A tangled mess of immense potential value.
This is probably the most apt way to describe the business CEO Ari Emanuel presented on the public markets in April of this year.
Endeavor, the former arts agency turned sports and entertainment conglomerate, posted profits earlier this month. Results were strong, beating Wall Street expectations while raising expectations for the full year. Here are some important points:
- $ 1.4 billion in third quarter revenue
- $ 63.6 million in net profit
- Third-quarter revenue from owned sports properties fell $ 10.6 million year-on-year to $ 288.5 million
- Events, Experiences and Rights segment jumped from $ 62.1 million to $ 446.3 million
- Full-year revenue forecast raised to $ 4.89 billion to $ 4.95 billion
While the financial performance is commendable, dissecting different business segments and revenue streams can be like unraveling a wired headset. Once separated, there seems to be a method to the madness.
Endeavor is heavily indexed to the events and entertainment spectrum with only a few of its lines of business outside of this jurisdiction. The company’s three main lines of business – owned sports properties, events, experiences and rights and representation – all recorded positive EBITDA during the period, exceeding estimates in terms of revenue and performance. ‘EBITDA.
The company emerging from the pandemic with an increased appetite for premium content and live events has had a disproportionate impact on the company’s ability to remain profitable.
Looking ahead to the company’s April, Emanuel underscored this by saying, “The events of 2020 have reminded us of the enduring value of intellectual property and premium content, while strengthening the strength of our position within the sports and entertainment ecosystem. “
UFC takes off
The UFC is the driving force behind the majority of Endeavor’s growth in the sports property owned division.
The division posted revenue of $ 288.5 million in the third quarter, down about 3% from the same period in 2020. The revenue decline stems, in large part, from the fact that the UFC has pushed many of its events from the start of the year into the second half of the year and one – a futures contract termination fee of $ 25 million. But for the nine-month period ended in September, the sports-owned real estate division posted its highest revenue… ever.
The UFC, in particular, has been busy developing consumer products, entering the NFT market, and continuing its streak of successful international pay-per-views.
- In August, the UFC launched an NFT project alongside Crypto.com.
- In July, Crypto.com signed a 10-year, $ 175 million kit deal with the UFC.
- In March, the UFC signed a five-year, $ 350 million deal to make DraftKings its official bookmaker.
- The promotion saw six consecutive sales of PPV events from April through September.
The UFC has been a juggernaut and that shouldn’t change anytime soon.
More scripted content
Interestingly enough, it was actually Endeavor’s representation division that stole the show in the last report.
The division was up 86% year-on-year for the nine-month period ended September 30 and more than 100% from the second quarter of 2021. The reason for this seemingly explosive growth? Content delivered.
The company recorded $ 384 million in delivered content during the period as Endeavor featured shows, the most popular of which was “Nine Perfect Strangers.”
While the growth is impressive, it shouldn’t be viewed the same way in the future. Just nine days ago Endeavor has agreed to sell 80% of its scripted movies and content business to Korean CJ ENM for $ 775 million.
The deal was part of a settlement with the Writers Guild declaring that agencies, such as Endeavor, owning their own production companies and representing clients in those productions were a clear conflict of interest. In the deal, Endeavor will retain a 20% stake in the scripted content business while retaining the unscripted portion of the business and some advice on the sale and financing of documentaries and films.
Emanuel has been publicly optimistic about consolidating media companies such as Amazon buying out MGM and WarnerMedia and Discovery joining forces. The consolidation confirms its thesis that premium content and intellectual property are now placed at an even higher premium than they were before. Content studios caught the attention of financial sponsors just in 2021.
- Lebron James’ SpringHill has raised funds from RedBird Capital, Epic Games and Nike for a valuation of $ 725 million.
- Reese Witherspoon’s Hello Sunshine was sold for $ 900 million to a Blackstone-backed media company.
- Will Smith’s Westbrook Studios are said to have entered acquisition talks with the same Blackstone company that bought Hello Sunshine.
However, while content has shown the highest growth of any vertical, it’s owned by sports properties that Endeavor truly sees as the treasure house of intellectual property.
Linear and digital platforms compete for sporting advantages. Amazon has become the frontrunner to buy a minority stake in NFL media properties while bidding specifically for the Sunday Ticket package. NBC retained the Premier League rights for $ 2.7 billion over six years, more than double the value of the $ 1.1 billion agreement over six years.
Endeavor now has the opportunity to fully lean into the category he is most optimistic about.
What if Endeavor became the Berkshire Hathaway of sports leagues?
On the surface, this may sound strange, but the template is already in place. Given the nature of Endeavor’s current HoldCo structure, which allows for the ownership of individual subsidiaries, the company may begin to build a portfolio of promising sports properties.
When Endeavor bought the UFC for majority control in 2016, the $ 4 billion prize was an investment in the possibility of MMA becoming mainstream, an investment that came to fruition. Potential targets for the same type of investment:
- Professional Lacrosse League
- Indian Premier League
- Professional pickleball association
- National Rugby League (Australia)
PLL in particular is an attractive asset that has recently shown growth amid the pandemic. According to Commissioner Paul Rabil, the league saw a 42% increase in ticket revenue year-over-year.
With the UFC as the centerpiece, Endeavor could surround it with fast-growing properties that could “dump” on HoldCo’s existing operational skills.
Growth and appreciation in value takes time, but if Endeavor can hit another home run like it did with the UFC, it might be worth the wait.