Endeavor has filed its prospectus for a possible IPO offering later this year, with updated financial disclosures revealing that parent company of WME, UFC and other sports and entertainment assets logged a $625.3 million net loss last year.
The document confirms Endeavor’s plan to acquire the remaining half of UFC that it does not own prior to its IPO. The company has a deal with a clutch of private equity companies to raise at least $1.7 billion in a private placement to buy out the remainder of UFC prior to the IPO. If Endeavor does not raise that money and does not go public, it won’t complete the UFC deal, the filing states.
Another surprise in the prospectus is that Tesla co-founder Elon Musk has joined Endeavor’s board of directors. Endeavor is laying the groundwork for an IPO and listing under the ticker symbol EDR on the New York Stock Exchange.
Endeavor pulled in revenue of $3.5 billion last year, when many of its businesses were rocked by pandemic-related shutdowns. The company planned to go public in 2019 but pulled back at the eleventh-hour amid market volatility and lukewarm demand. For the full year 2019, Endeavor disclosed it generated $4.6 billion in revenue and a net loss of $530.7 million.
The company’s long-term debt load has grown since its 2019 disclosures. At the close of 2020, Endeavor was carrying $5.9 billion in debt, up from about $4.5 billion in the summer of 2019. The company has about $1 billion in cash on its balance sheet.
The quarterly numbers for 2020 tell the tale of a pandemic-walloped year. Endeavor pulled in $1.2 billion in the first quarter, which sank to $462.9 million in Q2. Third-quarter revenue rebounded to $864.5 million and was on the upswing in Q4 at $960.9 million.
As it steps back into public equities markets, Endeavor is amping up the focus on its sports properties as it prepares to capture all of UFC’s revenue and earnings. The pitch to investors emphasizes as it did in 2019 that the company consists of disparate media- and content-centric assets designed to help WME and IMG clients make the most of opportunities in an increasingly direct-to-consumer world. Endeavor CEO Ari Emanuel talked up the value of Endeavor’s platform with access to talent at the center in the CEO’s letter to the prospectus that runs more than 300 pages.
“The power of the Endeavor platform has been on full display as we have brought commercial activity back online, guided our clients through an unprecedented set of events, and fostered innovation of new digital business models that will drive growth well into the future,” Emanuel wrote in the opening letter to the document. “The events of 2020 reminded us of the enduring value of premium intellectual property and content, while reinforcing the strength of our position within the sports and entertainment ecosystem,” he wrote.
Endeavor has sought to make its financial reporting more transparent by breaking down its revenue sources by segment, allowing investors to see how it is fairing with sports-related businesses, representation-related activity and events and experiences produced by Endeavor’s many units.
Endeavor reported that 43% of its 2019 revenue came from its Events, Experiences and Rights division, which includes IMG Events, IMG Academy, IMG Arena, IMG Media and the On Location high-end hospitality services firm. The Representation unit that houses WME, IMG, Endeavor Content, IMG Licensing and marketing firm 160 Over 90 accounted for 36% of 2019 revenue while Owned Sports Properties, comprising UFC, PBR and Euroleague Basketball, delivered 20% of 2019 revenue.
Endeavor reported having about 6,400 employees spread among 28 countries. The bulk of employees (4,300) are in the U.S. and most of its revenue (67%) comes from the Americas. Another 29% of revenue came from Europe, Middle East and Africa.
The list of private investment firms set to take part in the pre-IPO sale to fund the UFC purchase include China’s Tencent, Elliott Investment Management, Mudabala Investment Co., Capital Research and Management, Third Point, Tako Ventures, Zeke Capital Advisors and Silver Lake. At present, Endeavor owns 50.1% of UFC.
As with virtually every other company in entertainment, Endeavor grappled with layoffs and salary cuts last spring and summer as the COVID-19 crisis grew. With an eye on generating free cash flow, Endeavor told investors it plans to stay lean for the near term. But the filing also discloses hefty bonuses for Emanuel, executive chairman Patrick Whitesell and other corporate officers last year.
“In response to the COVID-19 pandemic, we implemented cost-savings initiatives across the organization, including salary reductions, hiring freezes, furloughs, reduced work arrangements, and reductions of our workforce, eliminating costs for consultants, reducing travel and expenses, reducing our marketing spend, cancelling internal company events, and reducing other operating expenses, capital expenditures, and acquisition activity,” the prospectus states. “We believe the actions we have taken and continue to implement will enhance our financial flexibility and provide us the ability to scale up quickly as the impact of the COVID-19 pandemic subsides.”
Emanuel and Whitesell gave up their $4 million base salary last April after the COVID-19 shutdowns hit. Emanuel received a $5.8 million bonus; Whitesell received $2 million. Emanuel also received $6.6 million in equity awards, and he stands to make millions more from the UFC transaction.
Among other items of note in the prospectus:
** From 2017 to 2019, Endeavor’s revenue grew at a compound annual growth rate of 23%.
** Subscriptions to UFC’s Fight Pass streaming service rose 40% last year.
** Events, Experiences and Rights has the slimmed profit margins of the company’s divisions last year, at 3.7%. Owned Sports Properties came in at 48% while Representation came in at 22.5%.
** Emanuel, Whitesell and Endeavor’s longtime private equity backer Silver Lake will control more than 50% of the voting shares in the company. That makes it a “controlled company” along the lines of ViacomCBS or Comcast with a dominant shareholder family.
** As it planned in 2019, Endeavor anticipates having multiple classes of stock, some with preferred shares. The Class Y shares held by Emanuel, Whitesell and Silver Lake reps come with 20 votes per share, compared to one vote per share for the proposed common Class A stock to be offered to the public.
** Emanuel and Whitesell’s contracts with Endeavor run through the end of 2028.
** Endeavor is definitely still in growth mode, asserting that it does not intend to pay dividends on Class A stock “in the foreseeable future.”
** Endeavor logged $13.7 million in COVID-19-related costs last year. It also took a write-down of $32 million on severance and restructuring charges.