Q3 2023 Endeavor Group Holdings Inc Earnings Call
[music] you bet.
I got it Jeff.
Base pay app drinking laid at the bottom.
Okay.
Better now.
Maybe again.
I need a plan.
Take it back jarring coupon.
[music] horizon.
John Donahue.
Speed fast.
Yes.
And your numbers are not that around that.
Hello, and welcome to the <unk> debit third quarter 2023 results call.
I'm as Loren and I will be coordinating your call today.
There will be an opportunity for questions at the end of the presentation.
If you would like to ask a question and please press star one.
I will now hand, you back to ice James Marsh.
To begin please go ahead.
Good morning, and welcome to Endeavour's third quarter 2023 earnings call a short while ago, we issued a press release, which you can view on our Investor Relations site Investor Dot <unk> Dot com.
Of this call will also be available via that site for at least 30 days.
Today, you will hear from Endeavour's, CEO, Ari Emanuel and CFO, Jason Lublin before President and COO, Mark Shapiro joins us for Q&A.
This call is to provide you with information regarding our third quarter 2023 performance call.
Metairie related to Wwe's business and financial results in the context of endeavors results reflect wwe's performance for the period from September 12 through September 30th I do want to remind everyone that the information discussed will include forward looking statements and projections that involve risks uncertainties and assumptions as well as described in the risk fact.
<unk> section of our filings with Securities and Exchange Commission, including our 10, Qs and 10-K, if these risks or uncertainties materialize or any assumptions prove incorrect. Our results may differ materially from those expressed or implied by such forward looking statements and projections forward looking statements speak only as of the date they were made and we undertake no.
To update them publicly in light of new information or future events, except as legally required. Our commentary today will also include non-GAAP financial measures, which we believe provide an additional tool for investors to use in evaluating ongoing operating results and trends.
You should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our press release issued today as well as in the non-GAAP financial information posted on our IR website.
With that I'll turn it over to our CEO Emmanuel.
Thanks, James and good morning, everyone.
This quarter's results reflect endeavors, leading position in the sports and entertainment marketplace, even in especially as market dynamics evolve.
To share just a few examples we launched <unk> and immediately delivered domestic media rights increases a record breaking global marketing partnership in new international events with sizable site base also in the quarter, we announced Img's exclusive agreement with the NFL to manage its media rights in more than 30 markets commenced endeavor share repurchase program and.
Initiated quarterly cash dividend payments.
Before I discuss these and other highlights from the quarter in greater detail I'd like to acknowledge the announcement, we made last month about endeavors review of strategic alternatives given.
Given the continued dislocation between our public market value and the intrinsic value of endeavors underlying assets. We believe an evaluation of strategic alternatives is a prudent approach to ensure we are maximizing value for our shareholders. We will update the market if and when there is anything further to share.
Turning now to the quarter.
I'll start with our own sports property segment, which includes TKO.
Over just the first frame of our integration efforts UFC and WWE have set live event Records announced international expansion plans increased media rights fees and confirmed a significant new global partnership UFC had six live events sellouts in the quarter and WWE set multiple records for premium live events.
Money in the bank Summerslam and payback.
In the Middle East UFC announced the extension of its long standing partnership with the department of culture, and tourism Abu Dhabi to continue hosting one numbered event there each year and up to three fight nights in the region. Additionally, UFC will debut at first ever finite in Saudi Arabia next March as part of Riyadh season, a clear indication that.
Saudi Arabia has every intention of growing its relationship with the UFC. Despite assumptions made about their recent investment in the professional fighters League.
Similarly, WWE announced new international premium live events for 2024, one in Berlin and one in Perth as part of a tourism Western Australia partnership that includes the company's largest ever site fee.
On the U S domestic front WWE announced yesterday that NXT will make its broadcast television debut beginning October 2024 on the CW network.
That deal represents a 70% AAV increase and demonstrates strong demand for WWE content, which should serve as an encouraging sign to our investor base Visa V. Our Monday night raw discussions, which are quite active at the moment with multiple linear and streaming partners.
The NXT deal comes on the heels of a new five year partnership with NBC Universal to bring Smackdown back to USA network. Beginning next year that agreement represents a 40% AAV increase and includes four annual primetime specials that will air on NBC, marking the first time WWE will air on the network in Prime time.
We are also leveraging the full endeavor flywheel to bring new global partnership opportunities to TKO AB Inbev, just announced a significant multi year deal with UFC to become its official global beer partner beginning in 2020 for the deal is ufc's biggest ever in the aggregate, including cash and marketing assets.
In addition to TK Oh, the owned sports property segment includes results from professional Bull riders.
PBR second team series season began in July and averaged more than 1 million total viewers on broadcast partner CBS and had similarly robust attendance at its live events.
In our events experiences and REIT segment.
As mentioned Img's Media group announced an exclusive agreement with the NFL to manage the league's media rights and more than 30 markets across Asia and Europe. Beginning next year. This NFL deal represents the latest in a series of ways endeavor is integral to the NFL ecosystem across commercial areas, including licensing digital marketing premium.
Hospitality and experiences player representation and marketing on behalf of NFL teams and sponsors.
Also in the quarter freeze bolstered its U S presence with acquisitions of the Armory show in New York and Expo Chicago two of the longest running art fairs in the U S and completed a successful second edition a free sold in South Korea, with 120 galleries and 70000 visitors.
And on location momentum going into Super Bowl 58 is strong.
By the end of the quarter, we'd already sold more on location packages than ever before at that point in the sales cycle.
Also on locations premium hospitality for WWE money in the bank and London became its highest grossing non wrestlemania event ever and UFC $2 93 in Sydney drove the highest year to date UFC VIP revenue. Both events are examples of ways. The endeavor flywheel supports tko's growth and are testaments to the demand we're seeing for <unk>.
Courts events and premium experiences across our platform.
Pivoting to our representation segment notwithstanding impact from the strikes performance during the quarter was buoyed by the endeavor flywheel and the diversified business we've grown at WMA in.
In music WMA had a successful festival season in the quarter and increased our industry, leading market share in the country music category.
Our investment in sports is also continuing to pay off WMA sports struck record breaking deals this year with their deals Bengals quarterback Joe burrow became the highest paid player in NFL history, and 40 Niners defensive lineman Nick Bosa became the highest paid defensive player ever WMA sports is already negotiated more.
$1 billion in football contracts this season with more than $700 million in guarantees.
<unk> industry, leading licensing team continued to deliver first of their kind deals in the quarter, including a partnership between macys and gaps that we'll see 250 Macy's stores across the country debut GAAP pop ups within their footprint.
And activating a crucial part of the endeavor flywheel $1 60 over 90, together with WMA and endeavors talent ventures team incubated and launched WMA clients Snoop dog, Dr. Bombay ice cream the.
The product debuted in more than 3500 Walmart locations nationwide.
Turning next to our sports data and technology segment.
Following open <unk> successful launch with <unk> in Greece, we have been pursuing opportunities in additional emerging markets in the quarter opened <unk> signed a new partnership with play seven to enter Brazil sports betting market, we see significant opportunity ahead in Brazil, and open that is well positioned to capitalize on the market is highly anticipated opening to regulated sports betting.
And potentially other digital gaming products.
With that I'll turn things over to Jason.
Thanks, Lori and good morning, everyone.
I'll start by walking you through our financial results for the third quarter. I'll, then provide you some color around what we're seeing in each of our operating segments. All comparisons will be to the third quarter of 2022.
For the quarter ended September 32023, we generated 134 4 billion in consolidated revenue up $123 million or 10, 1%.
Net loss for the quarter was $116 million compared to net loss of $12 5 million a year ago. The change in net loss was largely driven by increased transaction related expenses associated with the TKO transaction.
Adjusted EBITDA for the quarter was $311 6 million up $8 5 million or two 8%.
Now I'll walk you through each of our segments.
Our own sports property segment generated revenue of $479 7 million in the quarter up $77 5 million or 19, 3%.
While the segment's adjusted EBITDA for the quarter was $237 4 million up $41 7 million or 21, 3% revenue growth. In this segment was primarily driven by increases at UFC due to higher media rights and content fees from increases in contractual revenues as well as higher renewals as well as two additional.
I'll fight night events compared to the prior year quarter.
Segment revenue growth was also driven by higher live event revenue and sponsorships at USC. In addition to higher site fees for multiyear partnerships.
The WWE acquisition also contributed $52 million of revenue for the post closing period of September 12 through September 30, as a reminder, the prior year quarter included $33 million of revenue related to Diamond <unk> Holdings, which we sold in September 2022.
<unk> also hosted 19 series events in the quarter, which drove a 26% increase in attendance over comparative events in 2022.
Now turning to event experiences and rights.
The segment recorded revenue of $367 1 million down $27 1 million or 7%.
Adjusted EBITDA was $29 8 million down $15 7 million or 34, 4%.
The prior year quarter included $72 million of revenue from IMG Academy, which we sold this past June.
The decrease in segment revenue was partially offset by increases in media production revenue in <unk> media business from new contracts, including major League soccer as well as media production for certain biannual and quadrennial events, including the Ryder Cup and rugby World Cup, which did not occur in 2022.
Increased revenue related to our locations premium hospitality at the Ryder Cup.
Event revenue, primarily driven by new events, such as Barrett Jackson New Orleans.
And our acquisition of the Armory show Art Fair in July of this year.
Segment adjusted EBITDA for the quarter was primarily adversely affected by the sale of IMG Academy honor.
<unk> location to ongoing IOC investment, which began in the third quarter of last year and is inclusive of personnel marketing and technology costs.
And decreases at Endeavour's screaming.
Moving onto our representation segment revenue.
Revenue was $385 6 million down $2 7 million.
Segment revenue was impacted by a $29 million decrease at the agency.
Primarily driven by the impact of the WGNA and Sag Aftra strikes.
Fully offset by growth in the sports and music divisions.
This decrease was further offset by content delivery within our non scripted production business as well as increases at 160 over 90, and Img's licensing business <unk>.
<unk> fourth closed a record breaking NFL and NBA player deals and Wmc's music touring business had a strong quarter driven by continued demand for live music.
More than 200, WMA clients performed across festivals, including Coachella, Lollapalooza, Glastonbury and the CMA Fest in Nashville.
In the third quarter segment, adjusted EBITDA was $96 3 million down $36 6 million or 27, 5% primarily related to the adverse impact from both strikes.
Related to the estimated impact of the strikes. We previously estimated the impact of the strikes would adversely affect our representation revenue by up to $25 million per month on average relative to our forecast at the time.
In the quarter, our agency performed better than expected, primarily due to overall deals being suspended at a slower rate than anticipated profit participations and outperformance in areas previously mentioned such as sports and music.
As a result, the strike impact adversely affected our agency revenues in the range of $40 million to $50 million in the quarter.
Looking to the fourth quarter, we expect the originally estimated impact of the strike to continue based on the lagging effect of the WJ strikes the ongoing sag apps or strike as well as the time needed to meaningfully ramp production.
Now turning to our sports data and technology segment.
Revenue was $124 8 million up $78 1 million, while adjusted EBITDA was $24 million up $19 8 million.
In this segment revenue was attributed to the addition of open bet, which we acquired in September of 2022, as well as growth embedding data and streaming at IMG arena across a widening portfolio for Wimbledon IMG Arena delivered data feeds to more than 250 sports books covering 651 matches.
IMG Arena also entered a multiyear partnership with conference USA to become the week's official data rights quicker for football and men and women's basketball.
Moving onto our capital structure. We ended the quarter was $5 5 billion in debt and $1 34 billion in cash, resulting in $3 74 billion and net debt. Our net leverage was three two times at quarter end.
As a recognition of our deleveraging progress and close of the <unk> transaction.
S&P global ratings recently upgraded our parent issuer credit rating.
Coos of the UFC credit group to double B minus from B plus.
In conclusion, given endeavors previously announced review of strategic alternatives, we are tabling discussions related to capital allocation and annual guidance at this time.
With that I'll hand, it over to James.
Thanks, Jason operator can we open it up for questions now.
Thank you thank.
Thank you just wanted to ask a question. Please press star followed by one on your telephone keypad.
Your question. Please press star two.
Please also ensure that your line is on mute lately.
A reminder, that is staff niche bolt on to ask a question.
Ask that question comes from.
<unk> <unk> with Evercore ISI. Please go ahead.
Good morning, and thanks for taking the questions two if I could one on the strike and one on the health of the consumer So first on the strike I know nothing is certain certain it does seem like we're getting closer to a resolution hopefully by Thanksgiving as opposed to the dispute extending into December of 2020 for Jason I know you.
Talked a bit about the expectations for Q4, but can you help us think about the shape of the eventual recovery to your representation business and maybe <unk>.
Overall once things are hopefully resolve them it seems like there.
There's a lot of pent up demand for things to pick up a one but I was wondering what kind of impediments there might be to getting the machine fully up and running and when we might get there is it mid 2024 event for example.
And second Ari.
I know you called out the strength youre seeing across.
It seems like effectively all of your events, but is there anything more you can share about the health of the consumer that youre seeing and it.
It seems like you've been largely insulated so far but we are seeing more and more cracks in the system in different industries. So we would appreciate any added perspective. Thank you.
So on the first question I'll take it this is ari thanks for your question.
<unk>.
It takes youll, probably see going into the first quarter the ramp up of things that were shut down because of the strikes. So the things that were closed had 19 days 30 days whatever amount they'll pick up hopefully the strike ends in the next couple of days.
Prep again, and then go beginning of the year the rest of the new stuff and I agree with you. There is tons of pent up demand a lot of stuff on the on the runway.
That will get going probably.
I'm, saying.
April ish may.
As you remember you have to have two to three months of prep and then you can start doing the production both on the movie and TV side. So that's kind of the timeline to all of that I think mark will hit the consumer yet.
Hey, John how are you.
Too bad already and I thought we were in a later on this morning, and the strike with yogurt I am sure that lots of thinking the same thing on this call.
Let's hope by the time, we get it that's the case.
For everybody's sake.
The general health of the consumer look you kind of answered it I don't want to hedge anything here.
But the bottom line is we seem to be somewhat insulated and our peers. So far are reporting that there is somewhat insulated right.
This is going to go later today, but up till now.
They are kind of forecasting $10 billion in profit this year for their theme parks. So everybody is talking about ticket prices being so high in the summer of crowds were supposedly lower Meanwhile, there.
Theyre up five buyback from a decade ago live nation of course, the other day just had their strongest quarter ever and are on pace for record revenue in 'twenty three the reporting record attendance and then you kind of move over to our our surf if you will and we've got record attendance and ticket per caps at multiple events ranging.
Pretty broadly from WWE UFC to PBR, all the way to freeze, which is art fair that you know we hold them in London, and we hold in Korea.
Just been a good story for us so we're not really seeing any slowdown in probably preempting. Another question. When you look at the Olympics and the state of on location and keep in mind, what we sell there are mainly travel packages somewhat with the consumer that wants to go to Paris to go to multiple games they need help with hotel.
They want experiences and often airfares are part of that and we are we have sold through one third of our goal already and the stacking of our marketing doesn't even take place through Q1 Q2 as you can see from NBC.
And there is a Sunday night football package, they've just started to hit the Olympics heart and every time they hit it that bodes well for us. So so far insulated health of consumers seems strong.
And believe me, we're keeping an eye out for.
Great. Thanks.
Thank you both.
Thank you.
Next question comes from David Cohen with J P. Morgan David. Please go ahead.
Okay. Thank you maybe following up on the prior question as we reach the end game on the Actors' strike maybe you can provide your updated view on the demand environment for scripted kind of once we get past that initial pent up period, and then just sticking on the rep side.
I think theres been a fair amount of investor debate about the sustainability of comps are touring.
It can grow a 2023 levels I think you mentioned 200 of your artist on the road in Q3. So would appreciate kind of your view on sustainability, how that might look into 'twenty four.
Yeah.
I don't see I don't see that pent up demand ending anytime soon.
No.
Youre going to be.
Ramping I mean, the hardest thing we're going to have to do is scheduling of people mainly on the actor side. You guys are just going to be so much product.
Happening.
And so I don't think anything is going to even after the first way slow down in that regard.
It is constant.
Some of it.
<unk> content at a peak I don't believe that's the case.
Youre going to see this I think through 2005 <unk> already pushed.
A bunch of stuff into 'twenty five.
Warner Brothers, they've talked about at Disney They talked about it so I don't see it slowing down for a while.
Okay.
Yeah.
Oh, yes, yes, just don't music side, it's ironic.
Sitting here in Nashville at our country music.
Office, where we lead the industry in terms of music representation with a stellar leadership team here and we're reviewing.
Really a record record bookings to date and forecasting next summer to be equally as strong so artist want to tour crowds wants to see them and we're seeing record attendance.
Record ticket per caps frankly, a lot of endorsement and sponsorship deals that are following that so very consistent with what live nation's reporting that bodes well for us don't see it slowing down the festivals that we are a part of that.
Have an ownership position or we book ourselves.
Equally equally brisk.
Right.
Thanks, Operator next question.
Thank you. Our next question comes from Steve <unk>.
Steve. Please go ahead.
Hey, guys. Good morning, maybe first on the sports strategy.
Even with the USC now over at Teco, you saw some fairly sizable sports assets add endeavor.
The Miami Madrid tenants opened I think being in some of your biggest you also had that been out there for them for the PGA. So I was just curious just if you could update us on the sports strategy at endeavor. The exact which is think theres opportunity to scale that platform and how that strategy might differ from how <unk> might approach and organic growth.
The industry going forward and then maybe just a quick one for Jason could you unpack what drove the year over year change in net income for us in the quarter. Thank you.
On the score strategy when you think about the Miami opened an image read if you've ever been to the major it open.
I mean, one of the big attractions. They sell these packages for the food festival that happens outside in addition, we're adding a music festival. So those are not yet their sports, but theyre really events cultural events surrounding same thing with Miami.
So when you think about those sports, whereas you defined the sports those are actually really events of sport is the USDA sport is WWE <unk> there.
But that's also an event at the country kind of event that travels so that's how we think about it.
And as it relates to.
The PGA.
Remember, we had fees going back.
Two I don't know if you read all the details of the structure of our offer.
And when we realized that one prices was getting ridiculous and they weren't going to recognize our fees, we didn't want to actually participate yes, just steven.
Elaborate on that because I know theres been a lot of discussion on there's a lot written about it and just the fact that you mentioned it.
I think I'm glad already responded to that.
Just to make sure we level set with everybody because we wanted to be consistent.
Our dialogue here.
We're not even on the <unk> side, we are very focused on the integration and we're working closely with the endeavour flywheel to make sure we maximize.
Revenue synergies were not even thinking about M&A the PGA to <unk> point, we have a long elaborate comprehensive history with PGA tour, obviously fans of what they do we represent a lot of golfers, but we represent them and have represented them on media rights at times certainly <unk>.
Nationally as well on events, we own some sanctioned spa.
Sponsorship we have.
160 over 90 clients that are official partners of Detour Lake DP World, We do their sports betting we have analytics. So we have a multiple multiple disciplines. If you will on commercial services and so the opportunity was there that he would we be interested in making a minority investment being part of a concern.
<unk> and by the way that consortium was probably TBD down the line and all we said was.
Absolutely we'd be interested in making a 10% minority investment as long as many of these commercial services deals those contracts could get extended for $25 million per year. There was an aggressive ask maybe it was unrealistic.
We figured it would get shutdown. It ultimately did and then we are out of it. So it wasn't like we weren't talking about the two sides of our mouth. We're not we're not looking to buy the PGA tour, but certainly if we can have a little slice, while we're getting our commercial services extended at a nice premium we would do that that just wasn't to be so.
I think that context is very important here, Jason to talk about the net income.
Net income on I would point to two primarily two items.
One being transaction costs associated with the <unk>.
Air transaction.
In the neighborhood of $70 million plus in.
And also of restructuring cost associated with that transaction in the neighborhood of 70 million plus.
There is a big impact on net income for the quarter, obviously, both onetime in nature and nonrecurring.
Great.
Thanks, Steven operator, and thank you for that.
Thank you. Our next question comes from Steven <unk> with TD Cowen Steven. Please go ahead.
Hi, Thanks for the question.
As he recently and click endeavor public two and a half years ago, how do you view silver lake's consideration of the take private proposal relative to other potential strategic alternatives Youre exploring and also do you think a go private would hinder any platform synergies that you see currently existing within the assets you have.
Since my lawyers are around and you know the answer that I'm going to have I'm not commenting on anything as it relates to the go private.
Or anything that you've just mentioned, but I appreciate the question.
Okay do you mind, if I ask a question on more than.
Hi, guys for that.
Yes, no problem.
For the.
For the core representation business, you said that this business has historically grown revenue and EBITDA.
The double digit CAGR over the last decade, and how do you think the end of the packaging deals and fees and the new terms and the writers and actors contracts. Following these strikes are going to impact that growth that core growth over the next five to 10 years.
Well, here's what I would say to you is we have a very big diversified business as you can see by our results.
So whether it be sports.
Whether it be music, whether it be digital whether it be books, whether it be lectures. So we feel very good about now the well rounded and this is the whole organization. So even though theres no packages. We also have all packages and as you can see on Netflix everybody selling their properties. There are properties like they sold ballers they sold soon.
So it is one of the biggest shows those are big fees that come back and packages on the whole packages. So we really feel good about the portfolio that we've put together.
Okay.
Operator next question.
Thank you on that final question comes from David Joyce from Seaport Research Partners. Please go ahead David.
Thank you on the sports student technology business could you talk about some of the growth drivers from here how much do rely on any further regulation domestically or internationally.
And kind of what's the what's the purview of where you could still be adding to your.
Your data rights there.
Thanks, David.
Bringing us home with SD and <unk> love It alright, so what I would say on this front.
We would say is.
Remember we have two parts of our business. One card is open bet, which is b to B, it's infrastructure tech its white label for a myriad of sports betting operators are out there and increasingly more and more of these days to your point because regulation is lifting you can see Brazil.
On the horizon, Finland huge opportunity yesterday, just had a great me.
Operator in the Dominican Republic. So is this is a very.
Noisy area, which plays to our benefit because theyre not going to go out there. Many of these players and spend all the capital required on infrastructure on tech and on labor when they can just white label. It in a much more efficient manner, both cost and speed with open bet. So we feel very bullish about that business. It's a good quarter for us in this.
Area and.
And the prospects for 2024 with more and more regulation getting lifted play to our advantage. The area. We have to be careful on is the IMG arena side and that is to your point sports data rates I think here too for we've been very disciplined at this point, we don't play in tier one.
Kind of a Trojan horse money loser properties I'm, not going to single anybody out specifically or any company, specifically, but often it is a it is a right Steve.
To try to get some sports data from some of these major leagues and frankly the margins are just too tight there's too much risk. We can make we can't make money on that so we play in that tier two properties, a tier three property and often package it with our media division of IMG, what we can get all kinds of efficiencies and synergies to make these profitable.
And strong margin, that's where we're going to continue to stay. So we are very content being the number three player in that marketplace behind gene.
<unk> and sports radar, which of course has been at it longer than anybody else and probably the leader in certainly the biggest.
Great I appreciate it.
Got it thanks David.
Just want to thank everyone inclusion here operator.
Thank you.
This concludes today's call. Thank you for joining everyone. You may now disconnect your lines.
[music].
Okay.