Q3 2023 Endeavor Group Holdings Inc Earnings Call
Participants
Ariel Zev Emanuel; CEO & Director; Endeavor Group Holdings, Inc.
James Milton Marsh; Head of IR; Endeavor Group Holdings, Inc.
Jason Howard Lublin; CFO; Endeavor Group Holdings, Inc.
Mark S. Shapiro; COO & President; Endeavor Group Holdings, Inc.
David Karnovsky; Analyst; JPMorgan Chase & Co, Research Division
David Carl Joyce; Research Analyst; Seaport Research Partners
Kurt Gulmarg
Stephen Glagola
Steve Lacszcyk
Presentation
Operator
Hello. Welcome to the Endeavor Third Quarter 2023 Results Call. My name is Lauren, and I will be coordinating your call today. (Operator Instructions)
I will now hand you over to your host, James Marsh, Head of Investor Relations, to begin. Please go ahead.
James Milton Marsh
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.endeavorco.com. A recording of this call will also be available via that site for at least 30 days. Today, you will hear from Endeavour's CEO, Ariel Emmanuel; and CFO, Jason Lublin, before President and COO, Mark Shapiro, who joins us for Q&A. The purpose of this call is to provide you with the information regarding our third quarter 2023 performance. Commentary related to WWE's business and financial results in the context of Endeavour's results reflect WWE's performance for the period from September 12 through September 30.
I do want to remind everyone that the information discussed will include forward-looking statements and/or projections that involve risks, uncertainties and assumptions as well as described in the Risk Factors section of our filings with the Securities and Exchange Commission, including our 10-Qs and 10-K. If these risks or uncertainties ever 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 obligation 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. This measure 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, Ariel Emmanuel.
Ariel Zev Emanuel
Thanks, James, and good morning, everyone. This quarter's results reflect Endeavour's leading position in the sports and entertainment marketplace even and especially as market dynamics evolve. To share just a few examples, we launched TKO and immediately delivered domestic media rights increases, a record-breaking global marketing partnership and new international events with sizable site fees. 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's 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 Endeavour's review of strategic alternatives. Given the continued dislocation between our public market value and the intrinsic value of Endeavor's 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's 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 6 live event 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 longstanding partnership with the Department of Culture and Tourism Abu Dhabi, to continue hosting one numbered event there each year and up to 3 fight nights in the region. Additionally, UFC will debut a first ever fight night 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 vis-a-vis 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 NBCUniversal 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 Endeavour flywheel to bring new global partnership opportunities to TKO. AB InBev just announced a significant multiyear deal with UFC to become its official global beer partner beginning in 2024. The deal is UFC's biggest ever in the aggregate, including cash and marketing assets. In addition to TKO, the Owned Sports Properties segment includes results from professional bull writers. TBR's 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 & Rights segment, as mentioned, IMG's Media Group announced an exclusive agreement with the NFL to manage the League's media rights in 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, 2 of the longest running art fairs in the U.S. and completed a successful second edition of Freeze Seoul in South Korea with 120 galleries and 70,000 visitors. And on location, momentum going into Super Bowl LVIII 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 in London became its highest grossing non-WrestleMania event ever, and UFC 293 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 our testament to the demand we are seeing for sports 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 Endeavour flywheel and the diversified business we've grown at WME. In music, WME 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. WME Sports truck record-breaking deals this year. With their deals, Bengal's quarterback Joe Borough became the highest paid player in NFL history and 49ers defensive lineman, Nick Bosa became the highest paid defensive player ever. WME Sports has already negotiated more than $1 billion in football contracts this season with more than $700 million in guarantees.
IMG's industry-leading licensing team continued to deliver first-of-their-kind deals in the quarter, including a partnership between Macy's and Gap that will see 250 Macy's stores across the country debut Gap pop-ups within their footprint. And activating a crucial part of the Endeavor Flywheel, 160 over 90 together with WME and Endeavor's talent Ventures team incubated and launched WME client Snoop Dogg Dr. Bombay ice cream. The product debuted in more than 3,500 Walmart locations nationwide.
Turning next to our Sports Data and Technology segment. Following OpenBets successful launch with OPAP in Greece, we have been pursuing opportunities in additional emerging markets. In the quarter, OpenBet signed a new partnership with Play 7 to enter Brazil's sports betting market. We see significant opportunity ahead in Brazil, and OpenBet is well positioned to capitalize on the market's highly anticipated opening to regulated sports betting and potentially other digital gaming products. With that, I'll turn things over to Jason.
Jason Howard Lublin
Thanks, Ari, 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 30, 2023, we generated $1.344 billion in consolidated revenue, up $123 million or 10.1%. The Net loss for the quarter was $116 million compared to a 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 2.8%.
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 fight night events compared to the prior year quarter. Segment revenue growth was also driven by higher live event revenue and sponsorship at UFC 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 Baseball Holdings, which we sold in September 2022. PBR also posted 19 Series events in the quarter, which drove a 26% increase in attendance over comparative events in 2022.
Now turning to Events Experiences and Rights. This segment recorded revenue of $367.1 million, down $27.1 million or 7%. Segment 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 at IMG's media business from new contracts, including Major League Soccer, as well as media production for certain biannual and quadrennial events, including the Ryder Pep and Rugby World Cup, which did not occur in 2022. Increased revenue related to on-location premium hospitality at the Writer Cup. Live Event revenue primarily driven by new events such as Bare 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, on locations ongoing IOC investment, which began in the third quarter of last year and is inclusive of personnel, marketing and technology costs and decreases at Endeavor Streaming.
Moving on to our representation segment. 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 WGA and SAG Apter strikes, partially offset by growth in the Sports & Mutic divisions. This decrease was further offset by content delivery within our nonscripted production business as well as increases at 160 over 90 in IMG's licensing business. WME Sports case record-breaking NFL and NBA player deals and WMEs music touring business had a strong quarter driven by continued demand for live music. More than 200 WME clients performed across festivals, including Tuchola, Lalapuluza, Glassenbery 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 strikes to continue based on the lagging effect of the WGA strikes, the ongoing SAG after 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. Growth in this segment revenue was attributed to the addition of OpenBet, which we acquired in September of 2022 as well as growth in bettiing and data and streaming at IMG arena across a widening portfolio. For Winmilton, IMG Arena delivered data feeds to more than 250 sportsbooks covering 651 matches. IMG Arena also entered a multiyear partnership with Conference USA to become the week's official data rights collector for football and men and women's basketball.
Moving on to our capital structure. We ended the quarter with $5.05 billion in debt and $1.34 billion in cash, resulting in $3.74 billion in net debt. Our net leverage was 3.22x at quarter end. As a recognition of our deleveraging progress and close of the TKO transaction, S&P Global Ratings recently upgraded our parent issuer credit rating, inclusive of the UFC Credit Group to BB- from B+. In conclusion, given Endeavour's 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.
James Milton Marsh
Thanks, Jason. Operator, can we open up for questions now.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from Kurt Gulmarg [Phon] with Ethical ISI.
Kurt Gulmarg
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, but it does seem like we're getting closer to a resolution hopefully by Thanksgiving as opposed to the dispute extending into December of 2024. 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 Hollywood overall once things are hopefully resolved. And it seems like there's a lot of pent-up demand for things to pick up day 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 this a mid-2024 event, for example?
And second, Ari, I know you called out the strength you're 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 you're seeing? 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'd appreciate any added perspective. Thank you.
Ariel Zev Emanuel
So on the first question, I'll take it. This is Ari. Thanks for your question. It takes -- you'll 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, we had 19 days, 30 days, whatever amount, they'll pick up. Hopefully, the strike ends in the next couple of days to prep again and then go at the beginning of the year. The rest of the new stuff, and I agree with you, there's tons of pent-up demand, a lot of stuff on the runway. That will get going probably, I'm saying April-ish, May because remember, you have to have two to three months of prep and then you can start doing the productions both on the movie and television side. So that's kind of the time line to all of that. I think Mark will hit the consumer.
Mark S. Shapiro
Hey Kurt, how are you. Yes. Too bad and I thought we were going to wake up this morning and the strike will be over. I'm sure Davos thinking the same thing on this call. Let's hope by the time we get to Disney, that's the case for everybody's sake. On the general health of the consumer, look, you kind of answered it. I don't want to heck anything here. But the bottom line is we seem to be somewhat insulated and our peers so far are reporting that they're somewhat insulated, right? Disney is going to go later today. But up until now, they're kind of forecasting $10 billion in profits this year for their theme parks. So everybody's talking about ticket prices being so high and the summer a crowd were supposedly lower. Meanwhile, they're up 5x from a decade ago.
Live Nation, of course, the other day, just had their strongest quarter ever on pace for record revenue in '23. They're reporting record attendance, and then you kind of move over to our surf, if you will, and we've got record attendance and ticket for caps at multiple events ranging pretty broadly from WWE, the UFC to PVR, all the way to Freeze, which is our art fair that you know we hold in London and we hold in Korea and just been a good story for us. So we're not really seeing any slowdown and then probably preempting another question, when you look at the Olympics in the state of on-location, and keep in mind, what we sell there are mainly travel packages.
Some of the consumer that wants to go to Paris to go to multiple games, they need help with hotels, they want experiences and often airfare is a part of that. And we are -- we have sold through 1/3 of our goal already and the stacking of our marketing doesn't even take place for Q1, Q2. As you can see from NBC and their Sun football package, they've just started to hit the Olympics hard. And every time they hit it, that bodes well for us. So, so far, insulated health to consumer seems strong, and we're believing we're keeping an eye on for it.
Operator
Our next question comes from David Karnovsky from JPMorgan.
David Karnovsky
Thank you. Maybe following up on the prior question. As we reach the end game on the actor strike, maybe you provide our 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 there's been a fair amount of investor debate about the sustainability of concerttouring whether it can grow of 2023 levels. I think you mentioned 200 of your artists on the road in Q3. So I would appreciate your view on sustainability, how that might look into '24. Thanks.
Ariel Zev Emanuel
I don't see the pent-up demand ending anytime soon. You're going to be ramping. The hardest thing we're going to have to do is scheduling of people mainly on the actor side because there's going to be so much product happening. And so I don't think anything is going to -- even after the first wave slow down in that regard, this constant drumbeat of this content at a peak. I don't believe that's the case. You're going to see this, I think, through '25. They've already pushed a bunch of stuff into '25 one of others, they've talked about it, Disney, they talked about it. So I don't see it slowing down for a while. You want to...
Mark S. Shapiro
Yes. Just on the music side. I mean ironic, we're sitting here in Nashville at our country music office where we lead the industry in terms of music representation, a stellar leadership in here. And we're reviewing really better bookings to date and forecasting next summer to be equally as strong. So artists want to tour, crowd wants to see them, and we're seeing record attendance and record ticket per caps. Frankly, a lot of endorsement and sponsorship deals that are following that. So very consistent with what Live Nation is reporting, that bodes well for us. Don't see it slowing down. The festivals that we are a part of that we have an ownership position or we book ourselves, equally brisk.
Operator
Our next question comes from Steve Lacszcyk from Goldman Sachs.
Steve Lacszcyk
Good mornig. Maybe first on the sports strategy. Even with the UFC now over at TKO, you saw some fairly sizable sports assets at Endeavor, PBR, the Miami Major League's opened, I think being some of your biggest. You also have a bid out there for the PGA. So I was curious just if you could update us on the sports strategy at Endeavor, the extent that we just think there's opportunity to scale that platform and how that strategy might differ from how TKO might approach inorganic growth in 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?
Ariel Zev Emanuel
On the sports strategy, when you think about the Miami open, Madrid, if you've ever been to the Madrid open, it's got one of the biggest attractions they sell these packages for the food festival that happens outside. In addition, we're adding a music festival. So the -- those are not -- yes, they're sports, but they're really events, cultural events surrounding. Same thing with Miami. So when you think about those sports, as you define the sports, those are actually really event. So sport is the UFC, or sport is WWE. Yes, PBR is there, but that's also an event a 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 to -- I don't know if you read all the details of the structure of our offer. And when we realized that one price was getting ridiculous and they weren't going to recognize our fees, we didn't want to actually participate.
Mark S. Shapiro
Yes. Just Stephen, I want to elaborate on that because I know there's been a lot of discussion on this, 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 want to be consistent in our dialogue here. We're not -- even on the TKO side, we are very focused on the integration there, and we're working closely with the Endeavor flywheel to make sure we maximize revenue synergies. We're not even thinking about M&A. The PGA to Ari's point, we have a long elaborate comprehensive history with PGA Tour. Obviously, fans and what they do. We represent a lot of golfers, but we represent them and have represented them on media rights at times, certainly internationally as well. On events, we owned some same-sitesponsorship. We have 160 over 90 clients that are official partners of the tour, like DP World. We do their sports betting, we have analytics. So we have multiple disciplines, if you will, on commercial services.
And so the opportunity was there that, hey, would we be interested in making a minority investment, being part of a consortium. And by the way, that consortium was probably TVD down the line. And all we said was Absolutely, we would 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. It was an aggressive ask, maybe it was unrealistic. We figured that we'll get shut down. It ultimately did, and then we were out of it. So it wasn't like we weren't talking about the two sides of our mouth. 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, you can talk about the net income.
Jason Howard Lublin
Yes, Steve, on the net income line, I would point to two -- primarily two items. One being transaction costs associated with the TKO transaction in the neighborhood of $70-ish million plus and also restructuring costs associated with that transaction in the neighborhood of $70 million plus. So those were big impact to net income for the quarter, obviously, both onetime in nature and nonrecurring.
Operator
Our next question comes from Stephen Glagola from TD Cowen.
Stephen Glagola
Ari, as you recently took Endeavor public 2.5 years ago, how do you view Silver Lake's consideration of a take private proposal relative to other potential strategic alternatives you're exploring? And also, do you think a go-private would hinder any platform synergies that you see currently existing within the assets you own?
Ariel Zev Emanuel
Since my lawyers are around and you know we answer that, I'm going to have, I'm not commenting on anything as it relates to the go private or the review or anything that you've just mentioned. But I appreciate the question.
Stephen Glagola
Okay. Do you mind if I ask question more, then apologize for that. 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 on the riders and actors contracts following the strikes are going to impact that growth -- that core growth over the next 5 to 10 years?
Ariel Zev Emanuel
Well, here's what I would say to you that 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 the well-roundedness of the whole organization. So even though there's no packages, we also have old packages. And as you can see on Netflix, everybody is selling their properties, their own properties like they sold Dollars, they sold Suits. Suits is one of the biggest shows. Those are big fees that come back and packages on the old packages. So we really feel good about the portfolio that we've put together.
Operator
Our next final question comes from David Joyce from Steve Port Research Partners.
David Carl Joyce
On the Sports Data and Technology business, could you talk about some of the growth drivers from here? How much do you rely on any further regulation domestically or internationally? And what's the purview of where you could still be adding to your data rights there?
Mark S. Shapiro
Thanks, David. Bringing us one with S&T, I love it. All right. So what I would say on this front, what we would say is, remember, we have two parts of our business. One part is open bet, which is B2B, it's infrastructure, it's tech, it's white label for the 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, I just had a great meeting with the operator in the Dominican Republic. So this is a very noisy area which plays to our benefit because they're 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 OpenBet.
So we feel very bullish about that business. It's a good quarter for us in this area and the prospects for 2024 with more and more regulation getting lifted, plays to our advantage. The area we have to be careful on is the IMG Arena side. And that is, to your point, sports data lights. I think heretofore, we've been very disciplined at this point. We don't play in a Tier 1 Trojan horse money loser properties. I'm not going to single anybody out specifically or any company specifically. But often, it is a is a rights fee fast to try to get the sports data from some of these major leads. And frankly, the margins are just too tight, there's too much risk we can't make money on that. So we play in the Tier 2 properties, the Tier 3 property and often package it with our media division at IMG, where 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 #3 player in that marketplace behind Genius and Sports Radar, which, of course, has been at it longer than anybody else and probably the leader and certainly the biggest.
Ariel Zev Emanuel
Thanks, David. I just want to thank everyone in conclusion here. Operator, you can close the call. Thank you.
Operator
This concludes today's call. Thank you for joining, everyone. You may now disconnect your lines.
