WME is expected to implement a significant number of layoffs of agents and other staff as early as next week.

Rumors about the downsizing process and the agents that will be let go have been swirling in virtual circles for days, contributing to a feeling of angst and uncertainty among many WME insiders. WME heavyweights have been trying to help find new opportunities — including as talent managers or executives at production entities — for some of those likely affected.

The impending cuts have been spurred by the shock of the coronavirus lockdown, which has hammered virtually every aspect of the entertainment industry. But WME went into the crisis in a tight spot because of the cash flow constraints that its parent company, Endeavor, faced before the COVID-19 outbreak.

The tabling of Endeavor’s IPO last fall amid weak market conditions and lukewarm response from investors has left the larger company looking for a new path to satisfy its stakeholders, some of whom are within its own walls. The expected capital influx from the IPO was to have helped to spread some wealth among top WME insiders who have deferred parts of their total compensation in recent years in exchange for equity.

Now, given the crisis at hand, WME is having to do its part to help get the larger enterprise through the storm. Moody’s Investor Service downgraded Endeavor’s credit rating for its publicly traded debt, which stood at $4.5 billion as of June 2019. According to Moody’s, Endeavor had negative free cash flow for the 12-month period ending in the third quarter of 2019, the last time Endeavor disclosed its financials. The company has $145 million in cash on hand and a revolving credit line of $200 million available, according to Moody’s.

Given the environment, layoffs, pay cuts and furloughs for as much as one-third of Endeavor’s 7,500 employees are painful but obvious solution to a short-term crisis. As Moody’s put it, Endeavor is expected to focus on “preserving liquidity and will reduce capex and operating expenses substantially.”

Amid the high finance drama, there is a current of anger among some senior agents that there has been no apparent movement on getting some of the deferred equity to agents. According to a source, this issue sparked testiness from agents toward Endeavor CEO Ari Emanuel during at least one video conference call since the lockdown began. The fact that Emanuel and Endeavor executive chairman Patrick Whitesell both received $165 million equity buyouts in 2017 while others have waited has also strained family relations. In March, Emanuel and Whitesell said they would take no salary for the rest of the year.

WME itself has enjoyed several banner years of eye-popping paydays for clients amid the heightened chase for talent by global content providers. The fact that Endeavor piled on debt to buy assets far removed from the core talent agency business has fueled still more anger among some at WME.

“Agents are all at home, they’re all angry and they’re all texting each other,” says one industry observer.

These conditions are unusual for an agency known for its team approach and for loyalty among long-serving employees.

Endeavor has grown quickly during the past decade thanks to investments from private equity giant Silver Lake as well as Softbank, Canadian Pension Plan Investment Board, Singapore’s GIC sovereign wealth fund and Fidelity Management and Research Co.

Through Endeavor’s IMG, Professional Bull Riders, UFC and other units, the company is heavily invested in the business of live events, from tennis and soccer tournaments to lifestyle festivals and fashion shows to MMA fight nights to touring bucking bronco riders. The complete cessation of ticket sales and event sponsorship and the potential for lost TV rights revenue is a scenario that would have been unthinkable in January. But the black swan, she did come.

In the main, Emanuel still commands loyalty and respect from the WME/Endeavor ranks. Meanwhile, in the months before the COVID-19 outbreak sent a chill across the world, WME was on a roll of client signings, including Angelina Jolie, Matthew McConaughey, Robert Downey Jr. and Julianne Moore.

Bringing in big-name clients is an old-school agency practice to flex its muscle. WME has plenty of that kind of strength to spare. Dealing with debt covenants, negative free cash flow and liquidity concerns requires a different kind of skill and ingenuity. Weathering the perfect storm that has hit the Endeavor/WME world in this crisis moment is likely to be the biggest leadership test that Emanuel and Whitesell have faced in their long careers.

(Pictured: Patrick Whitesell and Ari Emanuel)