Endeavor Group Q4 2023 Earnings Call Transcript

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February 28, 2024

Key Takeaways

  • Endeavor completed its WWE acquisition and launched TKO, with UFC and WWE breaking viewership and attendance records, securing new international media-rights fee increases and striking a 52-week Raw deal with Netflix starting in 2025.
  • Consolidated revenue rose 26% year-over-year in Q4 to $1.58 billion and full-year revenue grew 13% to $5.96 billion, while net income improved to $557.5 million from $321.7 million in 2022.
  • The company has initiated a review of strategic alternatives and consequently withheld 2024 annual guidance, with updates to be provided as the process advances.
  • Events, Experiences & Rights segment revenue fell 8% in Q4 and full-year EBITDA dropped 23%, primarily due to the sale of IMG Academy and challenging Super Bowl matchup and location dynamics.
  • Representation segment EBITDA declined 17% in Q4 and full-year, as the WGA and SAG-AFTRA strikes weighed on profitability despite modest revenue growth.
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Earnings Conference Call
Endeavor Group Q4 2023
00:00 / 00:00

There are 3 speakers on the call.

Operator

Good morning, and welcome to Endeavour's 4th quarter and full year 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 Emanuel and CFO, Jason Loveland.

Operator

In light of our previously announced and ongoing review of strategic alternatives, we will not be taking questions following Ari and Jason's prepared remarks. The purpose of this call is to provide you with the information regarding our Q4 and full year 2023 performance. 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 ks. If these risks or uncertainties ever materialize or any assumptions prove inaccurate, 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 that they are made and we undertake no obligation to update them publicly and light up new information or future events except as legally required.

Operator

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, Ari Emanuel.

Speaker 1

Thanks, James, and good morning, everyone. 2023 marked a transformational year for Endeavor in ways that further cemented our leading positions in sports and entertainment and demonstrated the value we are creating for shareholders. We closed our acquisition of WWE, launched TKO and immediately began leveraging the Endeavor flywheel to create synergies and unlock growth across areas including media rights and partnerships. We strengthened and expanded our representation capabilities through strategic tuck in acquisitions in sports, country music, literary and non scripted content. We inked landmark sports rights deals at IMG and achieved new attendance milestones across our owned events portfolio, we sold IMG Academy at an enterprise value of $1,250,000,000 We implemented Endeavour's share repurchase program and quarterly cash dividend payments.

Speaker 1

And we began a review of strategic alternatives to ensure we are maximizing value for our shareholders. With regard to our review of strategic alternatives for the company, we are still engaged in the process and will provide an update when there is more information to share. Now turning to some highlights from the Q4 and full year. Starting with our owned sports properties segment, which includes TKO. Just 5 months in, TKO is off to a strong start.

Speaker 1

The 4th quarter marked the company's 1st full quarter and closed out a standout year. UFC delivered record financial performance in 2023, and WWE had its highest revenue year ever for live events. Since closing the transaction, both businesses have broken viewership and attendance records at live events, announced new international events with significant site fees, inked sizable partnership agreements, and secured media rights fee increases domestically and internationally. Meanwhile, TKO has also made meaningful progress on integration, including merging UFC and WWE's global partnerships teams to create a unified sports marketing powerhouse focused on creating new revenue opportunities. We're encouraged by TKO's continued momentum into 2024, most recently demonstrated by WWE's deal with Netflix to bring Raw's live programming to the leading global streamer 52 weeks a year beginning in 2025.

Speaker 1

Following earlier rights renewals for SmackDown and NXT, this new deal for Raw is yet another proof point for the compelling rationale of bringing WWE together with UFC under one roof and harnessing the power of the Endeavor flywheel. Together, these deals delivered an increase of more than 1.4x in AAV, exceeding expectations on guidance and demonstrating TKO's ability to capitalize on the evolving media landscape as well as the quality and value of its premium content. The segment also includes PBR, where events in 2023 drew 1,250,000 fans. PBR sold out nearly 40 events and set more than 50 revenue records throughout the year. Beyond live events, PBR's brand partnerships have significant momentum going into this year.

Speaker 1

We finished 2023 with 9 new national partnerships, headlined by Anheuser Busch. Overall, the PBR partnership business has nearly doubled since 2020. And following a second successful Teams League season in 2023, which generated a 28% increase in TV viewership and averaged more than 1,000,000 viewers on CBS, PBR announced its expansion to 10 teams for the upcoming 2024 season, including a first ever team in Brooklyn. In our events, experiences and rights segment, during the Q4, IMG's media team and WME Sports jointly negotiated landmark partnerships for the National Women's Soccer League with CBS Sports, ESPN, Prime Video, and Scripps Sports. And to start this year, the team negotiated a NCAA renewal with ESPN that covers 40 NCAA championships, including the women's basketball tournament.

Speaker 1

Like the NWSL deal, this agreement showcases the value of our industry leading teams when it comes to representing and negotiating sports media rights. Our marquee events across sports and the greater culture in the quarter and throughout 2023 expanded in key areas. Art has become an increasingly meaningful vertical for IMG's events business. We are kicking off our 2024 art fair season tomorrow with Freeze Los Angeles. And later in the year, we will be expanding our presence in New York and Chicago following acquisitions of the Armoury Show and Expo Chicago, 2 of the longest running contemporary and modern art fairs in the US.

Speaker 1

In London, attendance grew at our Hyde Park Winter Wonderland Holiday Festival. We sold more than 3,000,000 tickets across 45 days, making it one of the most successful assets in our global events portfolio. At our own tennis tournaments, the Miami Open and Madrid Open, we achieved record attendance in 2023. The Miami Open welcomed a record 386 1,000 fans and set record partnership sales. Similarly, the Madrid Open expanded to 12 days and marked its biggest year ever with record attendance of 325,000.

Speaker 1

In 2023, we became a significant minority partner in Fanatics' new company, Fanatics Events, with a plan to build the largest network of sports fan festivals in the world. The festivals will bring communities together to celebrate all aspects of fandom, including sports, fashion, music and entertainment. We look forward to our first event in Q3. We've also benefited from continued strength in consumer spending on premium experiences. In 2023, On Location hosted Notre Dame and Navy fans in Ireland and sold out the Aer Lingus Classic College Football Game.

Speaker 1

We've since extended our agreement with the stadium for another 3 years. Similarly, On Location signed a 5 year extension in 2023 with the NCAA for the men's and women's final four. Pivoting to our representation segment, WME delivered solid financial performance last year despite the industry headwinds from the WGA and SAG AFTRA strikes and executed a series of strategic tuck in acquisitions that strengthened and extended our representation capabilities in the attractive literary, country music, and sports markets. In film and TV, WME clients were involved in 6 of the top 10 grossing films at the domestic box office, including Christopher Nolan's critically acclaimed Oppenheimer, which landed in the top 3. WME was responsible for arranging the essential casting and creative elements for nearly 300 scripted series on broadcast, cable and streaming channels, including Emmy Award winners, The Bear and Succession.

Speaker 1

In music, WME clients headlined major festivals throughout 2023, including 25 artists at Coachella and 59 at Lollapalooza. Our leading presence in country music and in Nashville was also on full display at the 2023 CMAs, where WME clients took home trophies in 8 of the 12 categories. In sports, WME continues to gain momentum with player signings across all the major sports as well as coaching and broadcasting. During the year, our teams negotiated over 1,100,000,000 in NFL contracts with more than $700,000,000 guaranteed, including the highest paying offensive and defensive player contracts in NFL history. And as women's sports continue to grow, WME is stride for stride representing more highest paid female athletes of 2023 than any other agency.

Speaker 1

Additionally, WME represented the most lottery picks in the NBA draft, more than any other agency. During the year, WME also executed more than 4,000 brand partnerships deals, signed more than 75 new clients in the podcasting space and closed more than 100 audio deals with major podcast networks. WME also closed deals for more than 300 new books with 48 books debuting on the New York Times bestseller list. In addition to the agency, our representation segment includes the consumer product licensing business of IMG, which ranked number 1 for the 5th year in a row in License Global's Top Global Licensing Agents 2023 report and 16090, our cultural marketing agency, whose major clients include multiple Fortune 500 brands, including Amazon, Marriott, USAA and Visa. 16090's relationship with Anheuser Busch also led to UFC's new multiyear marketing partnership that features Bud Light as the official beer partner of the UFC in the U.

Speaker 1

S. Turning next to our Sports Data and Technology segment. During the Q4, OpenBet and IMG Arena secured notable wins, including significant partnerships with renowned betting and gaming operators and global data and streaming rights deals. I'll share 2 examples. 1st, OpenBet commenced a long term partnership with Finland's government owned betting operator, Bikhaus, that will see OpenBet's technology power their sportsbook platform, expanding the operator's online and retail betting operations.

Speaker 1

Finland stands out as a key growth opportunity in the European sports betting landscape. This launch in Finland follows major geographic wins for OpenBet in 2023 across Greece, Germany, Czech Republic and Canada with Australia and Brazil in focus for 2024. And in data and rights, IMG Arena extended and augmented our partnerships with Roland Garros in Wimbledon and doubled our data portfolio in soccer to over 23,000 annual events. Throughout the year, IMG Arena also saw significant growth in their streaming portfolio, which now sits at 50,000 events annually. All told, Endeavor's businesses showed both strength and resilience in 2023 with an already strong start to 2024 for WME, including more award wins than any other agency at the Emmy's and Grammys, and on location hosting more than 15,000 guests at this month's Super Bowl in Las Vegas, I am encouraged and optimistic about Endeavour's year ahead.

Speaker 1

With that, I'll turn things over to Jason.

Speaker 2

Thanks, Ari, and good morning, everyone. I'll start by walking you through our financial results for the Q4 and full year. All comparisons will be to the Q4 and full year of 2022. For the quarter ended December 31, 2023, we generated $1,580,000,000 in consolidated revenue, up $322,300,000 or 26 percent. Adjusted EBITDA for the Q4 was $292,800,000 up $53,200,000 or 22%.

Speaker 2

For the full year, revenue was $5,960,000,000 up $692,000,000 year over year or 13% and adjusted EBITDA was $1,216,000,000 up $52,000,000 year over year or 5%. Net loss for the Q4 was $29,300,000 compared to a net loss of $225,700,000 a year ago. For the year, net income was $557,500,000 compared to a net income of $321,700,000 a year ago. Now I'll walk you through each of our segments. Our Owned Sports Property segment generated revenue of $642,800,000 in the 4th quarter, up $341,300,000 or 113 percent.

Speaker 2

While the segment's adjusted EBITDA for the quarter was $224,700,000 up $82,300,000 or 58%. On the year, the segment generated $1,820,000,000 in revenue, up $483,500,000 or 36 percent and adjusted EBITDA of $827,000,000 up $178,900,000 or 28%. Segment revenue growth in the year was primarily driven by the acquisition of WWE, which contributed $383,000,000 in the period from September 12 to December 31, 2023, as well as growth at U of T including: higher media rights and content fees from contractual increases, increased live event revenue due to 5 more events with live audiences, one additional pay per view events and growth in partnerships from new categories and contractual increases. Now turning to Events, Experiences and Rights. The segment recorded revenue of $414,500,000 in the quarter, down $35,000,000 or 8 percent and adjusted EBITDA of $13,700,000 down $17,000,000 or 55%.

Speaker 2

On the year, segment revenue was $2,200,000,000 down $18,900,000 and adjusted EBITDA was $228,100,000 down $66,700,000 or 23%. The decrease in segment revenue in the year was primarily due to the sale of the IMG Academy and a decrease in on locations music touring business. These impacts were partially offset by growth from new and existing events across our portfolio, the timing of biennial and quadrennial events which occurred in 2023 and increases in sports production. Segment adjusted EBITDA for the year was adversely affected by the sale of IMG Academy as well as certain factors at on location which we anticipated, including increased IoT investment and a challenging comparison driven by location and matchup for the 2023 Super Bowl in Arizona versus 2022 in Los Angeles. Moving on to our Representation segment.

Speaker 2

Revenue in the quarter was $427,400,000 up $18,900,000 or 5%. Segment adjusted EBITDA in the quarter was 103,400,000 dollars down $20,500,000 or 17%. For the full year, Representation segment revenue was 1,540,000,000 up $32,300,000 or 2 percent and adjusted EBITDA was $391,100,000 down $79,000,000 or 17%. While segment revenue growth in the year was adversely impacted by the WGA and SAG AFTRA strikes, It was more than offset by growth from our other businesses in our Representation segment. On the year, segment adjusted EBITDA was adversely affected by the dual strikes in the revenue mix in our Representation segment.

Speaker 2

In addition, the agency incurred higher cost as we increase agent headcount, particularly in strategic growth verticals, including sports and music. Now turning to our Sports Data and Technology segment. Revenue in the quarter was 113.6 $1,000,000 up $5,200,000 or 5%. Segment adjusted EBITDA in the quarter was 20,500,000 dollars down 1,100,000 or 5%. For the full year, segment revenue was 469,800,000 dollars up $209,300,000 or 80 percent and adjusted EBITDA was $62,700,000 up $15,000,000 or 31%.

Speaker 2

Segment revenue growth in the year was attributed to the inclusion of Open Bet for the full year as well as growth in betting data and streaming at IMG Arena across a widening portfolio. Segment adjusted EBITDA in the year benefited from the inclusion of Open Bet, partially offset by higher rights costs at IMG Arena. Moving on to our capital structure. We ended the year with $5,030,000,000 in debt and $1,170,000,000 in cash, resulting in $3,89,000,000 in net debt. At year end, our net leverage was approximately 3.2 times.

Speaker 2

As we are in the midst of a strategic alternatives review, we will not be initiating annual guidance estimates for 2024. That said, I want to provide an update for 2024 and share our areas of focus for the year. Within OSP, we anticipate continued progress integrating TKO as we leverage our flywheel to create synergies and further unlock value. We expect growth to be driven by continued strength in live events, growth from partnerships and renewals of licensing agreements for UFC content in certain international markets. TKA was also focused on driving enhancements to ticketing yield across live events and securing site fees in key markets.

Speaker 2

At PBR, we've expanded our team series heading into its 3rd season with teams in Brooklyn and Oklahoma City, which sold for $22,500,000

Operator

each.

Speaker 2

Related to our Events Experience and Rights segment, we remain focused on executing on our investment in On Location's IOC initiative. We also believe the favorable location and match up from the recent Super Bowl in Las Vegas will benefit results for On Location. We expect continued growth from our own events such as Barrett Jackson, the Miami Open, Madrid Open as well as from our Freeze events and Hyde Park Winter Wonderland. At IMG's Media business, we're focused on deepening client relationships within our rights portfolio and expanding sports production globally as the world's leading integrated solution for sports ride holders and federations. Within our Representation segment, we expect growth in our agency business driven by the continued post strike recovery of the TV and film industry as well as in our sports and music divisions.

Speaker 2

We also expect continued growth at 1 6 Super 90 as brands seek unique ways to be culturally relevant. As one example, with the Summer Olympic Games ahead, momentum is beginning to pick up across brand partnerships and experiential activations in the U. S. And EMEA. For Sports Data and Technology, we are focused on optimizing our products and services and driving operating efficiencies as the market for betting data and streaming rights remains competitive.

Speaker 2

Our offerings in this space are diversified and well positioned to capitalize on global growth trends, especially around regulation and regulating markets. This is evidenced by Open Bet's expansion into responsible gaming solutions through its acquisition of Nekton. In the U. S, 37 states in DC now have legal and operational sports betting. And according to the American Gaming Association, nationwide sports betting revenue grew by 44% year over year in 2023.

Speaker 2

Looking across the U. S. And internationally, we're confident we have the right asset combination to provide value added tuitions to our customers. As one example, Brazil's regulatory environment is rapidly advancing and we are well positioned as this market opens. Overall, we remain focused on executing our strategy and maintaining momentum through the year.

Speaker 2

With that, this concludes our Q4 and full year 2023 earnings call. Thank you.

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