Endeavor Buys On Location Experiences, Exit Multiple Misreported

JohnWallStreet

Sports Business Journal reported on New Year’s Day that Endeavor was set to close on the purchase of On Location Experiences on Thursday January 2nd. The deal - which valued the company at $660 million - “enhanced the NFL’s stake in the hospitality agency” from +/- 16% to +/- 30% (the league will have the opportunity to further increase that percentage in the future). RedBird Capital, Bruin Sports Capital and The Carlyle Group (which maintained a significantly smaller stake than the other two) all exited the venture.

Howie Long-Short: The NFL’s contribution to OLE comes in the form of access to tickets (including +/- 9,500 seats to the Super Bowl). The experiential hospitality company gets to buy the valuable duckets at face value and whatever price OLE can sell the premium packages for above that number becomes EBITDA. Considering the league was responsible for 40% of 2018 revenues, one can certainly understand why it made a play for a larger equity stake in the business.

When OLE first hung its shingle in 2015, QuintEvents and PrimeSport were the established players in the space. There was a strong internal belief that the company’s access to Super Bowl tickets in prime locations (+ the NFL's ability to get buyers through security earlier on the day of the game) would enable it to as Tony Knopp (founder and CEO, TicketManager) said, “'kill' Prime Sport and do it with limited broker involvement.” Leadership also insisted at the time that OLE could be a success without having to align with QuintEvents. Those grand visions never came to fruition. OLE bought PrimeSport in December 2017 and has been selling product through them and QuintEvents, along with a host of brokers, since. It’s reasonable to believe the NFL’s desire to take greater control of the operation (see: Goodell now has a board seat) and its direction moving forward sparked the decision to “swap out business partners.”

To be clear, we’re not saying that the On Location endeavor has been a failure to date. The NFL accomplished its goal of “taking back all of [the inventory and profit margin] that had been going out into the ether and brought it back under their umbrella.” They just didn’t do it in the manner in which they set out. As Knopp noted, “they’re still cutting in the secondary [market].”

Endeavor is a sensible strategic partner for the NFL. OLE already works with Endeavor-owned UFC and the agency's access to talent agents - and thus artists - should be valuable from an inventory perspective. Ari Emmanuel’s company has also expressed plans to “become a bit more of a competitor to Live Nation (minus the ticketing component). They’re placing their bet on vertical integration around live events.” Knopp believes that together the NFL and Endeavor can create “a national singular marketplace for high-end hospitality - which is particularly valuable in a business where customer acquisition costs [are significant].

While there is no doubt RedBird and Bruin came out ahead on the deal, the 10x return suggested in the SBJ article is greatly overstated (we’ve heard from insiders that the number is closer to 3x). Remember, after the two private equity firms invested $70 million into the business OLE went out and bought PrimeSport and Anthony Travel. As Knopp explained “those acquisitions don’t come from nowhere. Somebody has to [invest the capital] and none of the liquidity or debt investors (which OLE said they leveraged to do the deals) would have permitted [the duo] to retain their ownership stakes without having put up any additional money to help acquire those two companies.” In other words, headline value - which doesn't include debt on a business - differs from equity value.

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