Endeavor Sees Revenue and Expenses Rise in Q3; Wall Streeters Press Execs on Asset Sales and Going Private
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In the quarter that included the marriage of UFC and WWE under the TKO Group umbrella, Endeavor saw its Q3 revenue rise despite headwinds from Hollywood strikes and other market conditions, but operating expenses climbed even more.
Endeavor’s conference call with analysts today gaveWall Streeters a chance to grill company executives, including CEO Ari Emanuel and Mark Shapiro, president and chief operating officer, on the news earlier this month that Endeavor is considering “strategic alternatives” for some of its businesses.
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Controlling shareholder Silver Lake, meanwhile, has said it intends to take the company private. “Silver Lake firmly believes in Endeavor’s business and is not interested in selling its shares in Endeavor to a third-party nor in entertaining bids for assets that are a part of Endeavor,” the private equity firm said on Oct. 25.
“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,” Emanuel said in opening the call. “We will update the market if and when there’s anything further to share.”
Endeavor’s quarter was once again paced by its Owned Sports Properties, the unit that houses its 51% holdings in TKO Group. (TKO delivered its first quarterly earnings report since its Sept. 12 launch on Tuesday.)
“Our results in the third quarter demonstrate the strength of our diversified portfolio and leading position in sports and entertainment,” said Emanuel in a statement. “We are making good progress on our TKO integration efforts, setting ticket sales or attendance records at many of our live events, and continuing to benefit from demand for premium content and experiences. Our focus remains on maximizing shareholder value through capital return initiatives including our share repurchase program and dividend payments, as well as our recently announced evaluation of strategic alternatives.”
For the quarter that marked the end of the Writers Guild of America strike, Endeavor delivered revenue of $1.34 billion (up from $1.2 billion in Q3 2022) and adjusted earnings before interest, taxes, depreciation and amortization of $311.6 million (up from $303 million). Net income was a $116 million loss. Total operating expenses took a nearly $300 million jump from the year-ago quarter ($1.06 billion) to $1.3 billion.
“Hopefully the strike ends in the next couple days,” Emanuel said. Shapiro added: “Ari and I thought we were going to wake up this morning and this strike would be over.”
Revenue at Owned Sports Properties was up 19% (to $479.7 million) on the acquisition of WWE, which is now part of the TKO Group holdings stock in tandem with Endeavor’s dominant MMA league UFC. Adjusted earnings were up 21% year-over-year to $237.4 million.
Endeavor’s Representation segment, which includes WME, was the second-biggest contributor to revenue at $385.6 million (down 0.7%) and adjusted EBITDA at $96.3 million (down 27%). WME’s revenue loss from the WGA and SAG-AFTRA strikes came in significantly lower than the $25 million a month estimated earlier in the year by Endeavor.
Highlights for WME this quarter included gains in the sports division, which set a record-setting contract with the Cincinatti Bengals for quarterback Joe Burrow. Another score came from a deal between Endeavor’s creative advertising agency 160/90 with WME and Endeavor’s Talent Ventures team to launch WME-repped Snoop Dogg’s Dr. Bombay Ice Cream in more than 3,500 Walmart locations.
Emanuel was pressed about WME’s long-term financial forecast now that it’s been two years since the WGA mandated the end of TV packaging deals that had been so lucrative for talent agencies for decades. Emanuel stressed that the legacy deals still generate strong cash flows for the agency.
“So even though there’s no packages, we also have old packages,” he said. “And as you can see on Netflix, everybody’s selling their properties. ‘Suits’ is one of the biggest shows. Those are big fees that come back in packages on the old packages. So we really feel good about the portfolio that we’ve put together.”
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