Endeavor swung to a big profit in the second quarter thanks to the sale of its IMG Academy business, which will help fuel a stock buyback program and a cash dividend payments at the end of the current quarter.
The parent company of WME, IMG, UFC and other media and sports assets delivered revenue of $1.43 billion in the quarter, up about 8% from the year-ago quarter. Adjusted earnings before interest taxes, depreciation and amortization totaled $304.9 million, up slightly from the year-ago mark ($306.4 million). Net income swelled to $666.5 million, from $42.4 million a year ago.
Endeavor is in the process of closing its $21 billion transaction to combine UFC and wrestling giant WWE into a single sports entity that will trade as a separate stock under the ticker symbol TKO. Endeavor will maintain a 51% interest in the combined company and therefore consolidate its earnings.
Endeavor CEO Ari Emanuel faced questioning from analysts later Tuesday on the status and planning for the UFC and WWE union. He was also grilled on how Hollywood’s summer of strikes and shuttered productions are hitting Endeavor’s bottom line in the current quarter and beyond.
“I’ve been through many strikes over my more than 35 years of representing actors, writers and creatives of all types whose livelihoods depend upon the entertainment economy,” Emanuel said during his opening remarks on the quarterly earnings call. “Time and again, our industry has navigated change and now is no exception. As we adjust to new distribution models and technologies, there are real issues to work through and we continue to stand with our clients advocate on their behalf and push for a resolution that protects their creative and commercial interests.”
CFO Jason Lublin stated, in regards to how the Hollywood strikes will affect the company’s financials moving forward: “This is the first time in 63 years both WGA and SAG-AFTRA are striking simultaneously. We currently estimate the strikes will adversely impact our revenue by approximately $25 million per month on average, which largely flows through to Adjusted EBITDA. However, without knowing the scope, duration and shape of the eventual recovery, especially given that the SAG-AFTRA strike is a relatively new development, having taken effect only on July 14, it would be premature to speculate the aggregate dollar impact for the balance of the calendar year.”
Lublin says Endeavor will provide updates on the Q3 earnings call and provide new guidance targets “when these labor disputes are resolved.”
Emanuel added: “We’re not gonna give guidance for the year. But what I would say is, given what we know now, and noting that the SAG-AFTRA strike is less than 30 days old, and based on our best estimates of the impact of the strike, given what the business has performed to date through the first six months and the fact that the rest of our business is generally aligned — I definitely think that’s a reasonable way to look at the business and to look at our numbers. That being said, we’ll of course update in Q3 as well, to give any changes to that view, or based on actuals for Q3 impact of the strike and anything we’re seeing different. But I think that’s a reasonable basis to look at the business, including up or down events, if these strikes get settled earlier than most people anticipate.”
But according to the Endeavor CEO, it’s going to be “months, not days until the strike gets settled and things start back up,” and then it will take time for productions to resume and pre-production to begin on new projects, meaning a content pipeline impact extending well beyond the end of the strikes.
Emanuel noted “there’s a lot of aspects of agencies that are still operating very well,” pointing to music and Broadway talent clients, “so we want to make sure we’re not doing anything that’s impacting those sides of the business, as well.” But Endeavor is “tight on all controls,” and “efficiencies is the word of the moment,” so he is open to “pruning our portfolio, or just freezing hiring and T&E,” if needed to cut costs during the strikes.
Lublin says a bright spot is “we’re just beginning to see now a ramp up in orders for non-scripted,” which will benefit Endeavor in 2024.
In Q1, Endeavor guided investors for it to deliver full-year revenue for 2023 of between $5.665 billion and $5.815 billion, and adjusted EBITDA of $1.220 billion to $1.275 billion.
“We delivered solid results this quarter at Endeavor and are closing in on the launch of TKO Group Holdings,” said Emanuel of the company’s Q2 performance in a letter to shareholders. “Our share repurchase plan and dividend payment initiatives will begin in the third quarter, and we remain focused on maintaining prudent capital allocation and delivering long-term sustainable growth for the company.”
Once again, Endeavor’s Owned Sports Properties delivered the largest contribution of adjusted EBITDA, coming in at $179.2 million, up 11% over the year-ago quarter, on revenue of $340.2 million (up 2.5%). UFC delivered higher event and sponsorship revenue compared to the year-ago frame as the league had two more events in the quarter compared to 2022.
Adjusted EBITDA in the Representation segment was down 3.7% to $107.1 million on revenue of $381.1 million (up 6.5%). The Writers Guild of America strike put a dent in WME’s income, the company acknowledged. Events, Experiences and Rights delivered the largest chunk of revenue at $591.1 million (up 4%) but adjusted EDITDA fell 17.3% from the prior-year quarter to $76.6 million.
Jennifer Maas contributed to this story.
(Pictured: UFC fighter Aljamain Sterling of Jamaica celebrates his victory at UFC 288 in May)