By R.T. Watson
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 24, 2019).
Even as Hollywood's biggest talent agency tries to reinvent
itself as an international entertainment and marketing powerhouse,
it remains heavily dependent on its business of representing
actors, athletes and other creative types, according to a
prospectus filed ahead of an initial public stock offering.
Endeavor Group Holdings Inc., in a federal filing Thursday for
an IPO, described itself as an umbrella company that is home to
"the world's most dynamic and engaging storytellers, brands, live
events and experiences." The company said it aims to pursue growth
by developing, selling and distributing its own entertainment
content. Such an expansion would make Endeavor a potential
competitor to the same Hollywood studios with which it does
business in the course of representing actors, directors and
writers.
The company is seeking an equity value of nearly $10 billion,
according to people familiar with the terms.
Endeavor's biggest source of revenue, according to the filing,
is its entertainment and sports division, which negotiates
media-distribution deals on behalf of more than 150 clients
including the International Olympic Committee and National Football
League. It also owns the Ultimate Fighting Championship league,
Professional Bull Riders rodeo organization and Miss Universe
competition.
However, representation, which typically involves collecting
commissions made from securing work for individual talent like
actors, directors and writers or licensing deals for brands and
other media properties, continues to be its most profitable
segment, according to the filing.
But Endeavor is looking to diversify, describing itself as a
"global entertainment, sports and content company."
"As the demand for content continues growing, developing new
distribution channels to complement our clients' creative needs is
essential," said Chief Executive Ari Emanuel in an accompanying
letter.
In recent years, streaming services like those offered by
Netflix Inc., Walt Disney Co.'s Hulu and Amazon.com Inc. have
spurred an unprecedented boom in content creation. Soon other major
companies such as AT&T Inc.'s WarnerMedia and Comcast Corp.'s
NBCUniversal will join the fray.
Endeavor said it has already helped to finance more than 100
films and shows through its Endeavor Content division, including
the critically acclaimed movie "La La Land" and television series
"Killing Eve."
Endeavor's changing business plan has been spurred by the
changing landscape in the entertainment industry. As the number of
films and television series being made soars, salaries for A-list
stars and certain bonuses associated with major television deals
have both shrunk. Like Endeavor, other Hollywood heavyweight talent
agencies like Creative Artists Agency and United Talent Agency have
sought to broaden their interests by producing their own
entertainment content.
Regardless of its efforts to diversify, Endeavor's agency
business remains its most profitable. The division in 2018 made
$335 million in adjusted earnings before interest, depreciation and
amortization, on $1.31 billion revenue. The company's biggest
division, entertainment and sports, made $439.5 million adjusted
Ebitda from $2.27 billion revenue.
Endeavor's digital business division, which offers streaming
services on behalf of sports leagues and other clients, lost $45.3
million. The company also spent $178.3 million on items such as
corporate overhead.
Overall, Endeavor said its 2018 revenue amounted to $3.61
billion, with net income of $231.3 million and adjusted Ebitda of
$551.1 million. The company reported net losses for each of the
prior four years.
The company said it had $4.64 billion in long-term debt as of
March 31.
Private-equity firm Silver Lake and Japanese conglomerate
SoftBank Group will be in a position to cash in on investments in
Endeavor following a 180-day lock-up period that starts with the
IPO. Silver Lake invested $200 million for a 31% stake in Endeavor
in 2012 and another $500 million for an additional 20% in 2014.
SoftBank invested $250 million for a 5% stake in 2016.
Endeavor's presence in sports and other live events has reduced
its financial risk in traditional entertainment such as film and
television, both of which have suffered as a result of the rise of
streaming services. Live event viewership, primarily sports,
continue to be big moneymakers in the media space.
The company is also positioning itself in the sports-betting
market by providing live data feeds for more than 45,000 annual
sporting events, it said in the filing. Endeavor hopes this area of
the business will grow as legal sports betting expands in the
U.S.
The filing lacks specific information on how much money the
company seeks to raise, and at what share price, and offered few
details for how the company would use the funds, saying simply it
would invest in "working capital and general corporate
purposes."
Moving to become both a representative of talent and a producer
of content has generated controversy. The main union representing
Hollywood screenwriters, the Writers Guild of America, recently
instructed its thousands of members to fire their agents in part
because Endeavor and other major agencies refused to stop engaging
in controversial practices including producing their own content.
The union said producing content created conflicts of interest for
the agencies, since they are effectively acting as both the
writers' employers and representatives.
Despite the WGA's criticism, Endeavor has said it can ethically
balance representing its talent and producing entertainment, in
part because those functions are handled by separate parts of the
company. The WGA and Hollywood's top agencies have yet to resolve
the dispute.
Endeavor intends to list on the New York Stock Exchange under
the symbol "EDR."
The Endeavor Agency LLC was founded in 1995 and merged with the
William Morris Agency LLC in 2009. In 2014, it acquired the giant
sports and modeling agency IMG Worldwide Holdings Inc. In 2016 the
company bought Zuffa Parent LLC, owner and operator of the UFC.
Stephen Nakrosis, Dana Cimilluca and Maureen Farrell contributed
to this article.
(END) Dow Jones Newswires
May 24, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.