Endeavor President Says Hollywood Firm "Not Done Collecting" Assets

A general view of the octagon is seen in front of empty seats prior to UFC Fight Night at VyStar Veterans Memorial Arena on May 13, 2020 - Getty - H 2020
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Moody's and S&P Global Ratings have downgraded the conglomerate's credit while it sells a portion of a 'Fortnite' stake, but leadership isn't publicly considering any further sales now.

Amid a novel coronavirus pandemic, Endeavor Group Holdings — the parent company of talent agency WME, modeling firm IMG and Professional Bull Riders — is facing a storm that's impacting its sprawling live events and representation divisions. 

But the Beverly Hills-based conglomerate is not publicly considering selling off non-core businesses at this time. "We are not shopping any assets whatsoever and never were because we don't need to," Endeavor president Mark Shapiro told The Hollywood Reporter, later adding of the sports and entertainment firm's portfolio, "by the way, we're not done collecting."

On May 11, Endeavor lined up a $260 million term loan to boost its financial flexibility amid the ongoing pandemic. That added to an existing $2.8 billion term loan at a time when Endeavor's live-events operations — which include the Ultimate Fighting Championship, in which the firm owns a majority stake — and representation divisions have been subject to industrywide disruptions. 

Endeavor is in the process of selling a portion of its minority stake in Fortnite video game maker Epic Games, which may generate "proceeds of about $80 million," per S&P Global Ratings. Shapiro said that the Fortnite stake sale process was started over its "significant return in a short time" and is unrelated to pandemic cost-cutting.

Of Endeavor's many joint ventures, Shapiro reiterated: "We have no intention of selling out of our partnerships."

S&P Global analyst Jing Li says that if Endeavor is considering offloading some assets, it may face a tough climate. "Endeavor owns a number of events and entertainment properties, many that it acquired over the past few years," Li says. "However, at the current time the leisure and entertainment economy is disproportionately hurt by COVID-19, and as a result we have not factored any asset sales in the current ‘CCC+’ rating because it may be difficult to find a buyer for these types of properties at the current time."

Moody's analyst Scott Van den Bosch addressed the impact of the new loan, whose 11 percent interest rate is higher than the rate on the firm's existing loan. "While WME-IMG's liquidity position is improved, interest expense will increase by about $25 million and pro forma leverage will rise," he wrote in a May 14 report, adding: "In the near term, WME IMG will be focused on cost savings and preserving liquidity, but it will be important to retain key employees that contribute to the success of the company."

Endeavor, led by CEO Ari Emanuel and executive chairman Patrick Whitesell, has unveiled cost-cutting measures, including layoffs, pay cuts and furloughs, with the moves ultimately affecting one-third of the company's 7,500-person workforce. In April, 83 staffers in Endeavor's Beverly Hills office were impacted by layoffs, per company filings with the California Department of Labor. 

Emanuel and Whitesell, who renegotiated their salaries to $4 million in 2019, will forgoing base pay for this year and Shapiro, whose base pay was $3 million as of Aug. 2018, will have his salary cut in half for 2020.  

Moody's had downgraded the company's credit ratings and outlook on Endeavor's WME-IMG from stable to negative in April, signaling a possible further downgrade, noting that the pandemic "has limited the ability to hold live events and complete media production."

Even before the pandemic hit, this spring had marked a different course from the one that Endeavor leadership had been betting on. The sports and entertainment company unveiled plans for an initial public offering last May — from which it had hoped to raise $600 million to pay down its debt burden of $4.6 billion as of August — but officially abandoned the effort in October amid stock market volatility and weak IPOs by other companies. 

Years of strategic growth in live events, fueled in part by private equity firm Silver Lake, have led to Endeavor looking to evaluate how to grow its disparate collection of entertainment assets amid a production shutdown. As CFRA Research analyst Tuna Amobi recently noted to THR of the M&A landscape, "It is doubtful we’ll see a flurry of takeover deals in the current environment of clouded visibility, at least in the near term."

After buying pro video gamer talent agency Global eSports Management in early 2015, Endeavor moved to acquire Professional Bull Riders Inc. — which stages several hundred competition events a year — in April of that year for north of $100 million. Endeavor then bought fashion-focused management firm The Wall Group, which reps many top Hollywood stylists, that summer. And in September 2015 it nabbed the Miss Universe Organization from Donald Trump, adding its pageants to IMG’s existing stable of events, including Fashion Weeks in multiple cities worldwide.

One of Endeavor's bigger swings was leading a consortium to acquire UFC in July 2016 at a price tag pegged at the time as slightly less than $4 billion, months after nabbing a majority stake in the Frieze Art Fair. The powerhouse forged a China representation venture the same year, with backing from Sequoia Capital and conglomerate Tencent. And, in 2017, when the WME Global and IMG entertainment finance and sales units were combined as Endeavor Content, the move foreshadowed the ongoing fight with the Writers Guild over conflicts of interest in the representation business.

Endeavor’s various investments include stakes in Santa Monica-based content-creation platform Tongal, indie studio Ink Factory, as well as Third Coast Content, a production firm focused on faith and family audiences. Its joint ventures include ELeague, the e-sports venture with Turner, and Euroleague Basketball. Moody's analyst Van den Bosch noted in his report: "The company has other joint ventures and minority ownerships that could be sold for additional liquidity without disrupting the core business."

The conglomerate moved into video distribution with a $250 million deal in March 2018 for New York-based NeuLion, which had broadcast UFC and other pro sports events, and renamed it Endeavor Streaming. And, after dropping its IPO plans, it picked up speakers firm Harry Walker Agency as well as live-events company On Location Experiences, the official hospitality partner of the NFL, in a deal valued at $660 million this year.

By March, the company was implementing cost-cutting plans as the pandemic arrived stateside. "I don’t think any of us could have imagined we’d be in the place we are today," Emanuel noted in a March 25 memo to staff. 

S&P's Jing Li, who had downgraded Endeavor's debt rating in April and changed the outlook to negative, wrote in a May 14 note: "The debt issuance bolsters WME-IMG's cash balances and likely extends its liquidity runway to 2021, when operating conditions could improve and enable the company to begin to generate positive cash flow."

The S&P analyst added: "We estimate that WME IMG's average monthly cash use (including interest expense and principal amortization) is $90 million-$95 million. Based on pro forma cash balances of about $765 million, we estimate WME IMG's liquidity runway to be about eight months in the unlikely and conservative scenario that it generates no revenue."

Shapiro, in a call on May 15, noted: "If we ever wanted to sell something, there would be no shortage of buyers."