtful
accounts of $1.7 million as of December 31, 1998 related to these accounts
receivable. Management believes that no allowance for doubtful accounts was
required at December 31, 1997.

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

INCOME (LOSS) PER COMMON SHARE

         Basic income (loss) per common share is based upon the net income
(loss) applicable to common shares after the accretion of stock subject to
redemption and upon the weighted average of common shares outstanding during
the period. Diluted loss per common share adjusts for the effect of convertible
securities and stock options only in the periods presented in which such effect
would have been dilutive. As the Company incurred losses in 1997 and 1998,
there were no dilutive securities during those periods. For the periods prior
to the Spin-Off, the calculation of income (loss) per common share reflects the
recapitalization of the Company (See Note 10).

             Earnings per share for the year ended December 31, 1996 has not
been presented herein since the operations for that year relates to the
predecessor of the Company and such information would not be meaningful.

START-UP ACTIVITIES

          In June 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"), which is effective for fiscal years beginning after
December 15, 1998. Under SOP 98-5, the costs of start-up activities, including
organizational costs, would be expensed as incurred. SOP 98-5 broadly defines
start-up activities as those one-time activities related to opening a new
facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer or beneficiary,
initiating a new process in an existing facility or beginning a new operation.
The initial application of SOP 98-5 is to be reported as a cumulative effect of
a change in accounting principle. Management has preliminarily determined that
SOP 98-5 will not have a material effect on its consolidated financial
statements.

RECLASSIFICATION

         Certain amounts in 1997 and 1996 have been reclassified to conform to
the 1998 presentation.

3.  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. Total
aggregate consideration was approximately $27,600,000, including $2,900,000 for
working capital and the present value of deferred payments of $3,000,000 to be
paid over five years and $1,000,000 to be paid without interest over ten years.
In certain cases, Messrs. Delsener and Slater have rights to purchase the
outstanding capital stock of Delsener/Slater for fair market value as defined
in their employment agreements. 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 for
$900,000 in cash, 250,838 shares of SFX Broadcasting Class A Common Stock with
a value of approximately $7,500,000 and the assumption of approximately
$15,400,000 in debt. In June 1997, the Company acquired the stock of Sunshine
Promotions, Inc. ("Sunshine") and certain other related companies, an
owner-operator of venues and a concert promoter in the Midwest for $53,900,000
in cash, of which $2,000,000 is payable over five years, 62,792 shares of 


                                      F-10
<PAGE>

SFX Broadcasting Class A Common Stock issued with a value of approximately
$2,000,000, shares of SFX Broadcasting stock issuable over a two year period
with a value of approximately $2,000,000 and the assumption of approximately
$1,600,000 in debt.

         The Delsener/Slater, Meadows, and Sunshine 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

         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).

         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. 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 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 1,262,850 shares
of Class A Common Stock of the Company valued by the parties at $16.8 million
(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


                                      F-11
<PAGE>

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 and the sellers
placed 140,000 of the shares issued in connection with the Contemporary
Acquisition into an escrow account and reduced the aggregate purchase price
accordingly (as reflected above). 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 (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 1998, the Company recorded $8.0 million
related to the achievement of the operating results which is included in
deferred purchase consideration in the accompanying consolidated balance sheet.
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.

         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 over 5 years contingent
on the achievement of certain operating performance targets. In 1998, the
Company recorded $750,000 based on the achievement of the operating performance
targets which has been included in deferred purchase consideration in the
accompanying consolidated balance sheet.

         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.

         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").


                                      F-12
<PAGE>

         Other Acquisitions

         During 1998, the Company completed the acquisition of thirteen other
companies in the theatrical, music and other segments, principally in the areas
of programming, touring and merchandising (collectively the "Other
Acquisitions"). The aggregate purchase price of the Other Acquisitions was
$169.5 million in cash, approximately $11.0 million in stock (375,019 shares of
the Company's Class A Common Stock), $10.0 million of deferred payments and
$5.8 million in assumed debt. The Company also made a non-recourse loan to the
one of the sellers in the amount of $11.4 million. In addition, the Company is
required to make a loan to certain sellers in an amount equal to the taxes
incurred by the sellers. The Company expects that the amount of the loan will
be approximately $750,000. Further, certain of the agreements also provide for
payments by the Company to the certain of the sellers of additional amounts
contingent on the achievement of certain operating performance targets. In
1998, the Company recorded $2.7 million related to such agreements which has
been included in deferred purchase consideration in the accompanying
consolidated balance sheet.

         The BGP Acquisition, the PACE Acquisition, the Contemporary
Acquisition, the Network 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 $350.0 Note Offering, the 1998 Equity Offering,
and the Senior Credit Facility (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 subject to change.
Operating results for the 1997 Acquisitions and the 1998 Acquisitions are
included herein from their respective acquisition dates.

         The following unaudited pro forma summary represents the consolidated
results for the years ended December 31, 1998 and 1997 as if the acquisitions
completed as of December 31, 1998 had occurred as of January 1, 1997. The pro
forma summary for the year ended December 31, 1996 reflects the 1997
Acquisitions as if they had occurred as of January 1, 1996. 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
those dates or of results which may occur in the future (in thousands).

<TABLE>
<CAPTION>
                                                      Pro Forma
                                               Year Ended December 31,
                                                     (unaudited)
                                    1998                 1997               1996
                               ----------------------------------------------------
<S>                           <C>                    <C>                <C>      
Revenues                       $  1,131,347           $  883,901         $ 104,784
Net income                     $    (71,594)          $  (49,414)        $  (2,668)
Loss applicable to basic and 
   dilutive common shares      $      (2.39)          $    (1.76)               --
</TABLE>

4. 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 the Company's 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 paid $109.7 million
of estimated payments related to this agreement during 1998. Management's
estimates of the amount of the indemnity payments are based on assumptions which
management believes are reasonable. However, upon the completion of all final


                                      F-13
<PAGE>

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.

5. PROPERTY AND EQUIPMENT

         The Company's property and equipment as of December 31, 1998 and 1997
consisted of the following (in thousands):

                                           1998                1997
                                           ----                ----
Land                                     $ 20,379            $ 8,752
Building and improvements                 145,438             44,364
Furniture and equipment                    38,416              6,027
Leasehold improvements                     98,483              2,676
Assets under capital lease                  6,898                476
                                         --------            -------
                                          309,614             62,295
Accumulated depreciation and
    amortization                          (16,988)            (2,610)
                                         --------            -------
                                         $292,626            $59,685
                                         ========            =======

6. GOODWILL AND OTHER INTANGIBLE ASSETS

         The Company's goodwill and other intangible assets, principally
deferred financing costs, as of the December 31, 1998 and 1997 consisted of the
following (in thousands):

                                          1998              1997
                                          ----              ----
Goodwill                               $ 911,164          $ 56,758
Other intangibles                         33,978             6,293
                                       ---------          --------
                                         945,142            63,051
Accumulated Amortization                 (46,709)           (2,745)
                                       =========          ========
                                       $ 898,433          $ 60,306
                                       =========          ========
7. LEASES

         The Company's leases include primarily leases with respect to venues,
office space and land. The lease terms range from 3 to 11 years for operating
leases and 1 to 36 years for capital leases. A number of the leases provide for
escalating rent over the lease term. Rental expense on operating leases is
recognized on a straight-line basis over the life of such leases. The majority
of the amphitheater leases provide for contingent rentals, generally based upon
a percentage of gross revenues, as defined in the respective lease agreements.
Rental expense associated with operating leases for 1998, 1997 and 1996 was
$19,496,000, $2,753,000 and $875,000, respectively. Contingent rental expense
associated with operating leases for 1998 was $4,282,000. There was no
contingent rental expense for 1997 and 1996. Interest rates on capital leases
range form 6.0% to 9.75%.

Minimum rental commitments on long-term capital and operating leases at
December 31, 1998 are as follows (in thousands):

                                      Operating Leases      Capital Leases
                                      ----------------      --------------
1999                                      $ 10,218             $ 2,067
2000                                         9,321               1,892
2001                                         8,374               1,566
2002                                         8,018               1,256
2003                                         7,488               1,256
2004 and thereafter                         79,668              24,123
                                          --------             -------
                                          $123,087              32,160
                                          ========
Less: Interest                                                 (19,380)
                                                               -------
                                                                12,780

Less: Current portion                                             (825)
                                                               -------
                                                               $11,955
                                                               =======


                                      F-14
<PAGE>


8. LONG-TERM DEBT

As of December 31, 1998 and 1997, the Company's long-term debt consisted of the
following (in thousands):

                                                   1998           1997
                                                 --------       -------
Senior subordinated notes due February 2008      $350,000       $    --
Senior subordinated notes due December 2008       200,000            --
Senior credit facility                            196,000            --
Other debt                                         14,996        15,688
Capital lease obligations (see Note 7)             12,780           490
                                                 --------        ------
                                                  773,776        16,178
 Less: current portion                             (5,581)         (923)
                                                 ========       =======
                                                 $768,195       $15,255
                                                 ========       =======

         Senior Credit Facility

         On February 26, 1998, SFX entered into a $300.0 million senior secured
credit facility (the "Senior Credit Facility"), comprised of a $150.0 million
eight-year term loan and a $150.0 million seven-year reducing revolver.
Borrowings under the Senior Credit Facility are secured by substantially all of
the assets of SFX, including a pledge of the outstanding stock of substantially
all of its subsidaries, and are guaranteed by substantially all of SFX's
subsidiaries. On September 10, 1998, SFX amended the Senior Credit Facility to
increase its borrowing availability under the revolving portion of the facility
by an additional $50.0 million to $200.0 million, which increased the aggregate
amount of borrowing availability to $350.0 million. Borrowings under the Senior
Credit Facility were principally used to fund certain of the 1998 Acquisitions.

         Loans outstanding under the Senior Credit Facility bear interest, at
SFX's option, at certain spreads 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 are adjusted based on SFX's total leverage ratio, as
defined. SFX pays an annual commitment fee ranging from 0.375% to 0.50% on the
unused availability under the revolver. SFX also pays an annual letter of
credit fee equal to the applicable LIBOR margin, as defined, for the revolver
then in effect. Loans outstanding under the Senior Credit Facility at December
31, 1998 accrued interest at 8.36%.

         Commitments to lend under the revolver will be reduced in equal
quarterly installments commencing March 31, 2000, in annual percentages of the
outstanding borrowings under the revolver as of December 31, 1999 as follows:
10.0% in 2000; 15.0% in 2001; 20.0% in 2002; 25.0% in 2004; and the remaining
5.0% together with any outstanding interest upon final maturity. The term loan
will be reduced by $1.0 million per year until final maturity, at which point
the remaining balance together with any outstanding interest will be due and
payable.

         The Senior Credit Facility contains certain covenants that, among
other things, limits the ability of SFX and its subsidiaries to incur
additional indebtedness, issue certain equity interests, pay dividends and sell
certain assets. In addition, the Senior Credit Facility requires SFX to
maintain compliance with certain specified financial covenants. The Senior
Credit Facility also prohibits prepayment of any subordinated notes. SFX is
currently in discussion with the lenders under the Senior Credit Facility to
increase the total borrowing availability thereunder to $550.0 million.
Although no assurances can be given, SFX expects to enter into this amendment
during the second quarter of 1999.

         Senior Subordinated Notes

         On February 11, 1998, SFX completed an offering of $350.0 million in
principal amount of 9 1/8% Senior Subordinated Notes due February 1, 2008 (the
"February 1998 Notes"). Interest is payable on the notes on February 1 and
August 1 of each year. SFX used the proceeds from the note offering to
consummate certain of the Company's 1998 Acquisitions. On July 15, 1998, SFX
exchanged all of the notes for substantially identical publicly registered
notes. All original notes were tendered for exchange and canceled upon the
issuance of the registered noted.


                                      F-15
<PAGE>

         On November 25, 1998, SFX completed an offering of $200.0 million in
principal amount of 9 1/8% Senior Subordinated Notes due December 1, 2008 (the
"November 1998 Notes" and together with the February 1998 Notes, the "Senior
Subordinated Notes"). Interest is payable on the notes on June 1 and December 1
of each year. SFX used the proceeds from the note offering to repay
substantially all outstanding borrowings under the revolving portion of the
Senior Credit Facility. SFX has filed a registration statement with the
Securities and Exchange Commission to register substantially identical notes
that will be exchanged for the November 1998 Notes when the registration
statement becomes effective.

         The Senior Subordinated Notes are general unsecured obligations of
SFX, subordinate in right to all senior debt, whether outstanding on the date
of issuance of the Senior Subordinated Notes or thereafter incurred, of SFX and
senior in right of payment to or with all other indebtedness of the Company.

         The February 1998 Notes are not redeemable at SFX's option before
February 1, 2003, and the November 1998 Notes are not redeemable at SFX's
option before December 1, 2003. Thereafter, each series of notes will be
subject to redemption at any time at the option of SFX, in whole or in part, at
specified redemption prices plus accrued and unpaid interest, and liquidated
damages (as defined), if any. In addition, at any time prior to February 1,
2001 with respect to the February 1998 Notes and December 1, 2001 with respect
to the November 1998 Notes, SFX may on any one or more occasions redeem up to
35.0% of the original aggregate principal amount of each series of notes at a
redemption price of 109.125% of the principal amount thereof, plus accrued and
unpaid interest and liquidated damages, if any, with the net proceeds of one or
more offerings of common equity of SFX.

         The Senior Subordinated Note indentures contain certain covenants that,
among other things, significantly limit the ability of SFX and its subsidiaries
to incur additional indebtedness, issue certain equity interests, pay dividends
and sell certain assets.

         Principal maturities of the long-term debt, excluding capital leases,
over the next five years as of December 31, 1998 are as follows (in thousands):


                          Long-term debt
                    --------------------------
1999                        $  4,756
2000                           2,359
2001                           1,768
2002                           1,513
2003                           1,576
2004 & Thereafter            749,024
                            --------
Total                       $760,996
                            ========

         Note Offering and Guarantees by Subsidiaries

         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 Senior
Subordinated Notes (the "Guarantors"). A certain subsidiary which is not wholly
owned (the "Non-Wholly Owned Guarantor Subsidiary") guarantees such
indebtedness and certain subsidiaries (the "Non-Guarantor Subsidiaries") do not
guarantee such indebtedness.

         Full financial statements of the Guarantors, Non-Guarantor
Subsidiaries or the Non-Wholly Owned Guarantor Subsidiary 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 and Non-Wholly Owned Guarantor 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, Non-Guarantor Subsidiaries or the Non-Wholly
Owned Guarantor Subsidiary would be material to investors. The following are
summarized unaudited statements setting forth certain financial information
concerning the Guarantors, the Non-Guarantor Subsidiaries and the Non-Wholly
Owned Guarantor Subsidiary as of and for the year ended December 31, 1998 (in
thousands).


                                      F-16
<PAGE>


<TABLE>
<CAPTION>
                                      SFX                                                                           SFX
                                 Entertainment,                                  Non-Wholly,                   Entertainment,
                                      Inc.                     Non-Guarantor  Owned Guarantor                       Inc.
                                 Consolidated    Guarantors    Subsidiaries      Subsidiary      Eliminations  Consolidated
                                 --------------  ----------    -------------  ---------------    ------------  --------------
<S>                              <C>           <C>              <C>               <C>            <C>            <C>       
Current assets                    $   19,587    $  122,118       $  6,836          $   192        $        --    $  148,733
Property and equipment, net           10,390       272,243          9,993               --                 --       292,626
Goodwill and other intangible                                                                                   
   assets, net                        24,317       844,055         19,853           10,208                 --       898,433
Investment in subsidiaries         1,161,103        18,450             --               --         (1,161,103)       18,450
Other assets                           4,594        18,044          2,572               --                 --        25,210
                                 -----------    ----------       --------          -------        -----------    ----------
   Total assets                  $ 1,219,991    $1,274,910       $ 39,254          $10,400        $(1,161,103)   $1,383,452
                                 ===========    ==========       ========          =======        ===========    ==========

Current liabilities              $    41,071    $  118,766       $  7,541               76        $    (4,040)   $  163,414
Long-term debt, less current
  portion                            747,746        20,449          7,855               --             (7,855)      768,195
Other liabilities                     36,138        12,321            290               --                 --        48,749
Minority interest                         --         5,505            428            2,125                 --         8,058
Temporary equity                      16,500            --             --               --                 --        16,500
Shareholders' equity                 378,536     1,117,869         23,140            8,199         (1,149,208)      378,536
                                 -----------    ----------       --------          -------        -----------    ----------
Total liabilities                                                                                               
   and shareholders' equity      $ 1,219,991    $1,274,910       $ 39,254          $10,400        $(1,161,103)   $1,383,452
                                 ===========    ==========       ========          =======        ===========    ==========

Revenue                          $        --    $  832,606       $ 25,245          $26,435        $        --    $  884,286
Operating expenses                    50,963       805,418         22,174           24,991                 --       903,546
Interest expense, net                 44,626           895          1,649              (33)              (869)       46,268
Minority interest                         --           644            989              403                 --         2,036
Income from                      
   equity investments                     --        (4,630)            --               --                 --        (4,630)
Provision for income taxes             1,350         1,650             --               --                 --         3,000
                                 -----------    ----------       --------          -------        -----------    ----------
Net (loss) income                $   (96,939)   $   28,629       $    433          $ 1,074        $       869    $  (65,934)
                                 ===========    ==========       ========          =======        ===========    ==========

Cash flow (used in) provided 
   by operations                 $   (44,932)   $   73,877       $   (962)         $  (542)       $        --    $   27,441
Cash flow used in investing
   activities                       (861,341)      (30,005)          (574)              --                 --      (891,920)
Cash flow provided by (used
   in) financing activities          909,958        (2,021)        (1,416)              --                 --       906,521
Cash at the beginning of 
   the period                             --         2,281          3,063              635                 --         5,979
Cash at the end of the period          3,685        44,132            111               93                 --        48,021
</TABLE>


9. FINANCIAL INSTRUMENTS

         The carrying amount of cash and cash equivalents and short-term,
long-term, and variable-rate debt approximate fair value. The Company estimates
the fair value of its long-term, fixed-rate debt generally by obtaining the
applicable market quotation. The estimated fair value of the Company's fixed
rate notes ($350 million and $200 million 9 1/8% senior subordinated notes) at
December 31, 1998 was $507.3 million.


10. INCOME TAXES

         During the period January 1, 1998 through April 27, 1998 the Company
was a member of the SFX Broadcasting consolidated federal income tax return.
Subsequent to April 27,1998, the date of the Spin-Off, the Company will file
separate tax returns. The Company has provided income taxes for all of 1998 on
a stand-alone basis. However, pursuant to the tax-sharing agreement with SFX
Broadcasting to the extent that the Company generated a tax loss in the
pre-Spin-Off period, that loss was utilized to reduce the tax sharing payment
required as a result of the Spin-Off. The tax benefit associated with this loss
has been recorded as an adjustment to the Company's additional paid-in capital,
as all taxes associated with the Spin-Off were accounted for through
adjustments to the Company's equity.


                                      F-17
<PAGE>


         The provisions for income taxes for the years ended December 31, 1998,
1997 and 1996 are summarized as follows ( in thousands):

                                                        Predecessor
                   1998               1997                  1996
              --------------    ------------------   ------------------
Current:
 Federal              --                --                   --
 State            $3,000              $420                 $106

Deferred:
 Federal              --                --                   --
 State                --                70                   --
              --------------    ------------------   ------------------
Total             $3,000              $490                 $106
              ==============    ==================   ==================


         No federal benefit was recorded in 1998 as the Company was not assured
it would realize a tax benefit from the loss. No federal income taxes were
provided in 1997 as a result of the Company's inclusion in the consolidated
federal income tax return with SFX Broadcasting. If the Company had filed on a
stand-alone basis, its federal tax provision would have been approximately
$2,050,000, consisting of $1,760,000 in current taxes and approximately
$290,000 of deferred taxes. The Predecessor had no federal tax provision in
1996 by virtue of the status of its profitable companies being S Corporations.
State income taxes were provided to the extent that S Corporation status was
not recognized.

         Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax asset and liabilities as of December
31, 1998 and 1997 are as follows (in thousands):

                                              1998           1997
                                              ----           ----
DEFERRED TAX ASSETS:

Deferred compensation                      $    783       $    783
Deferred revenue                              6,274             --
Net operating loss caryforward               16,010             --
Less: Valuation allowance                    (2,789)            --
                                           --------       --------
                                             20,278            783
DEFERRED TAX LIABILITIES:

Assets acquired in business
   combinations                             (59,104)        (3,600)
                                           --------       --------
Net deferred tax liability                 $(38,826)      $ (2,817)
                                           ========       ========


         The Predecessor had no deferred tax liabilities as of December 31,
1996.



                                      F-18
<PAGE>


         At December 31, 1998, 1997, and 1996 the effective rate varies from
the statutory federal income tax rate as follows (in thousands):

                                                  1998        1997       1996
                                                  ----        ----       ----
Income taxes at the statutory rate             $(21,398)    $ 1,463     $(139)
Effect of Subchapter S status                        --          --       139
Nondeductible stock compensation                 11,513          --        --
Nondeductible amortization                        3,869         800        --
Travel and entertainment                            175          20        --
Effect of consolidated return loss                   --      (2,283)       --
State and local income taxes (net of federal
    benefit - 1997 and 1996)                      3,000         490       106
Valuation allowance                               2,789          --        --
Tax loss prior to Spin-Off                        3,052          --        --
                                               ========     =======     =====
Total provision                                $  3,000     $   490     $ 106
                                               ========     =======     =====

         The Company made numerous acquisitions during 1998. As a result of the
purchase accounting for these acquisitions, the Company has recorded deferred
taxes of $59.1 million associated with the excess of financial statement basis
over the tax basis in the acquired assets. In conjunction with the Spin-Off,
the Company paid approximately $109.7 in tax of which approximately $90.2
million was recorded through equity and the remaining $19.5 million was
recorded as a deferred tax asset. The deferred tax asset relates to basis
differences in the assets received in the Spin-Off. As of December 31, 1998,
the Company has approximately $45.0 million of net operating loss ("NOL")
carryforwards. The Company's NOL carryforwards will expire in the year 2019.

11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

         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 management believes would have a material adverse effect
on its business, financial position or results of operations.

         The Company has entered into an agreement with Ticketmaster whereby
SFX granted Ticketmaster the exclusive right to sell and distribute tickets for
SFX's events worldwide. The Company is currently evaluating its existing
internal ticket operations, which were acquired in the 1998 Acquisitions;
however the Company does not believe that its ticketing operations are material
to its financial condition or results of operations.

          The Company has employment agreements and arrangements with its
executive officers and certain management personnel. The agreements provide for
various minimum annual base compensation packages with terms varying between
1-5 years, expiring on various dates, as well as insurance coverage and
discretionary bonus clauses. The future minimum payments for all noncancelable
 employee agreements at December 31, 1998 are as follows (in thousands):

                              Employment
                              Agreements
                              ----------
1999                           $ 20,702
2000                             19,160
2001                             17,377
2002                             14,386
2003                              4,353
2004 and thereafter                  --
                               --------
Total                          $ 75,978
                               ========

         Additionally, certain of these contracts, primarily those of the
executive officers, contain provisions for payments in the event of a
termination in employment. In the event of a change in control (as defined in
the employment agreements) the Company, as of December 31, 1998, would be
obligated to make cash payments of at least $14.7 million as well as grant 1.6
million fully-vested stock options.


                                      F-19
<PAGE>

         Pursuant to a real estate purchase agreement with the sellers of
Oakdale Theater, 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 which has been recorded in notes receivable from related parties
in the accompanying consolidated balance sheet.

         The Company has committed to construct four new amphitheaters in the
Boston, Massachusetts, Seattle, Washington, Sacramento, California and the
Albuquerque, New Mexico markets. SFX expects to spend an additional $36.7
million on these projects of which approximately $19.4 million will be spent in
1999. In addition, the Company has committed to other capital projects totaling
approximately $20.6 million in 1999.

         As of December 31, 1998 and 1997, outstanding letters of credit for
$2,597,000 and $1,110,000, respectively, were issued by banks on behalf of the
Company as security for loans and the rental of theaters.

         In 1994, the Connecticut Development Authority ("CDA") entered into a
non-recourse assistance agreement with the Company whereby the CDA provided
grant funds of $8,863,000 for the construction and development of the Meadows
through the issuance of State of Connecticut General Fund Obligation Bonds
("GFO Bonds"). The annual tax revenues derived from the operation of the
amphitheater are utilized to satisfy the annual service requirements of the GFO
Bonds. If the annual tax revenues are less than the annual service
requirements, the Company must deposit the lesser of the operating shortfall,
as defined, or 10% of the annual service requirements under the GFO Bonds. An
operating shortfall has not existed since the inception of the CDA. The GFO
Bonds mature on October 15, 2024 and have an average coupon rate of 6.33%.


         The agreement governing the partnership through which PACE holds its
interest in the Lakewood Amphitheater in Atlanta, Georgia contains a provision
that purports to restrict PACE and its affiliates from directly or indirectly
owning or operating another amphitheater in Atlanta. In management's view, this
provision will not materially affect the business or prospects of the Company.
However, the Company acquired an interest in the Chastain Park Amphitheater,
also in Atlanta, in the Concert/Southern acquisition. SFX is currently involved
in litigation with PACE's partner.

         Pursuant to certain acquisition agreements certain sellers have the
right to repurchase certain of the businesses sold to SFX (See Note 3).

12. 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 and Series D preferred stock, 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, 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.


                                      F-20
<PAGE>

         During 1998, 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 were expected to become officers, directors and
employees of the Company.

         On May 27, 1998, SFX consummated an offering of 8,050,000 shares of
Class A Common Stock at an offering price of $43.25 per share and received net
proceeds of approximately $329.0 million. SFX used the proceeds to consummate
certain of its 1998 acquisitions, to fund $93.7 million of tax indemnity
payments and to pay fees and other expenses.

13. NON-CASH AND NON-RECURRING CHARGES

         Non-cash compensation and other non-cash charges of $34.1 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 (Note 12), (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 (Note 15), (c) $2.4 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 and (d)
$300,000 related to the deferred compensation plan for each non-employee
directors, adopted in January 1998, whereby each director was credited with the
right to receive 5,455 shares of Class A Common Stock based upon $5.50 a stock
price of per share.

         The non-recurring charges of $5.6 million consisted of certain
deposits paid to Livent for the Ragtime and Showboat touring productions and
certain related deferred expenses which, as a result of the Livent bankruptcy,
will not be recovered.

14. STOCK OPTIONS

  During January 1998, the Board of Directors and SFX Broadcasting, as sole
stockholder, approved and adopted a stock option plan providing for the
issuance of options to purchase shares of the Company's Class A Common Stock
totaling up to 2,000,000 shares. Under the stock option plan, options to
acquire Class A Common Stock have been granted to certain officers, key
employees and other key individuals who perform services for the Company.
Options granted under these plans are generally granted at option prices equal
to the fair market value of the Class A Common Stock on the date of grant.
Terms of the options, determined by the Company, provided that the maximum term
of each option shall not exceed ten years and the options become fully
exercisable within five years of continued employment with the exception of
certain options which were fully vested at the date of grant.

  The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options, as opposed to the
fair value accounting provided for under FAS Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement 123"). Under APB 25, because the exercise
price of the Company's stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.

         Pro forma information regarding net loss and loss per basic and
dilutive common share is required by Statement 123, and has been determined as
if the Company had accounted for its employee stock options under the fair
value method of that statement. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1998: risk-free interest rate of
5.60%; no dividend yield; volatility factor of the expected market price of the
Company's common stock of 63.7%; and a weighted-average expected life of the
options from 5 to 7 years.

                                                                   1
        The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions 


                                      F-21
<PAGE>

can materially affect the fair value estimate, in management's opinion, the 
existing models do not necessarily provide a reliable single measure of the 
fair value of its employee stock options.

         For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Therefore,
the impact on the pro forma results of operations in 1998 may not be
representative of the impact in future periods should additional options be
granted. The Company's pro forma information follows (in thousands except for
loss per share information):

                                                                1998
                                                                ----
       Pro forma net loss applicable to common shares        $(74,477)
       Pro forma loss per basic and dilutive common share:   $  (2.98)

         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. In April 1998,
the Company granted options exercisable for an aggregate of 514,500 shares of
the Company's Class A Common Stock at an exercise price of $29.125 which vest
over 5 years. Between May and November 1998, the Company granted options
exercisable for an aggregate of 1,128,666 shares of Class A Common Stock at
exercise prices ranging from $34.50 to $45.875 which will vest over 5 years. For
those options granted with the stock price equal to exercise price, the weighted
average fair value and exercise prices were $25.60 and $38.64, respectively. For
those options granted with the stock price in excess of the exercise price, the
weighted average fair value and exercise prices were $26.81 and $5.50,
respectively. During 1998, there were no options outstanding at the beginning of
the year and no options exercisable at the end of the year. In addition there
were no options that were repurchased, exercised or cancelled.

         Following a recommendation of SFX's compensation committee, SFX has,
subject to stockholder approval, adopted a new incentive stock option plan
covering options to acquire up to three million shares of Class A Common Stock
and, in November of 1998, approved the grant of options thereunder to acquire
2.3 million shares of Class A Common Stock at the then fair market value. SFX
anticipates that the proposed stock option plan will be submitted to a vote of
the stockholders at SFX's first annual meeting scheduled to be held in the
spring of 1999.

15. RELATED PARTY TRANSACTIONS

         Relationship between Howard J. Tytel and Baker & McKenzie

         Howard J. Tytel, who is the Executive Vice President, General Counsel,
Secretary, Member of the Office of the Chairman and a director of SFX, was "Of
Counsel" to the law firm of Baker & McKenzie from the inception of the Company
to May 31, 1998. Mr. Tytel was also an executive vice president, the general
counsel and a director of SFX Broadcasting. Baker & McKenzie served as counsel
to SFX Broadcasting and Marquee and currently serves as counsel to SFX and
certain other affiliates of Mr. Sillerman. Baker & McKenzie formerly compensated
Mr. Tytel based, in part, on the fees it received from providing legal services
to SFX Broadcasting, SFX, Marquee, other affiliates of Mr. Sillerman and other
clients introduced to the firm by Mr. Tytel. Baker & McKenzie has agreed to a
severance arrangement with Mr. Tytel, which is not based on fees received by
Baker & McKenzie. In 1997, the Company incurred fees of approximately $2.9
million for legal services. Such fees were funded by SFX Broadcasting on behalf
of the Company. In February 1998, the Company reimbursed SFX Broadcasting for
these fees. From April 27, 1998, the date of the Spin-Off, until May 31, 1998,
SFX incurred and paid Baker & McKenzie approximately $1.5 million for legal
services. Management believes that this arrangement was as fair to SFX as any
that could have been obtained from an unrelated party on an arms-length basis.

         Triathlon Fees

         SCMC, a corporation controlled by Mr. Sillerman and in which Mr. Tytel
has an equity interest, has an agreement to provide consulting and marketing
services to Triathlon, a publicly-traded company in which Mr. Sillerman is a
significant stockholder. Under the terms of the agreement, SCMC has agreed to
provide marketing services to Triathlon until June 1, 2005, for an annual fee of
$500,000, together with a refundable advance of $500,000 per year against fees
earned in respect consulting and of transactional investment banking services.
The Company recorded fees of $1,794,000 for the year ended December 31, 1997 and
fees of $530,000 for the year ended December 31, 1998. These 


                                      F-22
<PAGE>

fees vary above the minimum annual fee of $500,000 depending on the level of
acquisition and financing activities of Triathlon. SCMC previously assigned its
rights to receive fees payable under this agreement to SFX Broadcasting.
Pursuant to the terms of the distribution agreement, SFX Broadcasting assigned
its rights to receive these fees to SFX. All services provided by SCMC are
provided by employees of SFX. Triathlon has announced that it has agreed to be
acquired by a third party. When Triathlon is acquired, it will cease paying
consulting fees for SCMC's services.

         Meadows Repurchase

         In connection with the acquisition of the Meadows, SFX Broadcasting
obtained an option to repurchase 247,177 shares of its Class A common stock for
$8.2 million. Pursuant to the terms of the Broadcasting Merger Agreement, if the
Meadows Shares were outstanding at the effective time of the Broadcasting
Merger, working capital paid to SFX would be decreased by approximately $10.3
million. However, SFX Broadcasting was restricted from exercising the Meadows
Repurchase by certain loan covenants and other restrictions.

         In January 1998, Robert F.X. Sillerman, the Executive Chairman of SFX,
financed the $8.2 million exercise price of the Meadows Repurchase to offset the
$10.3 million reduction to working capital. In consideration, Mr. Sillerman
received the Class A shares in the Spin-Off.

16. BUSINESS SEGMENTS

         SFX classifies its operations into four major business segments in the
live entertainment industry: music, theater, sports, and family entertainment
and other. The music segment primarily consists of the promotion and production
of live entertainment events, most significantly for concert and other music
performances in venues owned (partially or entirely) and/or operated by SFX and
in third party venues. The theater segment develops and manages touring Broadway
shows and other theatrical productions. The sports segment acts as a
full-service marketing and management company specializing in the representation
of team sports athletes, as well as promoting specialized motor sports events.
The family entertainment and other segment primarily consist of the promotion
and marketing of family-oriented events, marketing and consulting of local,
regional and national live marketing programs, the subscription or fee based
radio and music industry data compilation and distribution , the creation and
distribution of network radio special events and live concert programming and
merchandising at live events.

         The Company evaluates performance based on several factors, of which
the primary financial measure is EBITDA, including the equity in earnings of
investees and excluding non-cash compensation, other non-cash charges and
non-recurring charges, since this measure approximates the cash flow generated
by each segment. EBITDA is defined as earnings before interest, taxes, other
income, net equity income (loss) from investees and depreciation and
amortization. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The segment
performance for 1997 and 1996 is not presented as the Company did not have
operations other than the music segment during those periods.

<TABLE>
<CAPTION>
                                                                  Year ended December 31, 1998
                                     ------------------------------------------------------------------------------------
                                                                                    FAMILY
                                                                                 ENTERTAINMENT
                                        MUSIC       THEATRICAL      SPORTS         AND OTHER     CORPORATE        TOTAL
                                     ------------  -------------  ------------  ---------------  ----------    ----------

<S>                                 <C>             <C>            <C>            <C>            <C>          <C>       
Revenues                             $   587,843     $  147,482     $ 24,829       $ 124,132      $     --     $  884,286
                                     ===========     ==========     ========       =========      ========     ==========
EBITDA, including equity in
  earnings of investees              $    61,204     $   15,576     $  2,466       $  19,166      $(11,194)    $   87,218
Depreciation and amortization             35,534          2,280        5,293           9,071        10,019         62,197
Non-cash and non-recurring charges            --          5,600           --              --        34,051         39,651
Equity in earnings of investees           (1,072)        (3,488)         (70)             --            --         (4,630)
                                     -----------     ----------     --------       ---------      --------     ----------
Income (loss) from operations        $    24,598     $    4,208     $ (2,897)      $  10,095      $(55,264)    $  (19,260)
                                     ============    ==========     ========       =========      ========     ==========

Total assets                         $   841,139     $  220,865     $134,810       $ 122,262      $ 64,376     $1,383,452
                                     ============    ==========     ========       =========      ========     ==========
</TABLE>


                                      F-23
<PAGE>


17. DEFINED CONTRIBUTION PLAN

         The Company sponsors a 401(k) defined contribution plan in which most
full-time employees are eligible to participate. The plan presently provides
for discretionary employer contributions. There were no contributions in 1997
and 1998. During 1998, each subsidiary maintained its own pension/profit
sharing plan. The amounts changed to operations under these separate plans in
1998 was $627,870.

         On January 1, 1999 the Company adopted a Profit Sharing Plan pursuant
to section 401(a) of the Internal Revenue Code, whereby participants may
contribute a percentage of compensation, but not in excess of the maximum
allowed under the code.


18. SUBSEQUENT EVENTS

1999 EQUITY OFFERING

         On February 18, 1999, SFX consummated an offering of 4,949,000 shares
of the Company's Class A Common Stock at an offering price of $55.50 per share
(the "1999 Equity Offering") and received net proceeds of approximately $263.7
million. SFX used the proceeds to finance certain of the 1999 Acquisitions.

1999 ACQUISITIONS

         Cellar Door

         On February 19 1999, SFX purchased all of the issued and outstanding
capital stock of the Cellar Door group of companies for a purchase price of
$70.0 million in cash payable at closing, less an amount equal to Cellar Door's
"secured fund" indebtedness and capitalized leases, shares of Class A Common
Stock with a value of $20.0 million, and $8.5 million payable in five equal
annual installments beginning on the first anniversary of the closing date. In
addition, SFX issued to the seller options to purchase 100,000 shares of Class A
Common Stock. SFX financed the acquisition with the proceeds of the 1999 Equity
Offering.

         Nederlander

         On March 16, 1999, SFX acquired certain interests in seven venues and
other assets of Nederlander for an aggregate purchase price of approximately
$95.6 million in cash. The agreement relating to the venues in Cincinnati
requires SFX to make an earn-out payment to the sellers in 2000 of up to $3.2
million depending on the level of earnings generated by operation of the Crown
Arena. If SFX sells or transfers any of the interests in the Crown Arena within
ten years of the closing, SFX will be obligated to pay a portion of the
consideration it receives to the sellers of Nederlander. The agreement relating
to Mesa del Sol Centre for the Performing Arts provides for earn-out payments
based on the financial performance of this venue. SFX financed the acquisition
with the proceeds of the 1999 Equity Offering and borrowings under the Senior
Credit Facility.

         Marquee

         On March 16, 1999, a wholly owned subsidiary of SFX was merged with and
into Marquee and Marquee became a wholly owned subsidiary of SFX. In connection
with the merger, SFX issued approximately 1.4 million shares of SFX Class A
Common Stock with a value of approximately $84.0 million and repaid $33.5
million of Marquee's debt. SFX financed the acquisition with borrowings under
the Senior Credit Facility.

         Other Acquisitions

         During the first quarter of 1999, SFX also completed the acquisitions
of: The Entertainment Group, Inc., a concert and theatrical producer and
promoter with operations in Chicago and Mexico City; Integrated Sports
International, Inc., a full-service sports marketing company; and a company
involved in business management and tour production in music and the performing
arts. In addition, SFX entered into a long-term marketing and consulting
agreement with respect to the Rosemont Horizon and Rosemont Theater. The total
consideration for these acquisitions and the long-term marketing and consulting
agreement consisted of $67.0 million in cash and 95,177 shares of Class A Common
Stock. SFX financed these acquisitions with the proceeds from its 1999 equity
offering and borrowings under the Senior Credit Facility. In addition, SFX may
be required to make additional payments of up to $ 13.0 million in cash and
50,000 shares of Class A Common Stock based on the financial performance of
certain of these acquired companies. SFX financed the acquisitions with the
proceeds of the 1999 Equity Offering.



                                      F-24


<PAGE>

                            SFX ENTERTAINMENT, INC.
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                        ADDITIONS
                                                        CHARGED TO         ADDITIONS
                                       BALANCE AT          COSTS           CHARGED TO                                  BALANCE AT
                                       BEGINNING            AND               OTHER                                      END OF 
DESCRIPTION                             OF YEAR          EXPENSES           ACCOUNTS             DEDUCTIONS               YEAR
                                      -------------    -------------     ---------------       ---------------        -------------
<S>                                    <C>             <C>               <C>                   <C>                    <C>   
Allowance for doubtful accounts:
Year ended December 31, 1996
(Predecessor)                             $   --               --                  --                    --              $    --
Year ended December 31, 1997              $   --               --                  --                    --              $    --
Year ended December 31, 1998              $   --              216               1,646    (1)          (126)    (2)       $ 1,736

</TABLE>

(1)      Represents amounts acquired in acquisitions.
(2)      Write-off of accounts receivable.