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INCOME TAXES
 9 Months Ended
Sep. 30, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES
15.
INCOME TAXES

EGH was incorporated as a Delaware corporation in January 2019. It was formed as a holding company for the purpose of completing an IPO and other related transactions. As the sole managing member of Endeavor Manager, which is the sole managing member of EOC, EGH operates and controls all the business and affairs of EOC, and through EOC and its subsidiaries, conducts the Company’s business. EGH is subject to corporate income tax on its share of taxable income or loss of EOC derived through Endeavor Manager. EOC is treated as a partnership for U.S. federal income tax purposes and is therefore not subject to U.S. corporate income tax. However, certain of EOC’s subsidiaries are subject to U.S. or foreign corporate income tax. In addition, TKO, which is a consolidated subsidiary of EGH, is subject to corporate income tax.

In accordance with Accounting Standards Codification Topic 740, each interim period is considered integral to the annual period and tax expense is generally determined using an estimate of the annual effective income tax rate ("AETR"). The Company records income tax expense each quarter using the estimated AETR to provide for income taxes on a current year-to-date basis, adjusted for discrete items, if any, that are noted in the relevant period. In accordance with the authoritative guidance for accounting for income taxes in interim periods, the Company computed its income tax provision for the three and nine months ended September 30, 2024 and 2023 based upon the AETR. The nine months ended September 30, 2024 also includes a discrete item for the Zuffa legal settlement (Note 18).

The provision for income taxes from continuing operations for the three months ended September 30, 2024 and 2023 is $113.8 million and $20.9 million, respectively, based on pretax loss of $(67.3) million and $(93.4) million, respectively. The continuing operations effective tax rate is (169.0)% and (22.3)% for the three months ended September 30, 2024 and 2023, respectively. The tax expense from continuing operations for the three months ended September 30, 2024 is primarily due to the effects of reporting discontinued operations, effects related to the Company's mix of earnings, and foreign withholding taxes not based on income, resulting in a negative AETR. For the same period in 2023, the tax expense from continuing operations is primarily due to a dividend received from a subsidiary, the effects related to the Company's mix of earnings, and the acquisition of WWE in 2023.

The (benefit from) provision for income taxes from continuing operations for the nine months ended September 30, 2024 and 2023 is $(93.1) million and $195.5 million, respectively, based on pretax (loss) income of $(373.5) million and $806.1 million, respectively. The continuing operations effective tax rate is 24.9% and 24.3% for the nine months ended September 30, 2024 and 2023, respectively. The tax benefit from continuing operations for the nine months ended September 30, 2024 is primarily due to the Zuffa legal settlement of $375.0 million that resulted in a $77.7 million discrete benefit, the effects of reporting discontinued operations, effects related to the Company's mix of earnings, and foreign withholding taxes not based on income, resulting in a negative AETR. For the same period in 2023, the tax expense from continuing operations is primarily driven by the gain on sale of the Academy.

Any tax balances reflected on the September 30, 2024 balance sheet will be adjusted accordingly to reflect the actual financial results for the year ending December 31, 2024.

The Company’s effective tax rate differs from the U.S. federal statutory rate primarily due to state and local income taxes, withholding taxes in foreign jurisdictions that are not based on net income, and income subject to tax in foreign jurisdictions which differ from the U.S. federal statutory income tax rate.

As of September 30, 2024 and December 31, 2023, the Company had unrecognized tax benefits of $56.0 million and $50.9 million, respectively, for which it is unable to make a reasonable and reliable estimate of the period in which these liabilities will be settled with the respective tax authorities.

The Company records valuation allowances against its net deferred tax assets when it is more likely than not that all, or a portion, of a deferred tax asset will not be realized. The Company evaluates the realizability of its deferred tax assets by assessing the likelihood that its

deferred tax assets will be recovered based on all available positive and negative evidence, including historical results, reversals of deferred tax liabilities, estimates of future taxable income, tax planning strategies and results of operations.

Discontinued Operations

The (benefit from) provision for income taxes from discontinued operations provision for the three months ended September 30, 2024 and 2023 is $(208.2) million and $9.1 million, respectively, based on pretax (loss) income from discontinued operations of $(442.1) million and $10.1 million, respectively. The discontinued operations effective tax rate is 47.1% and 90.1% for the three months ended September 30, 2024 and 2023, respectively. The provision for income taxes from discontinued operations for the nine months ended September 30, 2024 and 2023 is $(24.0) million and $10.4 million, respectively, based on pretax (loss) income from discontinued operations of $(710.7) million and $8.9 million, respectively. The effective tax rate is 3.4% and 116.4% for the nine months ended September 30, 2024 and 2023, respectively. The (benefit from) provision for income taxes from discontinued operations reflects the application of the "with and without" approach to allocating income taxes between continuing and discontinued operations consistent with the general intraperiod tax allocation requirements.

Other Matters

On August 16, 2022, the United States enacted the Inflation Reduction Act of 2022 ("IRA"). The IRA, in addition to other provisions, creates a 15% corporate alternative minimum tax ("CAMT") on adjusted financial statement income for applicable corporations. The CAMT is effective for tax years beginning after December 31, 2022. For the three and nine months ended September 30, 2024 and the year ended December 31, 2023, the Company is not subject to CAMT and will continue to assess the potential tax effects of the CAMT on the Company's consolidated financial statements.

In December 2022, the Organization for Economic Co-operation and Development ("OECD") proposed Global Anti-Base Erosion Rules, which provides for changes to numerous long-standing tax principles including the adoption of a global minimum tax rate of 15% for multinational enterprises ("GloBE rules"). Various jurisdictions have adopted or are in the process of enacting legislation to adopt GloBE rules and other countries are expected to adopt GloBE rules in the future. While changes in tax laws in the various countries in which the Company operates can negatively impact the Company's results of operations and financial position in future periods, the Company's impact related to the adoption of GloBE rules, effective January 1, 2024, was not material to the Company's consolidated financial position. The Company will continue to monitor legislative and regulatory developments in this area.

Tax Receivable Agreement

In connection with the IPO and related transactions, the Company entered into a TRA with certain persons that held direct or indirect interests in EOC and Zuffa prior to the IPO ("TRA Holders"). The TRA generally provides for the payment by EGH of 85% of the amount of any tax benefits that EGH actually realizes (determined by using certain assumptions), or in some cases is deemed to realize, as a result of the following attributes: (i) increases in EGH’s share of the tax basis in the net assets of EOC resulting from any redemptions or exchanges of LLC Units, (ii) increases in tax basis attributable to payments made under the TRA, (iii) deductions attributable to imputed interest pursuant to the TRA and (iv) other tax attributes (including existing tax basis) allocated to EGH post-IPO and related transactions that were allocable to the TRA Holders prior to the IPO and related transactions. As of September 30, 2024, the Company has a TRA liability of approximately $869.0 million, after concluding that such TRA payments would be probable based on estimates of future taxable income over the term of the TRA.