Successful IPO Would Validate Endeavor’s Transition from Agency to Sports Property Owner
Back on May 23rd, Endeavor Group Holdings, Inc. (Endeavor) filed for a $100 million IPO. The target share price range wasn’t disclosed, but the filing indicated that the company holds a +/- $6 billion valuation. The holding co. for the boutique agency turned media conglomerate intends to trade shares on the NYSE under the symbol EDR. Goldman Sachs, KKR Capital Markets, JP Morgan Securities and Deutsche Bank AG will lead the offering.
Howie Long-Short: Once solely a Hollywood talent agency, Endeavor has spent the last decade (company merged with William Morris Agency in ’09) diversifying their business with sports and entertainment properties (see: UFC, IMG). In fact, by 2018 just +/- 36% of company revenues ($3.61 billion, +20% YoY) came from the agency side of the business.The IPO filing indicated that Ari Emanuel & Co. intend on continuing to swallow-up assets (presumably content or event-based ones), so access to additional cash and stock (that can be used as a form of currency) should prove useful.
As noted back in April, Endeavor intends on purchasing the 80% of On Location Experiences not owned by the NFL for between $650 million and $700 million. In addition to hospitality, sports betting would be a logical vertical for the company to enter. With a laundry list of high profile clients and properties like the UFC and PBR, gaming businesses could leverage what Endeavor already has in place (think: marketing, talent relations) to maximize profitability. Two sectors that the company is unlikely to invest in are eSports and digital media. A publicly traded company required to report quarterly earnings isn’t going to be buying assets with nominal EBITDA (eSports) or properties trading at revenue, not EBITDA multiples (digital media entities).
Endeavor’s M&A model has proven successful thus far, but one industry insider suggested that the company could also use some of the newfound capital at its disposal to enter the burgeoning video streaming service space - acquiring sports broadcasting rights for their OTT platform provider NeuLion. It’s unreasonable to expect the company to compete with ESPN+ or DAZN (they won’t be paying billion dollar rights fees), but it should have the resources to develop a service that stacks up competitively to the FloSports’ (closed on a $47 million series C round on Monday) of the world.
If the IPO is successful it validates the notion that agencies or service oriented businesses can (and should) make the transition to sports property owner. The UFC’s $1.5 billion deal with ESPN should provide some wind for Endeavor sails - an indication that the company can make large-scale bets and monetize them within a short amount of time - but investors are still going to have to get over Endeavor's existing long-term debt obligations ($4.6 billion) and an operating loss north of $100 million in 2018.
Fan Marino: Endeavor’s sports-centric acquisitions to date have been single-owner entities, where the brand is bigger than the talent and they've been able to control all aspects of the organization (see: UFC, PBR). Few mature sports properties maintain those characteristics and even less are on the market so it’s difficult to peg potential takeover targets, but the motorsports roll-up discussed in the May 29th newsletter might fit the bill.
Smaller leagues (think: PLL) might have some of characteristics Endeavor seeks, but a $6 billion company is looking for assets that can move the needle. Don’t expect the company to buy a big four sports team, either. Too much of the revenue is derived at the league level where it would be difficult for the company to leverage resources.
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