S-1 1 d176970ds1.htm S-1 S-1
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As filed with the Securities and Exchange Commission on June 30, 2021.

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Endeavor Group Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   7900   83-3340169
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

 

 

9601 Wilshire Boulevard, 3rd Floor

Beverly Hills, CA 90210

(310) 285-9000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Jason Lublin

Chief Financial Officer

9601 Wilshire Boulevard, 3rd Floor

Beverly Hills, CA 90210

(310) 285-9000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Justin G. Hamill, Esq.

Marc D. Jaffe, Esq.
Ian D. Schuman, Esq.

Benjamin J. Cohen, Esq.

Latham & Watkins LLP

885 Third Avenue
New York, New York 10022
(212) 906-1200

 

Seth Krauss, Esq.

Chief Legal Officer

Robert Hilton, Esq.

Senior Vice President, Associate General Counsel &

Corporate Secretary

Endeavor Group Holdings, Inc.
11 Madison Avenue
New York, NY 10010
(212) 586-5100

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer     ☐    Accelerated filer     ☐
Non-accelerated filer     ☒    Smaller reporting company     ☐
     Emerging growth company     ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of
Securities to be Registered
 

Amount

to be
Registered(1)

 

Proposed

Maximum

Offering Price

Per Share(2)

 

Proposed

Maximum
Aggregate

Offering Price

  Amount of
Registration Fee

Class A common stock, par value $0.00001 per share

 

76,806,172

  $26.91   $2,066,854,089   $225,494

 

 

(1)

In accordance with Rule 416 under the Securities Act of 1933, as amended, this registration statement shall be deemed to cover an indeterminate number of additional shares to be offered or issued from stock splits, stock dividends or similar transactions with respect to the shares being registered.

(2)

In accordance with Rule 457(c) under the Securities Act of 1933, as amended, the proposed maximum aggregate offering price per share of these shares of Class A common stock is estimated solely for the calculation of the registration fees due for this filing. The calculation of the proposed aggregate offering price of these shares of Class A common stock is based on the average of the high and low selling price of the Class A common stock as quoted on the New York Stock Exchange on June 29, 2021.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated June 30, 2021.

Prospectus

 

 

 

LOGO

 

 

 

Class A Common Stock    76,806,172 Shares

 

 

This prospectus relates to the resale of up to 76,806,172 shares of our Class A common stock by the selling stockholders named in this prospectus or their permitted transferees. We are registering the shares for resale pursuant to such stockholders’ registration rights under a subscription agreement between us and such stockholders. Subject to any contractual restrictions on them selling the shares of our Class A common stock they hold, the selling stockholders may offer, sell or distribute all or a portion of their shares of our Class A common stock publicly or through private transactions at prevailing market prices or at negotiated prices. We will not receive any of the proceeds from the sale of the shares of our Class A common stock owned by the selling stockholders. We will bear all costs, expenses and fees in connection with the registration of these shares of our Class A common stock, including with regard to compliance with state securities or “blue sky” laws. The selling stockholders will bear all commissions and discounts, if any, attributable to their sale of shares of our Class A common stock.

See “Plan of Distribution” beginning on page 186 of this prospectus.

 

 

INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE “RISK FACTORS” BEGINNING ON PAGE 9 OF THIS PROSPECTUS AND ANY SIMILAR SECTION CONTAINED IN ANY APPLICABLE PROSPECTUS SUPPLEMENT TO READ ABOUT CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN OUR SECURITIES.

We currently conduct our business through Endeavor Operating Company and its subsidiaries. Endeavor Group Holdings manages and operates the business and controls the strategic decisions and day-to-day operations of Endeavor Operating Company through Endeavor Manager and includes the operations of Endeavor Operating Company in our consolidated financial statements.

Endeavor Group Holdings, Inc. has five classes of authorized common stock: Class A common stock, Class B common stock, Class C common stock, Class X common stock, and Class Y common stock. The Class A common stock and the Class X common stock have one vote per share. The Class Y common stock has 20 votes per share. The Class B and Class C common stock is non-voting. Our Chief Executive Officer, Ariel Emanuel, and our Executive Chairman, Patrick Whitesell, and their affiliates, together with affiliates of Silver Lake, hold a majority of our issued and outstanding Class Y common stock and Class X common stock and, as a group, control more than a majority of the combined voting power of our common stock. As a result, they are able to control any action requiring the general approval of our stockholders, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and by-laws, and the approval of any merger or sale of substantially all of our assets.

We are a “controlled company” under the corporate governance rules of the Exchange applicable to listed companies, and therefore we are permitted to, and we intend to, elect not to comply with certain corporate governance requirements thereunder. See “Management—Controlled Company.”

 

 

Our Class A common stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “EDR”. On June 24, 2021, the last reported sale price of our Class A common stock was $27.32 per share.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

Prospectus dated                      , 2021.


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TABLE OF CONTENTS

 

PROSPECTUS SUMMARY

     3  

THE OFFERING

     8  

RISK FACTORS

     9  

FORWARD-LOOKING STATEMENTS

     43  

USE OF PROCEEDS

     45  

DETERMINATION OF OFFERING PRICE

     46  

DIVIDEND POLICY

     47  

UNAUDITED PRO FORMA FINANCIAL INFORMATION

     48  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

     59  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     62  

BUSINESS

     105  

MANAGEMENT

     120  

EXECUTIVE COMPENSATION

     126  

PRINCIPAL STOCKHOLDERS

     161  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     167  

DESCRIPTION OF CAPITAL STOCK

     180  

PLAN OF DISTRIBUTION

     186  

LEGAL MATTERS

     189  

EXPERTS

     190  

WHERE YOU CAN FIND MORE INFORMATION

     191  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

 

 

 


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ABOUT THIS PROSPECTUS

Neither we nor the selling stockholders have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus, any applicable prospectus supplement or any free writing prospectuses prepared by or on behalf of us or to which we have referred you. Neither we nor the selling stockholders take any responsibility for, nor provide any assurance as to the reliability of, any other information that others may give you. Neither we nor the selling stockholders will make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.

 

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INDUSTRY AND MARKET DATA

Industry and market data used throughout this prospectus were obtained through Company research, surveys and studies conducted by third parties and industry and general publications. Certain information contained under the heading “Business” is based on studies, analyses, and surveys prepared by AdAge, ActionNetwork, Activate, Inc., the American Gaming Association, Ampere Analysis, Billboard, The Business Research Company, the Bureau of Economic Analysis, The Center for Generational Kinetics, LLC, Expedia, Forbes, H2 Global, License Global, Licensing International, the Organization for Economic Co-operation and Development (the “OECD”), Technavio, and the University of Texas at Austin. While we are not aware of any misstatements regarding the industry data presented herein, estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the headings “Risk Factors” and “Forward-Looking Statements.”

TRADEMARKS

This prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

DEFINITIONS

As used in this prospectus, unless we state otherwise or the context otherwise requires:

 

   

“we,” “us,” “our,” “Endeavor,” the “Company,” and similar references refer (a) after giving effect to the Reorganization Transactions, to Endeavor Group Holdings and its consolidated subsidiaries, and (b) prior to giving effect to the Reorganization Transactions, to Endeavor Operating Company and its consolidated subsidiaries.

 

   

“Endeavor Catch-Up Profits Units” refer to the Endeavor Full Catch-Up Profits Units and the Endeavor Partial Catch-Up Profits Units.

 

   

“Endeavor Full Catch-Up Profits Units” refer to the Endeavor Profits Units that were designated as “catchup” units. Endeavor Full Catch-Up Profits Units had a per unit hurdle price and were entitled to receive a preference on distributions once the hurdle price applicable to such unit was met. Since our May 2021 IPO, we have achieved a price per share that would have fully satisfied such preference on distributions, and the Endeavor Full Catch-Up Profits Units were converted into Endeavor Operating Company Units.

 

   

“Endeavor Group Holdings” refers to Endeavor Group Holdings, Inc. (“EGH”).

 

   

“Endeavor Manager” refers to Endeavor Manager, LLC, a Delaware limited liability company and a direct subsidiary of Endeavor Group Holdings following the Reorganization Transactions.

 

   

“Endeavor Manager Units” refers to the common interest units in Endeavor Manager.

 

   

“Endeavor Operating Company” refers to Endeavor Operating Company, LLC, a Delaware limited liability company (“EOC”) and a direct subsidiary of Endeavor Manager’s and indirect subsidiary of ours following the Reorganization Transactions.

 

   

“Endeavor Operating Company Units” refers to all of the existing equity interests in Endeavor Operating Company (other than the Endeavor Profits Units) that were reclassified into Endeavor Operating Company’s non-voting common interest units upon the consummation of the Reorganization Transactions.

 

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“Endeavor Partial Catch-Up Profits Units” refer to the Endeavor Profits Units that were designated as “catchup” units. Endeavor Partial Catch-Up Profits Units had a per unit hurdle price and were entitled to receive a preference on distributions once the hurdle price applicable to such unit was met. Since our May 2021 IPO, we have achieved a price per share that would have fully satisfied such preference on distributions, and the Endeavor Partial Catch-Up Profits Units were converted into Endeavor Profits Units (without any such preference) with a reduced per unit hurdle price to take into account such prior preference.

 

   

“Endeavor Phantom Units” refers to the phantom units outstanding, which, subject to certain conditions and limitations, entitle the holder to cash equal to the value of a number of Endeavor Manager Units, Endeavor Operating Company Units, or Endeavor Profits Units, or of equity settled to the equivalent number of Endeavor Manager Units, Endeavor Operating Company Units, or Endeavor Profits Units.

 

   

“Endeavor Profits Units” refers to the profits units of Endeavor Operating Company and that are economically similar to stock options. Each outstanding Endeavor Profits Unit has a per unit hurdle price, which is economically similar to the exercise price of a stock option.

 

   

“Executive Holdcos” refers to Endeavor Executive Holdco, LLC, Endeavor Executive PIU Holdco, LLC, and Endeavor Executive II Holdco, LLC, each a management holding company, the equity owners of which include current and former senior officers, employees, or other service providers of Endeavor Operating Company, and which are controlled by Messrs. Emanuel and Whitesell.

 

   

“Reorganization Transactions” refers to the internal reorganization completed in connection with our May 2021 initial public offering, following which Endeavor Group Holdings manages and operates the business and control the strategic decisions and day-to-day operations of Endeavor Operating Company through Endeavor Manager and includes the operations of Endeavor Operating Company in its consolidated financial statements.

Presentation of Financial Information

Endeavor Operating Company, LLC is the predecessor of the issuer, Endeavor Group Holdings, Inc., for financial reporting purposes. Endeavor Group Holdings, Inc. became the financial reporting entity following our May 2021 initial public offering. Accordingly, this prospectus contains the following historical financial statements:

 

   

Endeavor Group Holdings, Inc. Other than the audited balance sheets as of December 31, 2020 and 2019 and the unaudited balance sheet as of March 31, 2021, the historical financial information of Endeavor Group Holdings, Inc. has not been included in this prospectus as it has no business transactions or activities until the closing of our initial public offering in May 2021 other than those incidental to its formation and preparation for our initial public offering. Endeavor Group Holdings, Inc. had no other assets or liabilities during the periods presented in this prospectus prior to the consummation of our May 2021 initial public offering.

 

   

Endeavor Operating Company, LLC. As we have no other interest in any operations other than those of Endeavor Operating Company, LLC and its subsidiaries, the historical consolidated financial information included in this prospectus is that of Endeavor Operating Company, LLC and its subsidiaries.

The unaudited pro forma financial information of Endeavor Group Holdings, Inc. presented in this prospectus has been derived by the application of pro forma adjustments to the historical consolidated financial statements of Endeavor Operating Company, LLC and its subsidiaries included elsewhere in this prospectus. See “Unaudited Pro Forma Financial Information” for a complete description of the adjustments and assumptions underlying the pro forma financial information included in this prospectus.

 

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PROSPECTUS SUMMARY

Our Company

Endeavor is a premium intellectual property, content, events, and experiences company. We own and operate premium sports properties, including the UFC, produce and distribute sports and entertainment content, own and manage exclusive live events and experiences, and represent top sports and entertainment talent, as well as blue chip corporate clients. Founded as a client representation business, we expanded organically and through strategic mergers and acquisitions, investing in new capabilities, including sports operations and advisory, events and experiences management, media production and distribution, brand licensing, and experiential marketing. The addition of these new capabilities and insights transformed our business into an integrated global platform anchored by owned and managed premium intellectual property.

We believe that our unique business model gives us a competitive advantage in the industries in which we operate. Our direct ownership of scarce sports properties positions us to directly benefit from the generally rising value of sports assets, while giving us direct control to make decisions that sustain the long-term value of our properties. Our dual role as an intellectual property owner and as a trusted advisor to clients and rights holders allows us to make connections across our platform, increasing the earnings of our clients and the value of our sports and entertainment properties. We possess category leading capabilities in various industries, each of which contributes to our financial success. The integration of our broad range of capabilities, along with our owned and managed premium sports and entertainment properties, drives network effects across our platform. We measure these effects by evaluating the impact that activity in one business segment has on growth in another. Our management team has successfully executed a mergers and acquisitions and organic-driven growth strategy that has transformed our business from a pure representation model to an integrated global platform. After we founded Endeavor in 1995, we gained scale in representation by merging with the venerable William Morris Agency to form WME in 2009, which was followed by our acquisition of IMG in 2014, adding marketing and licensing, events, media production and distribution, and the sports training institution, IMG Academy. The acquisition of a controlling interest in the UFC in 2016 served as a major step forward in the transformation of our business. We have also built businesses primarily organically that take advantage of our unique role within the sports and entertainment ecosystem.

Recent Developments

Acquisitions

On April 1, 2021, we entered into a Share Purchase Agreement (the “FlightScope Purchase Agreement”), to acquire all of the issued and outstanding equity interests of EDH Tennis Limited, the holding company of FlightScope Services sp. z o.o., comprising the services business of FlightScope (collectively, the “FlightScope Services Business”) and simultaneously closed the acquisition. Pursuant to the FlightScope Purchase Agreement, we acquired the FlightScope Services Business for an aggregate cash purchase price of approximately $60 million (approximately $35 million was paid upfront as initial consideration, and the remainder will be paid as deferred consideration in two installments in 2022 and 2024). The FlightScope Services Business is a data collection, audio-visual production and tracking technology specialist for golf and tennis events.

On January 14, 2021, we entered into a Membership Interests Purchase Agreement (the “Reigning Champs Purchase Agreement”), to acquire the path-to-college business of Reigning Champs, LLC (“Reigning Champs”), which acquisition closed on June 1, 2021. Pursuant to the Reigning Champs Purchase Agreement, we acquired all of the issued and outstanding membership interests or other equity securities of all of the subsidiaries within the path-to-college business of Reigning Champs (collectively, the “Reigning Champs PTC Business”) for an aggregate cash purchase price of approximately $200 million. We refer to this acquisition of the Reigning Champs PTC Business as the “Reigning Champs Acquisition.” The Reigning Champs PTC Business consists of companies that offer recruiting and admissions services and related software products to high school student athletes, as well as college athletic departments and admissions officers.


 

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Senior Credit Facilities

On April 19, 2021, the Company entered into an amendment to the credit agreement governing the Credit Facilities (as defined below) to, among other things, waive the financial covenant for the test periods ending June 30, 2021, September 30, 2021 and December 31, 2021. In addition, the amendment also extended the maturity date of the Revolving Credit Facility to May 18, 2024.

On June 29, 2021, we reduced our debt under our Senior Credit Facilities (as defined below) by $600 million, consisting of repayment of (i) approximately $180 million first lien term loans under the UFC Credit Facilities (as defined below), (ii) approximately $163 million under the Revolving Credit Facility and (iii) approximately $257 million incremental term loans issued in May 2020 under the Credit Facilities.

Learfield Investment

On June 17, 2021, we acquired additional common units in A-L Tier 1 LLC (“Learfield IMG College”) for aggregate consideration having a value equal to $109.1 million. We will continue to account for our Learfield IMG College investment under the equity method of accounting.

IPO, Private Placement and UFC Buyout

On May 3, 2021, Endeavor Group Holdings, Inc. (“EGH”) closed an initial public offering (“IPO”) of 24,495,000 shares of Class A common stock at a public offering price of $24.00 per share, which included 3,195,000 shares of Class A common stock issued pursuant to the underwriters’ option to purchase additional shares of Class A common stock. This option to purchase additional shares of Class A common stock was closed on May 12, 2021.

Prior to the closing of the IPO, a series of Reorganization Transactions (the “Reorganization Transactions”) was completed:

 

   

EGH’s certificate of incorporation was amended and restated to, among other things, provide for the following common stock:

 

Class of Common Stock

   Par Value      Votes    Economic Rights

Class A common stock

   $ 0.00001      1    Yes

Class B common stock

   $ 0.00001      None    Yes

Class C common stock

   $ 0.00001      None    Yes

Class X common stock

   $ 0.00001      1    None

Class Y common stock

   $ 0.00001      20    None

 

   

Voting shares of EGH’s common stock will generally vote together as a single class on all matters submitted to a vote of our stockholders;

 

   

Endeavor Manager became the sole managing member of EOC and EGH became the sole managing member of Endeavor Manager;

 

   

Endeavor Manager issued to equityholders of certain management holding companies common interest units in Endeavor Manager Units in Endeavor Manager along with paired shares of its Class X common stock as consideration for the acquisition of Endeavor Operating Company Units held by such management holding companies;

 

   

For certain pre-IPO investors, EGH issued shares of its Class A common stock, Class Y common stock and rights to receive payments under a tax receivable agreement and for certain other pre-IPO investors, EGH issued shares of its Class A common stock as consideration for the acquisition of Endeavor Operating Company Units held by such pre-IPO investors;


 

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For holders of Endeavor Operating Company Units which remained outstanding following the IPO, EGH issued paired shares of its Class X common stock and, in certain instances, Class Y common stock, in each case equal to the number of Endeavor Operating Company Units held and in exchange for the payment of the aggregate par value of the Class X common stock and Class Y common stock received; and

 

   

Certain Endeavor Profits Units, Endeavor Full Catch-Up Profits Units and Endeavor Partial Catch-Up Profits Units remained outstanding.

Concurrent to the closing of the IPO, several new and current investors purchased in the aggregate 75,584,747 shares of Class A common stock at a price per share of $24.00 (the “Private Placement”). Of these shares, 57,378,497 were purchased from EGH and 18,206,250 were purchased from an existing investor. Net proceeds received by EGH from the IPO and the Private Placement, after deducting underwriting discounts and commissions but before deducting offering expenses was approximately $1,901.5 million.

Subsequent to the closing of the IPO and the Private Placement, through a series of transactions, EOC acquired the equity interests of the minority unitholders of Zuffa, which owns and operates the Ultimate Fighting Championship (the “UFC Buyout”). This resulted in EOC directly or indirectly owning 100% of the equity interests of Zuffa.

In connection with the acquisition of the minority unitholders’ equity interests of Zuffa, (a) EGH issued to certain of such unitholders (or their affiliates) shares of Class A common stock, Endeavor Operating Company Units, Endeavor Manager Units, shares of Class X common stock and/or shares of Class Y common stock, and (b) EGH used $835.7 million of the net proceeds from the IPO and the concurrent Private Placements to purchase Endeavor Operating Company Units from certain of such holders. In addition, some affiliates of those minority unitholders sold Class A Common Stock they received to the Private Placement Investors (as defined below) in the concurrent Private Placement.

Remaining net proceeds after the UFC Buyout were contributed to Endeavor Manager in exchange for Endeavor Manager Units. Endeavor Manager then in turn contributed such net proceeds to Endeavor Operating Company in exchange for Endeavor Operating Company Units.

Upon the IPO, the 2021 Incentive Award Plan became effective with an initial reserve of 21,700,000 shares of Class A common stock. In addition, the following significant equity-based compensation items occurred: (i) 9,400,353 restricted stock units and stock options of EGH were granted to certain directors, employees and other service providers under the 2021 Incentive Award Plan; (ii) modification of certain pre-IPO equity-based awards were made primarily to remove certain forfeiture and discretionary call terms; (iii) the third Zuffa equity value threshold was achieved under the Zuffa future incentive award and EGH granted 520,834 restricted stock units to our Chief Executive Office (“CEO”); (iv) our CEO was granted 2,333,334 time-vesting restricted stock units as well as a performance-based award with a metric based on the increase in our share price; and (v) our Executive Chairman was granted a performance-based award with a metric based on the increase in our share price. The Company is currently assessing the accounting treatment for these items and will record the necessary equity-based compensation charges in the three months ended June 30, 2021, which in the aggregate is expected to be material.

Risks Associated with Our Business

An investment in our Class A common stock involves a high degree of risk. You should carefully consider the risks summarized in the “Risk Factors” section of this prospectus immediately following this prospectus summary, including:

 

   

the COVID-19 pandemic’s significant adverse impact on our business;


 

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changes in public and consumer tastes and preferences and industry trends could reduce demand for our services and content offerings and adversely affect our business;

 

   

our ability to generate revenue from discretionary and corporate spending on entertainment and sports events, such as corporate sponsorships and advertising, is subject to many factors, including many that are beyond our control, such as general macroeconomic conditions;

 

   

we may not be able to adapt to or manage new content distribution platforms or changes in consumer behavior resulting from new technologies;

 

   

because our success depends substantially on our ability to maintain a professional reputation, adverse publicity concerning us, one of our businesses, our clients, or our key personnel could adversely affect our business;

 

   

we depend on the relationships of our agents, managers, and other key personnel with clients across many categories, including television, film, professional sports, fashion, music, literature, theater, digital, sponsorship and licensing;

 

   

our success depends, in part, on our continuing ability to identify, recruit, and retain qualified and experienced agents and managers. If we fail to recruit and retain suitable agents or if our relationships with our agents change or deteriorate, it could adversely affect our business;

 

   

our failure to identify, sign, and retain clients could adversely affect our business;

 

   

the markets in which we operate are highly competitive, both within the United States and internationally;

 

   

we depend on the continued service of the members of our executive management and other key employees, as well as management of acquired businesses, the loss or diminished performance of whom could adversely affect our business

 

   

we depend on key relationships with television and cable networks, satellite providers, digital streaming partners and other distribution partners, as well as corporate sponsors;

 

   

we may be unable to protect our trademarks and other intellectual property rights, and others may allege that we infringe upon their intellectual property rights;

 

   

we are subject to extensive U.S. and foreign governmental regulations, and our failure to comply with these regulations could adversely affect our business;

 

   

we are signatory to certain franchise agreements of unions and guilds and are subject to certain licensing requirements of the states in which we operate. We are also signatories to certain collective bargaining agreements and depend upon unionized labor for the provision of some of our services. Our clients are also members of certain unions and guilds that are signatories to collective bargaining agreements. Any expiration, termination, revocation or non-renewal of these franchises, collective bargaining agreements, or licenses and any work stoppages or labor disturbances could adversely affect our business;

 

   

we have a substantial amount of indebtedness, which could adversely affect our business;

 

   

we are a holding company and our principal asset is our indirect equity interests in Endeavor Operating Company and, accordingly, we are dependent upon distributions from Endeavor Operating Company to pay taxes and other expenses;

 

   

we are required to pay certain of our pre-IPO investors, including certain Other UFC Holders, for certain tax benefits we may claim (or are deemed to realize) in the future, and the amounts we may pay could be significant; and


 

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we are controlled by Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders, whose interests in our business may be different than yours, and our board of directors has delegated significant authority to an Executive Committee and to Messrs. Emanuel and Whitesell.

Corporate Information

We were formed as a Delaware corporation in January 2019. We are a holding company whose principal assets are the Endeavor Manager Units we hold in Endeavor Manager, and have not engaged in any business or other activities except in connection with the Reorganization Transactions and the IPO. Our corporate headquarters are located at 9601 Wilshire Boulevard, 3rd Floor, Beverly Hills, CA 90210, and our telephone number is (310) 285-9000. Our website address is www.endeavorco.com. Information contained on, or that can be accessed through, our website does not constitute a part of this prospectus.


 

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THE OFFERING

 

Issuer

Endeavor Group Holdings, Inc.

 

Shares of Class A Common Stock Offered by the Selling Stockholders

Up to 76,806,172 shares of Class A common stock

 

Use of Proceeds

We will not receive any proceeds from the sale of shares of Class A common stock by the selling stockholders.

 

Market for Class A Common Stock

Our Class A common stock is listed on the NYSE under the symbol “EDR”.

 

Risk Factors

Investing in our Class A common stock involves a high degree of risk. See “Risk Factors” beginning on page 9 of this prospectus for a discussion of factors you should carefully consider before investing in our Class A common stock.

 

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RISK FACTORS

Investing in our Class A common stock involves substantial risks. You should carefully consider the following factors, together with all of the other information included in this prospectus, including under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes included elsewhere in this prospectus, before investing in our Class A common stock. Any of the risk factors we describe below could adversely affect our business, financial condition or results of operations. The market price of our Class A common stock could decline if one or more of these risks or uncertainties develop into actual events, causing you to lose all or part of your investment. We cannot assure you that any of the events discussed below will not occur. While we believe these risks and uncertainties are especially important for you to consider, we may face other risks and uncertainties that could adversely affect our business. Please also see “Forward-Looking Statements” for more information.

Risks Related to Our Business

The impact of the COVID-19 global pandemic could continue to materially and adversely affect our business, financial condition and results of operations.

In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world implemented measures to reduce the spread of COVID-19. Numerous state and local jurisdictions, including in markets where we operate, imposed “shelter-in-place” orders, quarantines, travel restrictions, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Such orders or restrictions resulted in work stoppages, slowdowns and delays, travel restrictions and cancellation of events, among other effects.

These measures began to have a significant adverse impact on our business and operations beginning in March 2020, including in the following ways: the inability to hold live ticketed PBR and UFC events and the early cancellation of the 2019-2020 Euroleague season adversely impacted our Owned Sports Properties segment; the postponement or cancellation of live sporting events and other in-person events adversely impacted our Events, Experiences & Rights segment; stoppages of entertainment productions, including film, television shows, and music events, as well as reduced corporate spending on marketing, experiential and activation, adversely impacted our Representation segment.

While activity has resumed in certain of our businesses and restrictions have been lessened or lifted in some cases, restrictions impacting certain of our businesses remain in effect in locations where we are operating and could in the future be reduced or increased, or removed or reinstated. As a result of this and numerous other uncertainties, including the duration of the pandemic, the effectiveness of mass vaccinations and other public health efforts to mitigate the impact of the pandemic, additional postponements or cancellations of live sporting events and other in-person events, and changes in consumer preferences towards our business and the industries in which we operate, we are unable to accurately predict the full impact of COVID-19 on our business, results of operations, financial position and cash flows; however, its impact may be significant. The ongoing pandemic has had a significant impact on our cash flows from operations. We expect that any recovery will continue to be gradual and that the wider impact on revenue and cash flows will vary, but will generally depend on the factors listed above and the general uncertainty surrounding COVID-19.

As an example, for those live events that resume, attendance may continue at significantly reduced levels throughout 2021, and any resumption may bring increased costs to comply with new health and safety guidelines. Given the ongoing uncertainty, we have taken several steps to preserve capital and increase liquidity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of the COVID-19 Pandemic.” We cannot assure you that such measures and our cash flows from operations, cash and cash equivalents, or cash available under our Senior Credit Facilities (as defined below) will be sufficient to meet our working capital requirements and commitments, including long-term debt service, in the foreseeable future.

 

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We will continue to assess the situation, including abiding by any government-imposed restrictions, market by market. We are unable to accurately predict the ultimate impact that COVID-19 will have on our operations going forward due to the aforementioned uncertainties. We may be unable to accurately predict the impact, operating costs and effectiveness of continuing to adapt certain aspects of our business or restarting certain of our businesses that have not been fully operational during this period, or the future ways in which we will need to adapt our businesses to further changes or consumer behaviors arising out of the pandemic. In addition, any broader global deterioration in economic conditions, which may have an adverse impact on discretionary consumer spending, could also impact our business. For instance, consumer spending may be negatively impacted by general macroeconomic conditions, including a rise in unemployment and decreased consumer confidence resulting from the pandemic. Changing consumer behaviors as a result of COVID-19 may also have a material impact on our revenue for the foreseeable future.

In the past, governments have taken unprecedented actions in an attempt to address and rectify these extreme market and economic conditions by providing liquidity and stability to financial markets. If these actions are not successful, the return of adverse economic conditions may cause a material impact on our ability to raise additional capital, if needed, on a timely basis and on acceptable terms, or at all.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to our liquidity, indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

Changes in public and consumer tastes and preferences and industry trends could reduce demand for our services and content offerings and adversely affect our business.

Our ability to generate revenues is highly sensitive to rapidly changing consumer preferences and industry trends, as well as the popularity of the talent, brands, and owners of IP we represent, and the assets we own. Our success depends on our ability to offer premium content through popular channels of distribution that meet the changing preferences of the broad consumer market and respond to competition from an expanding array of choices facilitated by technological developments in the delivery of content. Our operations and revenues are affected by consumer tastes and entertainment trends, including the market demand for the distribution rights to live sports events, which are unpredictable and may be affected by changes in the social and political climate, or global issues such as the COVID-19 pandemic. Changes in consumers’ tastes or a change in the perceptions of our brands and business partners, whether as a result of the social and political climate or otherwise, could adversely affect our operating results. Our failure to avoid a negative perception among consumers or anticipate and respond to changes in consumer preferences, including in the form of content creation or distribution, could result in reduced demand for our services and content offerings or those of our clients and owned assets across our platform, which could have an adverse effect on our business, financial condition and results of operations.

Consumer tastes change frequently and it is a challenge to anticipate what offerings will be successful at any point in time. We may invest in our content and owned assets, including in the creation of original content, before learning the extent to which it will achieve popularity with consumers. For example, as of December 31, 2020 we have committed to spending approximately $2.2 billion in guaranteed payments for media, event, or other representation rights and similar expenses, regardless of our ability to profit from these rights. Subsequent to December 31, 2020, we have entered into certain new arrangements increasing our purchase/guarantee agreements by $1.3 billion, which will be due in 2021 through 2028. Specifically, our results of operations have been negatively impacted due to the costs associated with acquired media rights to major soccer events in excess of revenue, which will continue to adversely impact our results of operations for the term of certain of these contracts, two of which expired in 2021 and the last expires in 2027. A lack of popularity of these, our other content offerings, or our owned assets, as well as labor disputes, unavailability of a star performer, equipment shortages, cost overruns, disputes with production teams, or adverse weather conditions, could have an adverse effect on our business, financial condition and results of operations.

 

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Our ability to generate revenue from discretionary and corporate spending on entertainment and sports events, such as corporate sponsorships and advertising, is subject to many factors, including many that are beyond our control, such as general macroeconomic conditions.

Our business depends on discretionary consumer and corporate spending. Many factors related to corporate spending and discretionary consumer spending, including economic conditions affecting disposable consumer income such as unemployment levels, fuel prices, interest rates, changes in tax rates, and tax laws that impact companies or individuals and inflation can significantly impact our operating results. While consumer and corporate spending may decline at any time for reasons beyond our control, the risks associated with our businesses become more acute in periods of a slowing economy or recession, which may be accompanied by reductions in corporate sponsorship and advertising and decreases in attendance at live entertainment and sports events, among other things. There can be no assurance that consumer and corporate spending will not be adversely impacted by current economic conditions, or by any future deterioration in economic conditions, thereby possibly impacting our operating results and growth. A prolonged period of reduced consumer or corporate spending, such as those during the COVID-19 pandemic, could have an adverse effect on our business, financial condition, and results of operations.

We may not be able to adapt to or manage new content distribution platforms or changes in consumer behavior resulting from new technologies.

We must successfully adapt to and manage technological advances in our industry, including the emergence of alternative distribution platforms. If we are unable to adopt or are late in adopting technological changes and innovations that other entertainment providers offer, it may lead to a loss of consumers viewing our content, a reduction in revenues from attendance at our live events, a loss of ticket sales, or lower ticket fees. It may also lead to a reduction in our clients’ ability to monetize new platforms. Our ability to effectively generate revenue from new distribution platforms and viewing technologies will affect our ability to maintain and grow our business. Emerging forms of content distribution may provide different economic models and compete with current distribution methods (such as television, film, and pay-per-view (“PPV”)) in ways that are not entirely predictable, which could reduce consumer demand for our content offerings. We must also adapt to changing consumer behavior driven by advances that allow for time shifting and on-demand viewing, such as digital video recorders and video-on-demand, as well as internet-based and broadband content delivery and mobile devices. If we fail to adapt our distribution methods and content to emerging technologies and new distribution platforms, while also effectively preventing digital piracy, our ability to generate revenue from our targeted audiences may decline and could result in an adverse effect on our business, financial condition, and results of operations.

Because our success depends substantially on our ability to maintain a professional reputation, adverse publicity concerning us, one of our businesses, our clients, or our key personnel could adversely affect our business.

Our professional reputation is essential to our continued success and any decrease in the quality of our reputation could impair our ability to, among other things, recruit and retain qualified and experienced agents, managers, and other key personnel, retain or attract agency clients or customers, or enter into multimedia, licensing, and sponsorship engagements. Our overall reputation may be negatively impacted by a number of factors, including negative publicity concerning us, members of our management or our agents, managers, and other key personnel. In addition, we are dependent for a portion of our revenues on the relationships between content providers and the clients and key brands, such as sports leagues and federations, that we represent, many of whom are significant public personalities with large social media followings whose actions generate significant publicity and public interest. Any adverse publicity relating to such individuals or entities that we employ or represent, or to our company, including from reported or actual incidents or allegations of illegal or improper conduct, such as harassment, discrimination, or other misconduct, could result in significant media attention, even if not directly relating to or involving Endeavor, and could have a negative impact on our professional reputation. This could result in termination of licensing or other contractual relationships, or our

 

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employees’ ability to attract new customer or client relationships, or the loss or termination of such employees’ services, all of which could adversely affect our business, financial condition, and results of operations. Our professional reputation could also be impacted by adverse publicity relating to one or more of our owned or majority owned brands, events, or businesses.

We depend on the relationships of our agents, managers, and other key personnel with clients across many categories, including television, film, professional sports, fashion, music, literature, theater, digital, sponsorship and licensing.

We depend upon relationships that our agents, managers, and other key personnel have developed with clients across many content categories, including, among others, television, film, professional sports, fashion, music, literature, theater, digital, sponsorship, and licensing. The relationships that our agents, managers, and other key personnel have developed with studios, brands, and other key business contacts help us to secure access to sponsorships, endorsements, professional contracts, productions, events, and other opportunities for our clients. Due to the importance of those industry contacts to us, a substantial deterioration in these relationships, or substantial loss of agents, managers, or other key personnel who maintain these relationships, could adversely affect our business. In particular, our client management business is dependent upon the highly personalized relationships between our agent and manager teams and their respective clients. A substantial deterioration in the team managing a client may result in a deterioration in our relationship with, or the loss of, the clients represented by that agent or manager. The substantial loss of multiple agents or managers and their associated clients could have an adverse effect on our business, financial condition, and results of operations. Most of our agents, managers, and other key personnel are not party to long-term contracts and, in any event, can leave our employment with little or no notice. We can give no assurance that all or any of these individuals will remain with us or will retain their associations with key business contacts.

Our success depends, in part, on our continuing ability to identify, recruit, and retain qualified and experienced agents and managers. If we fail to recruit and retain suitable agents or if our relationships with our agents change or deteriorate, it could adversely affect our business.

Our success depends, in part, upon our continuing ability to identify, recruit, and retain qualified and experienced agents and managers. There is great competition for qualified and experienced agents and managers in the entertainment and sports industry, and we cannot assure you that we will be able to continue to hire or retain a sufficient number of qualified persons to meet our requirements, or that we will be able to do so under terms that are economically attractive to us. Any failure to retain certain agents and managers could lead to the loss of sponsorship, multimedia, and licensing agreements, and other engagements and have an adverse effect on our business, financial condition, and results of operations.

Our failure to identify, sign, and retain clients could adversely affect our business.

We derive substantial revenue from the engagements, sponsorships, licensing rights, and distribution agreements entered into by the clients with whom we work. We depend on identifying, signing, and retaining as clients those artists, athletes, models, and businesses whose identities or brands are in high demand by the public and, as a result, are deemed to be favorable candidates for engagements. Our competitive position is dependent on our continuing ability to attract, develop, and retain clients whose work is likely to achieve a high degree of value and recognition as well as our ability to provide such clients with sponsorships, endorsements, professional contracts, productions, events, and other opportunities. Our failure to attract and retain these clients, an increase in the costs required to attract and retain such clients, or an untimely loss or retirement of these clients could adversely affect our financial results and growth prospects. We have not entered into written agreements with many of the clients we represent. These clients may decide to discontinue their relationship with us at any time and without notice. In addition, the clients with whom we have entered into written contracts may choose not to renew their contracts with us on reasonable terms or at all or they may breach or seek to terminate these contracts. If any of our clients decide to discontinue their relationships with us, whether they are under a contract

 

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or not, we may be unable to recoup costs expended to develop and promote them and our financial results may be adversely affected. Further, the loss of such clients could lead other of our clients to terminate their relationships with us.

We derive substantial revenue from the sale of multimedia rights, licensing rights, and sponsorships. A significant proportion of this revenue is dependent on our commercial agreements with entertainment and sports events. Our failure to renew or replace these key commercial agreements on similar or better terms could have an adverse effect on our business, financial condition and results of operations.

Our business involves potential internal conflicts of interest and includes our client representation businesses representing both talent and content rights holders and distributors while our content businesses produce content, which may create a conflict of interest.

Increasingly, we must manage actual and potential internal conflicts of interest in our business due to the breadth and scale of our platform. Different parts of our business may have actual or potential conflicts of interest with each other, including our client representation, media production, events production, sponsorship, and content development businesses. Although we attempt to manage these conflicts appropriately, any failure to adequately address or manage internal conflicts of interest could adversely affect our reputation, and the willingness of clients and third parties to work with us may be affected if we fail, or appear to fail, to deal appropriately with actual or perceived internal conflicts of interest, which could have an adverse effect on our business, financial condition, and results of operations.

The markets in which we operate are highly competitive, both within the United States and internationally.

We face competition from a variety of other domestic and foreign companies. We face competition from alternative providers of the content, services, and events we and our clients offer and from other forms of entertainment and leisure activities in a rapidly changing and increasingly fragmented environment. Any increased competition, which may not be foreseeable, or our failure to adequately address any competitive factors, could result in reduced demand for our content, live events, clients, or key brands, which could have an adverse effect on our business, financial condition, and results of operations.

We depend on the continued service of the members of our executive management and other key employees, as well as management of acquired businesses, the loss or diminished performance of whom could adversely affect our business.

Our performance is substantially dependent on the performance of the members of our executive management and other key employees, as well as management of acquired businesses. We seek to acquire businesses that have strong management teams and often rely on these individuals to conduct day-to-day operations and pursue growth. Although we have entered into employment and severance protection agreements with certain members of our senior management team and we typically seek to sign employment agreements with the management of acquired businesses, we cannot be sure that any member of our senior management or management of the acquired businesses will remain with us or that they will not compete with us in the future. The loss of any member of our senior management team could impair our ability to execute our business plan and growth strategy, have a negative impact on our revenues and the effective working relationships that our executive management have developed, and cause employee morale problems and the loss of additional key employees, agents, managers, and clients.

We depend on key relationships with television and cable networks, satellite providers, digital streaming partners and other distribution partners, as well as corporate sponsors.

A key component of our success is our relationships with television and cable networks, satellite providers, digital streaming and other distribution partners, as well as corporate sponsors. We are dependent on maintaining these existing relationships and expanding upon them to ensure we have a robust network with whom we can

 

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work to arrange multimedia rights sales and sponsorship engagements, including distribution of our owned, operated, or represented events. Our television programming for our owned, operated, and represented events is distributed by television and cable networks, satellite providers, PPV, digital streaming, and other media. Because a portion of our revenues are generated, directly and indirectly, from this distribution, any failure to maintain or renew arrangements with distributors and platforms, the failure of distributors or platforms to continue to provide services to us, or the failure to enter into new distribution opportunities on terms favorable to us could adversely affect our business. We regularly engage in negotiations relating to substantial agreements covering the distribution of our television programming by carriers located in the United States and abroad. We have an important relationship with ESPN as they are the exclusive domestic home to all UFC events. We have agreements with multiple PPV providers globally and distribute a portion of our owned, operated, or represented events through PPV, including certain events that are sold exclusively through PPV. Any adverse change in these relationships or agreements or a deterioration in the perceived value of our clients, sponsorships, or these distribution channels could have an adverse effect on our business, financial condition and results of operations.

Owning and managing certain events for which we sell media and sponsorship rights, ticketing and hospitality exposes us to greater financial risk. If the live events that we own and manage are not financially successful, our business could be adversely affected.

We act as a principal by owning and managing certain live events for which we sell media and sponsorship rights, ticketing and hospitality, such as UFC’s events, the Miami Open, the Miss Universe competition, the Professional Bull Riders’ events, and On Location’s experiences. Organizing and operating a live event involves significant financial risk as we bear all or most event costs, including a significant amount of up-front costs. In addition, we typically book our live events many months in advance of holding the event and often agree to pay a fixed guaranteed amount prior to receiving any related revenue. Accordingly, if a planned event fails to occur or there is any disruption in our ability to live stream or otherwise distribute, whether as a result of technical difficulties or otherwise, we could lose a substantial amount of these up-front costs, fail to generate the anticipated revenue, and be forced to issue refunds for media and sponsorship rights, advertising fees, and ticket sales. If we are forced to postpone a planned event, we would incur substantial additional costs in order to stage the event on a new date, may have reduced attendance and revenue, and may have to refund fees. We could be compelled to cancel or postpone all or part of an event for many reasons, including poor weather, issues with obtaining permits or government regulation, performers failing to participate, as well as operational challenges caused by extraordinary incidents, such as terrorist or other security incidents, mass-casualty incidents, natural disasters, public health concerns including pandemics, or similar events. Such incidents have been shown to cause a nationwide disruption of commercial and leisure activities. We often have cancellation insurance policies in place to cover a portion of our losses if we are compelled to cancel an event, but our coverage may not be sufficient and is subject to deductibles. If the live events that we own and manage are not financially successful, we could suffer an adverse effect on our business, financial condition and results of operations.

Our recent acquisitions have caused us to grow rapidly, and we will need to continue to make changes to operate at our current size and scale. We may face difficulty in further integrating the operations of the businesses acquired in our recent transactions, and we may never realize the anticipated benefits and cost synergies from all of these transactions. If we are unable to manage our current operations or any future growth effectively, our business could be adversely affected.

Our recent acquisitions have caused us to grow rapidly, and we may need to continue to make changes to operate at our current size and scale. If we fail to realize the anticipated benefits and cost synergies from our recent acquisitions, or if we experience any unanticipated or unidentified effects in connection with these transactions, including write-offs of goodwill, accelerated amortization expenses of other intangible assets, or any unanticipated disruptions with important third-party relationships, our business, financial condition, and results of operations could be adversely affected. Moreover, our recent acquisitions involve risks and uncertainties including, without limitation, those associated with the integration of operations, financial reporting, technologies and personnel, and the potential loss of key employees, agents, managers, clients,

 

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customers, or strategic partners. Because the integration of the businesses acquired in our recent transactions have and will require significant time and resources, and we may not be able to manage the process successfully, these acquisitions may not be accretive to our earnings and they may negatively impact our results of operations. If our operations continue to grow, we will be required, among other things, to upgrade our management information systems and other processes and to obtain more space for our expanding administrative support and other headquarters personnel. Our continued growth could strain our resources and we could experience operating difficulties, including difficulties in hiring, training, and managing an increasing number of employees. These difficulties could result in the erosion of our brand image and reputation and could have an adverse effect on our business, financial condition, and operating results.

We may be unsuccessful in our strategic acquisitions, investments and commercial agreements, and we may pursue acquisitions, investments or commercial agreements for their strategic value in spite of the risk of lack of profitability.

We face significant uncertainty in connection with acquisitions, investments, and commercial agreements. To the extent we choose to pursue certain commercial, investment, or acquisition strategies, we may be unable to identify suitable targets for these deals, or to make these deals on favorable terms. If we identify suitable acquisition candidates, investments, or commercial partners, our ability to realize a return on the resources expended pursuing such deals, and to successfully implement or enter into them will depend on a variety of factors, including our ability to obtain financing on acceptable terms, requisite governmental approvals, as well as the factors discussed below. Additionally, we may decide to make or enter into acquisitions, investments, or commercial agreements with the understanding that such acquisitions, investments, or commercial agreements will not be profitable, but may be of strategic value to us. Our current and future acquisitions, investments, including existing investments accounted for under the equity method, or commercial agreements may also require that we make additional capital investments in the future, which would divert resources from other areas of our business. We cannot provide assurances that the anticipated strategic benefits of these deals will be realized in the long-term or at all.

We may fail to identify or assess the magnitude of certain liabilities, shortcomings, or other circumstances prior to acquiring a company, making an investment or entering into a commercial agreement and, as such, may not obtain sufficient warranties, indemnities, insurance, or other protections. This could result in unexpected litigation or regulatory exposure, unfavorable accounting treatment, unexpected increases in taxes, a loss of anticipated tax benefits, or other adverse effects on our business, operating results, or financial condition. Additionally, some warranties and indemnities may give rise to unexpected and significant liabilities. Future acquisitions and commercial arrangements that we may pursue could result in dilutive issuances of equity securities and the incurrence of further debt.

Our compliance with regulations may limit our operations and future acquisitions.

We are also subject to laws and regulations, including those relating to antitrust, that could significantly affect our ability to expand our business through acquisitions or joint ventures. For example, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice with respect to our domestic acquisitions and joint ventures, and the European Commission, the antitrust regulator of the European Union (the “E.U.”), with respect to our European acquisitions and joint ventures, have the authority to challenge our acquisitions and joint ventures on antitrust grounds before or after the acquisitions or joint ventures are completed. State agencies, as well as comparable authorities in other countries, may also have standing to challenge these acquisitions and joint ventures under state or federal antitrust law. Our failure to comply with all applicable laws and regulations could result in, among other things, regulatory actions or legal proceedings against us, the imposition of fines, penalties, or judgments against us, or significant limitations on our activities. Multiple or repeated failures by us to comply with these laws and regulations could result in increased fines, actions or legal proceedings against us. Gaming authorities may levy fines against us or seize certain of our assets if we violate gaming regulations. In addition, the regulatory environment in which we operate is subject to

 

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change. New or revised requirements imposed by governmental regulatory authorities could have adverse effects on us, including increased costs of compliance. We also may be adversely affected by changes in the interpretation or enforcement of existing laws and regulations by these governmental authorities.

Our business and operations are subject to a variety of regulatory requirements in the United States and abroad, including, among other things, with respect to labor, tax, import and export, anti-corruption, data privacy and protection and communications monitoring and interception. Compliance with these regulatory requirements may be onerous and expensive, especially where these requirements are inconsistent from jurisdiction to jurisdiction or where the jurisdictional reach of certain requirements is not clearly defined or seeks to reach across national borders. Regulatory requirements in one jurisdiction may make it difficult or impossible to do business in another jurisdiction. We may also be unsuccessful in obtaining permits, licenses or other authorizations required to operate our business. While we have implemented policies and procedures designed to achieve compliance with these laws and regulations, we cannot be sure that we or our personnel will not violate applicable laws and regulations or our policies regarding the same.

We and certain of our affiliates, major stockholders (generally persons and entities beneficially owning a specified percentage (typically 5% or more) of our equity securities), directors, officers, and key employees are also subject to extensive background investigations and suitability standards in our businesses. Our failure, or the failure of any of our major stockholders, directors, officers, key employees, products, or technology, to obtain or retain a required license or approval in one jurisdiction could negatively impact our ability (or the ability of any of our major stockholders, directors, officers, key employees, products, or technology) to obtain or retain required licenses and approvals in other jurisdictions.

We share control in joint venture projects, other investments, and strategic alliances, which limits our ability to manage third-party risks associated with these projects.

We participate in a number of joint ventures, other non-controlling investments, and strategic alliances and may enter into additional joint ventures, investments, and strategic alliances in the future. In these joint ventures, investments, and strategic alliances, we often have shared control over the operation of the assets and businesses. As a result, such investments and strategic alliances may involve risks such as the possibility that a partner in an investment might become bankrupt, be unable to meet its capital contribution obligations, have economic or business interests or goals that are inconsistent with our business interests or goals, or take actions that are contrary to our instructions or to applicable laws and regulations. In addition, we may be unable to take action without the approval of our partners, or our partners could take binding actions without our consent. Consequently, actions by a partner or other third party could expose us to claims for damages, financial penalties, additional capital contributions, and reputational harm, any of which could have an adverse effect on our business, financial condition, and results of operations.

Preparing our financial statements requires us to have access to information regarding the results of operations, financial position, and cash flows of our joint ventures and other investments. Any deficiencies in their internal controls over financial reporting may affect our ability to report our financial results accurately or prevent or detect fraud. Such deficiencies also could result in restatements of, or other adjustments to, our previously reported or announced operating results, which could diminish investor confidence and reduce the market price for our Class A common stock. Additionally, if our joint ventures and other investments are unable to provide this information for any meaningful period or fail to meet expected deadlines, we may be unable to satisfy our financial reporting obligations or timely file our periodic reports.

Our key personnel may be adversely impacted by immigration restrictions and related factors.

Our ability to retain our key personnel is impacted, at least in part, by the fact that a portion of our key personnel in the United States is comprised of foreign nationals who are not United States citizens. In order to be legally allowed to work in the United States, these individuals generally hold immigrant visas (which may or may not be tied to their employment with us) or green cards, the latter of which makes them permanent residents in the United States.

 

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The ability of these foreign nationals to remain and work in the United States is impacted by a variety of laws and regulations, as well as the processing procedures of various government agencies. Changes in applicable laws, regulations, or procedures could adversely affect our ability to hire or retain these key personnel and could affect our costs of doing business and our ability to deliver services to our clients. In addition, if the laws, rules or procedures governing the ability of foreign nationals to work in the United States were to change or if the number of visas available for foreign nationals permitted to work in the United States were to be reduced, our business could be adversely affected, if, for example, we were unable to retain an employee who is a foreign national.

Corresponding issues apply with respect to our key personnel working in countries outside of the United States relating to citizenship and work authorizations. Similar changes in applicable laws, regulations or procedures in those countries could adversely affect our ability to hire or retain key personnel internationally.

The business of our agents and managers and the clients we represent is international in nature and may require them to frequently travel or live abroad. The ability of our key personnel and talent to travel internationally for their work is impacted by a variety of laws and regulations, policy considerations of foreign governments, the processing procedures of various government agencies and geopolitical actions, including war and terrorism, or natural disasters including earthquakes, hurricanes, floods, fires, as well as pandemics, such as the COVID-19 pandemic. In addition, our productions and live events internationally subject us to the numerous risks involved in foreign travel and operations and also subject us to local norms and regulations, including regulations requiring us to obtain visas for our key personnel and, in some cases, hired talent. Actions by the clients we represent that are out of our control may also result in certain countries barring them from travelling internationally, which could adversely affect our business. If our key personnel and talent were prevented from conducting their work internationally for any reason, it could have an adverse effect on our business, financial condition, and results of operations.

We rely on technology, such as our information systems, to conduct our business. Failure to protect our technology against breakdowns and security breaches could adversely affect our business.

We rely on technology, such as our information systems, content distribution systems, ticketing systems, and payment processing systems, to conduct our business. This technology is vulnerable to service interruptions and security breaches from inadvertent or intentional actions by our employees, partners, and vendors, or from attacks by malicious third parties. Such attacks are of ever-increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise, including organized criminal groups, “hacktivists,” nation states, and others. The techniques used to breach security safeguards evolve rapidly, and they may be difficult to detect for an extended period of time, and the measures we take to safeguard our technology may not adequately prevent such incidents.

While we have taken steps to protect our confidential and personal information and that of our clients and other business relationships and have invested in information technology, there can be no assurance that our efforts will prevent service interruptions or security breaches in our systems or the unauthorized or inadvertent wrongful use or disclosure of such confidential information. Such incidents could adversely affect our business operations, reputation, and client relationships. Any such breach would require us to expend significant resources to mitigate the breach of security and to address matters related to any such breach, including the payment of fines. Although we maintain an insurance policy that covers data security, privacy liability, and cyber-attacks, our insurance may not be adequate to cover losses arising from breaches or attacks on our systems. We also may be required to notify regulators about any actual or perceived personal data breach as well as the individuals who are affected by the incident within strict time periods.

Furthermore, we have a large number of operating entities throughout the world and, therefore, operate on a largely decentralized basis. We are also in the process of integrating the technology of our acquired companies. The resulting size and diversity of our technology systems, as well as the systems of third-party vendors with

 

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whom we contract, increase the vulnerability of such systems to breakdowns and security breaches. In addition, we rely on technology at live events, the failure or unavailability of which, for any significant period of time, could affect our business, our reputation and the success of our live events. We also rely on technology to provide our digital offerings, live streaming, and virtual events, which may be vulnerable to hacking, denial of service attacks, human error and other unanticipated problems or events that could result in interruptions in our service and to unauthorized access to, or alteration of, the content and data contained on our systems and those of our third-party vendors. Any significant interruption or failure of the technology upon which we rely, or any significant breach of security, could result in decreased performance and increased operating costs, adversely affecting our business, financial condition, and results of operations.

In addition, our use of social media presents the potential for further vulnerabilities. For instance, we may be subject to boycotts, spam, spyware, ransomware, phishing and social engineering, viruses, worms, malware, DDOS attacks, password attacks, man-in-the-middle attacks, cybersquatting, impersonation of employees or officers, abuse of comments and message boards, fake reviews, doxing, and swatting. While we have internal policies in place to protect against these vulnerabilities, we can make no assurances that we will not be adversely affected should one of these events occur. Additionally, there is an increased risk that we may experience cybersecurity-related events such as COVID-19-themed phishing attacks and other security challenges as a result of most of our employees and our service providers working remotely from non-corporate-managed networks during the ongoing COVID-19 pandemic and potentially beyond.

Unauthorized disclosure of sensitive or confidential client or customer information could harm our business and standing with our clients and customers.

The protection of our client, customer, employee, and other company data is critical to us. We collect, store, transmit, and use personal information relating to, among others, our clients, IMG Academy students, employees, consumers, and event participants. We also collect certain data through our 160 over 90 marketing ventures and our Endeavor Content offerings, which may include a range of talent and production information and data provided to us by our clients. During the COVID-19 pandemic, we also have been collecting certain COVID-related health and wellness information about our employees and others. We rely on commercially available systems, software, tools, and monitoring to provide security for processing, transmission, and storage of confidential client and customer information. Our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, payment card terminal tampering, computer viruses, misplaced, lost or stolen data, programming or human errors, or other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of client or customer information, whether by us or our third-party service providers, could damage our reputation, result in the loss of clients and customers, expose us to risk of litigation and liability or regulatory investigations or actions, disrupt our operations, and harm our business. In addition, as a result of recent security breaches, the media and public scrutiny of information security and privacy has become more intense. As a result, we may incur significant costs to change our business practices or modify our service offerings in connection with the protection of personally identifiable information.

Regulatory action for alleged privacy violations could result in significant fines.

Regulators may impose significant fines for privacy and data protection violations. Our business operations involve the collection, transfer, use, disclosure, security, and disposal of personal or sensitive information in various locations around the world, including the E.U. As a result, our business is subject to complex and evolving U.S. and international laws and regulations regarding privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation and could result in claims, changes to our business practices, penalties, increased cost of operations, or otherwise harm our business. For example, the European Union’s General Data Protection Regulation (“GDPR”) creates requirements for in-scope businesses regarding personal data, broadly defined as information relating to an identifiable person. Non-compliance with the GDPR carries significant monetary penalties of up to the higher of 4% of a company’s worldwide total

 

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revenue or €20 million. However, there can be no assurances that we will be successful in our efforts to comply with the GDPR or other privacy and data protection laws and regulations, or that violations will not occur, particularly given the complexity of both these laws and our business, as well as the uncertainties that accompany new laws. In addition, in June 2018, California passed the California Consumer Privacy Act of 2018 (the “CCPA”), which became operational on January 1, 2020 and imposes significant data privacy and potential statutory damages related to data protection for the data of California residents. The effects of this legislation potentially are far-reaching and may require us to modify our data processing practices and policies and to incur significant costs and expenses in an effort to comply. Further, on November 3, 2020, the California Privacy Rights Act (the “CPRA”) was voted into law by California residents. The CPRA significantly amends the CCPA, and imposes additional data protection obligations on companies doing business in California, including additional consumer rights processes and opt outs for certain uses of sensitive data. It also creates a new California data protection agency specifically tasked to enforce the law, which would likely result in increased regulatory scrutiny of California businesses in the areas of data protection and security. The substantive requirements for businesses subject to the CPRA will go into effect on January 1, 2023, and become enforceable on July 1, 2023. Similar laws have been proposed in other states and at the federal level. Other international laws are also in place or pending, and such laws may have potentially conflicting requirements that would make compliance challenging.

We may be unable to protect our trademarks and other intellectual property rights, and others may allege that we infringe upon their intellectual property rights.

We have invested significant resources in brands associated with our business such as “Endeavor,” “WME,” “William Morris Endeavor,” “IMG” and “UFC” in an attempt to obtain and protect our public recognition. These brands are essential to our success and competitive position. We have also invested significant resources in the premium content that we produce.

Our trademarks and other intellectual property rights are critical to our success and our competitive position. Our intellectual property rights may be challenged and invalidated by third parties and may not be strong enough to provide meaningful commercial competitive advantage. If we fail to maintain our intellectual property, our competitors might be able to enter the market, which would harm our business. Further, policing unauthorized use and other violations of our intellectual property is difficult, particularly given our global scope, so we are susceptible to others infringing, diluting or misappropriating our intellectual property rights. If we are unable to maintain and protect our intellectual property rights adequately, we may lose an important advantage in the markets in which we compete. In particular, the laws of certain foreign countries do not protect intellectual property rights in the same manner as do the laws of the United States and, accordingly, our intellectual property is at greater risk in those countries even where we take steps to protect such intellectual property. While we believe we have taken, and take in the ordinary course of business, appropriate available legal steps to reasonably protect our intellectual property, we cannot predict whether these steps will be adequate to prevent infringement or misappropriation of these rights.

From time to time, in the ordinary course of our business, we become involved in opposition and cancellation proceedings with respect to some of our intellectual property or third-party intellectual property. Any opposition and cancellation proceedings or other litigation or dispute involving the scope or enforceability of our intellectual property rights or any allegation that we infringe, misappropriate or dilute upon the intellectual property rights of others, regardless of the merit of these claims, could be costly and time-consuming. If any infringement or other intellectual property claim made against us by any third party is successful, if we are required to indemnify a third party with respect to a claim, or if we are required to, or decide to, cease use of a brand, rebrand or obtain non-infringing intellectual property (such as through a license), it could result in harm to our competitive position and could adversely affect our business and financial condition.

 

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Through new and existing legal and illegal distribution channels, consumers have increasing options to access entertainment video. Piracy, in particular, threatens to damage our business. Furthermore, in light of the compelling consumer proposition, piracy services are subject to rapid global growth. The success of our streaming video solutions (e.g. FIGHT PASS) is directly threatened by the availability and use of pirated alternatives. The value that streaming services are willing to pay for content that we develop may be reduced if piracy prevents these services from realizing adequate revenues on these acquisitions.

Lastly, in the event of a bankruptcy, our intellectual property licenses could be affected in numerous ways. There is a concern that a bankruptcy can result in us losing intellectual property rights. Although some protections are granted via the United States Bankruptcy Code, the United States Bankruptcy Code definition of intellectual property only includes trade secrets, patents and patent applications, copyrights, and mask works and does not include trademarks. Because we rely heavily on the licensing of trademarks, we are at risk of losing rights in the event of a bankruptcy.

As a result of our operations in international markets, we are subject to risks associated with the legislative, judicial, accounting, regulatory, political and economic risks and conditions specific to such markets.

We provide services in various jurisdictions abroad through a number of brands and businesses that we own and operate, as well as through joint ventures, and we expect to continue to expand our international presence. We face, and expect to continue to face, additional risks in the case of our existing and future international operations, including:

 

   

political instability, adverse changes in diplomatic relations and unfavorable economic conditions in the markets in which we have international operations or into which we may expand;

 

   

more restrictive or otherwise unfavorable government regulation of the entertainment and sports industry, which could result in increased compliance costs or otherwise restrict the manner in which we provide services and the amount of related fees charged for such services;

 

   

limitations on the enforcement of intellectual property rights;

 

   

enhanced difficulties of integrating any foreign acquisitions;

 

   

limitations on the ability of foreign subsidiaries to repatriate profits or otherwise remit earnings;

 

   

adverse tax consequences;

 

   

less sophisticated legal systems in some foreign countries, which could impair our ability to enforce our contractual rights in those countries;

 

   

limitations on technology infrastructure;

 

   

variability in venue security standards and accepted practices; and

 

   

difficulties in managing operations due to distance, language and cultural differences, including issues associated with (i) business practices and customs that are common in certain foreign countries but might be prohibited by U.S. law and our internal policies and procedures and (ii) management and operational systems and infrastructures, including internal financial control and reporting systems and functions, staffing and managing of foreign operations, which we might not be able to do effectively or on a cost—efficient basis.

If our goodwill or intangible assets become impaired, we may be required to record an additional significant charge to earnings.

We review our goodwill for impairment annually as of October 1 and at any time upon the occurrence of certain events or substantive changes in circumstances that indicate the carrying amount of goodwill may not be recoverable. If such goodwill or intangible assets are deemed to be impaired, an impairment loss equal to the

 

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amount by which the carrying amount exceeds the fair value of the assets would be recognized. Adverse impacts to our business, including as a result of COVID-19, could result in additional impairments and additional significant charges to earnings. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of the COVID-19 Pandemic.”

Participants and spectators in connection with our live entertainment and sports events are subject to potential injuries and accidents, which could subject us to personal injury or other claims and increase our expenses, as well as reduce attendance at our live entertainment and sports events, causing a decrease in our revenue.

There are inherent risks to participants and spectators involved with producing, attending, or participating in live entertainment and sports events. Injuries and accidents have occurred and may occur from time to time in the future, which could subject us to substantial claims and liabilities for injuries. Incidents in connection with our entertainment and sports events at any of our venues or venues that we rent could also result in claims, reducing operating income or reducing attendance at our events, causing a decrease in our revenues. There can be no assurance that the insurance we maintain will be adequate to cover any potential losses. The physical nature of many of our live sports events exposes the athletes that participate to the risk of serious injury or death. These injuries could include concussions, and many sports leagues and organizations have been sued by athletes over alleged long-term neurocognitive impairment arising from concussions. Although the participants in certain of our live sports events, as independent contractors, are responsible for maintaining their own health, disability and life insurance, we may seek coverage under our accident insurance policies, if available, or our general liability insurance policies, for injuries that athletes incur while competing. To the extent such injuries are not covered by our policies, we may self-insure medical costs for athletes for such injuries. Liability to us resulting from any death or serious injury, including concussions, sustained by athletes while competing, to the extent not covered by our insurance, could adversely affect our business, financial condition, and operating results.

We are subject to extensive U.S. and foreign governmental regulations, and our failure to comply with these regulations could adversely affect our business.

Our operations are subject to federal, state and local laws, statutes, rules, regulations, policies, and procedures in the United States and around the world, which are subject to change at any time, governing matters such as:

 

   

licensing laws for talent agencies, such as California’s Talent Agencies Act and the New York General Business Law;

 

   

licensing laws for athlete agents;

 

   

licensing laws for the promotion and operation of MMA events;

 

   

licensing laws for the supply of sports betting data, gaming software, and other products to gambling operators;

 

   

licensing, permitting and zoning requirements for operation of our offices, locations, venues, and other facilities;

 

   

health, safety, and sanitation requirements;

 

   

the service of food and alcoholic beverages;

 

   

the welfare and protection of animals;

 

   

working conditions, labor, minimum wage and hour, citizenship, immigration, visas, harassment and discrimination, and other labor and employment laws and regulations;

 

   

human rights and human trafficking, including compliance with the U.K. Modern Slavery Act and similar current and future legislation;

 

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our employment of youth workers and compliance with child labor laws;

 

   

compliance with the U.S. Americans with Disabilities Act of 1990 and the U.K.’s Disability Discrimination Act 1995;

 

   

compliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.K. Bribery Act 2010 (the “Bribery Act”) and similar regulations in other countries, which prohibit U.S. companies and their intermediaries from engaging in bribery or other prohibited payments to foreign officials and require companies to keep books and records that accurately and fairly reflect the transactions of the company and to maintain an adequate system of internal accounting controls;

 

   

compliance with applicable antitrust and fair competition laws;

 

   

compliance with international trade controls, including applicable import/export regulations, and sanctions and international embargoes that may limit or restrict our ability to do business with specific individuals or entities or in specific countries or territories;

 

   

compliance with anti-money laundering and countering terrorist financing rules, currency control regulations, and statutes prohibiting tax evasion and the aiding or abetting of tax evasion;

 

   

marketing activities;

 

   

environmental protection regulations;

 

   

compliance with current and future privacy and data protection laws imposing requirements for the processing and protection of personal or sensitive information, including the GDPR and the E.U. e-Privacy Regulation;

 

   

compliance with cybersecurity laws imposing country-specific requirements relating to information systems and network design, security, operations, and use;

 

   

tax laws; and

 

   

imposition by foreign countries of trade restrictions, restrictions on the manner in which content is currently licensed and distributed, ownership restrictions, or currency exchange controls.

Noncompliance with these laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, reputational harm, adverse media coverage, and other collateral consequences. Multiple or repeated failures by us to comply with these laws and regulations could result in increased fines or proceedings against us. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations, and financial condition could be materially harmed. In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. Enforcement actions and sanctions could further harm our business, results of operations, and financial condition. While we attempt to conduct our business and operations in a manner that we believe to be in compliance with such laws and regulations, there can be no assurance that a law or regulation will not be interpreted or enforced in a manner contrary to our current understanding. In addition, the promulgation of new laws, rules, and regulations could restrict or unfavorably impact our business, which could decrease demand for our services, reduce revenue, increase costs, or subject us to additional liabilities. For example, some legislatures have proposed laws in the past that would impose potential liability on us and other promoters and producers of live events for incidents that occur at our events, particularly relating to drugs and alcohol or the spread of the COVID-19 virus.

In the United States and certain foreign jurisdictions, we may have direct and indirect interactions with government agencies and state-affiliated entities in the ordinary course of our business. In particular, athletic commissions and other applicable regulatory agencies require us to obtain licenses for promoters, medical

 

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clearances, licenses for athletes, or permits for events in order for us to promote and conduct our live events and productions. In the event that we fail to comply with the regulations of a particular jurisdiction, whether through our acts or omissions or those of third parties, we may be prohibited from promoting and conducting our live events and productions in that jurisdiction. The inability to present our live events and productions in jurisdictions could lead to a decline in various revenue streams in such jurisdictions, which could have an adverse effect on our business, financial condition, and results of operations.

We operate in a number of countries which are considered to be at a heightened risk for corruption. Additionally, we operate in industry segments, such as sports marketing, that have been the subject of past anti-corruption enforcement efforts. As a global company, a risk exists that our employees, contractors, agents, or managers could engage in business practices prohibited by applicable U.S. laws and regulations, such as the FCPA, as well as the laws and regulations of other countries prohibiting corrupt payments to government officials and others, such as the U.K. Bribery Act. There can be no guarantee that our compliance programs will prevent corrupt business practices by one or more of our employees, contractors, agents, managers, or vendors, or that regulators in the U.S. or in other markets will view our program as adequate should any such issue arise.

We are also required to comply with economic sanctions laws imposed by the United States or by other jurisdictions where we do business, which may restrict our transactions in certain markets, and with certain customers, business partners, and other persons and entities. As a result, we are not permitted to, directly or indirectly (including through a third-party intermediary), procure goods, services, or technology from, or engage in transactions with, individuals and entities subject to sanctions. While we believe we have been in compliance with sanctions requirements, there can be no guarantee that we will remain in compliance. Any violation of anti-corruption or sanctions laws could result in fines, civil and criminal sanctions against us or our employees, prohibitions on the conduct of our business (e.g., debarment from doing business with International Development Banks and similar organizations), and damage to our reputation, which could have an adverse effect on our business, financial condition, and results of operations.

In addition, following a national referendum and enactment of legislation by the government of the United Kingdom, the United Kingdom formally withdrew from the European Union on January 31, 2020 and entered into a transition period that expired on December 31, 2020. The United Kingdom will continue its ongoing and complex negotiations with the European Union relating to the future trading relationship between the parties. Significant political and economic uncertainty remains about whether the terms of the relationship will differ materially from the terms before withdrawal. The developments, or the perception that any of them could occur, may result in increased legal and regulatory complexities, potential higher costs of conducting business in Europe as well as less demand for concerts and other live entertainment in the United Kingdom and the E.U. Brexit has also contributed to significant volatility and uncertainty in global stock markets and currency exchange rates, and such volatility could continue to occur as the negotiation process progresses.

We are signatory to certain franchise agreements of unions and guilds and are subject to certain licensing requirements of the states in which we operate. We are also signatories to certain collective bargaining agreements and depend upon unionized labor for the provision of some of our services. Our clients are also members of certain unions and guilds that are signatories to collective bargaining agreements. Any expiration, termination, revocation or non-renewal of these franchises, collective bargaining agreements, or licenses and any work stoppages or labor disturbances could adversely affect our business.

Certain of our business, clients, or employees at some of the locations in which we operate are subject to collective bargaining and/or franchise agreements. These collective bargaining and/or franchise agreements regularly expire and require negotiation in the ordinary course of business. Upon the expiration of any of these collective bargaining and/or franchise agreements, however, we, the trade associations with which we are affiliated, and/or our clients’ unions may be unable to negotiate new collective bargaining and/or franchise agreements on satisfactory terms or at all. Our operations may be interrupted as a result of labor disputes or difficulties and delays in the process of renegotiating. Certain of such unions and guilds have in the past gone on

 

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strike, and in the future may do so again. In addition, our operations at one or more of our facilities may also be interrupted as a result of labor disputes by outside unions attempting to unionize one or more groups of employees (even if not employed by us) at a venue even though we do not currently have unionized labor at that venue. There have also been efforts to unionize the MMA athletes that participate in UFC’s events. A work stoppage at one or more of our operated venues or at our promoted events could have an adverse effect on our business, financial condition and results of operations. We cannot predict the effect that a potential work stoppage would have on our business.

We are party to certain collective bargaining agreements that require contributions to various multiemployer pension, health, and welfare plans that cover unionized employees. Required contributions to these plans could unexpectedly increase during the term of a collective bargaining agreement due to the Employee Retirement Income Security Act of 1974, as amended, which requires additional contributions to be made when a pension fund enters into critical status, which may occur for reasons that are beyond our control. In addition, we may be required by law to fulfill our pension withdrawal liability with respect to any multiemployer pension plans from which we may withdraw or partially withdraw. Our potential withdrawal liability will increase if a multiemployer pension plan in which we participate has significant underfunded liabilities. Any unplanned multiemployer pension liabilities could have an adverse effect on our business, financial condition, and results of operations.

Our talent agency business is and was signatory, through a trade association, The Association of Talent Agents (“ATA”), to certain franchise agreements with the unions and guilds that represent certain of its clients (for example, with the Directors Guild of America). The agency is also subject to licensing and other requirements of certain states in which we operate. Our ability to maintain, renew, or operate without such licenses and franchises is not guaranteed. For example, the Writer’s Guild of America East and the Writer’s Guild of America West (collectively, the “WGA”), terminated its previous 1976 franchise agreement, the Artists’ Manager Basic Agreement, with the ATA, effective April 6, 2019 and while the parties were attempting to negotiate a new franchise agreement, the WGA instructed its members to terminate writing representation services. Furthermore, the WGA and certain writers filed a lawsuit in state court in California against WME and other talent agencies alleging, among other things, breach of fiduciary duty and unfair competition under California law (the “State Court Action”). In addition, on June 24, 2019, WME filed a lawsuit in federal court in California against the WGA alleging violations of Section 1 of the Sherman Act (the “Federal Court Action”). In August 2019, the WGA voluntarily dismissed the State Court Action and instead refiled its claims as counterclaims in the Federal Court Action. The WGA claims included breach of fiduciary duty, unfair competition, violations of Section 1 of the Sherman Act, violations of the California Cartwright Act and RICO, among others. The case was resolved and dismissed with prejudice upon WME signing a new franchise agreement and side letter directly with the WGA on February 5, 2021 (the “Franchise Agreements”).

The Franchise Agreements include terms that prohibit WME from (a) negotiating packaging deals after June 30, 2022 and (b) having more than a 20% non-controlling ownership or other financial interest in, or being owned or affiliated with any individual or entity that has more than a 20% non-controlling ownership or other financial interest in, any entity or individual engaged in the production or distribution of works written by WGA members under a WGA collective bargaining agreement (any such entity or individual, a “Restricted Production Entity” and the restrictions set forth in clause (b), the “Restricted Production Entity Limit”). The Franchise Agreements provide for a transition period (the “Transition Period”) for WME to come into compliance with certain of its provisions, including the Restricted Production Entity Limit. During the term of the Franchise Agreements, until we are in compliance, the Franchise Agreements require that we place into escrow (i) Endeavor Content’s after-tax gross profits from the production of works written by WGA members under a WGA collective bargaining agreement and (ii) WME’s after-tax writer commissions and package fees received in connection with such Endeavor Content productions.

Given Endeavor’s current ownership of certain Restricted Production Entities exceeds 20% (including with respect to certain portions of the Endeavor Content business), we will need to reduce our ownership in those Restricted Production Entities to 20% or less by the end of the Transition Period in order to come into

 

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compliance and not be in violation of the Franchise Agreements. The potential consequences of any failure to comply may include, among other things, failure to access such escrowed funds during the term until we are in compliance, WGA’s termination of the Franchise Agreements, and, as a result, WGA member clients’ termination of WME as their agency for writing representation services.

Furthermore, the Restricted Production Entity Limit set forth in the Franchise Agreements applies to WME, its agents, employees, partners, principals and shareholders, other than a de minimis holder of general stock (defined as a shareholder that (i) does not hold more than 5% of Endeavor and (ii) does not have voting or other control of the operation or management of Endeavor (a “De Minimis Shareholder”)). We do not have control over who acquires our shares in the public markets, and cannot limit the percentage of our shares held by any given shareholder. In the event that a shareholder of the Company (other than a De Minimis Shareholder) acquires a greater than 20% ownership or other financial interest in a Restricted Production Entity, we would also be in violation of the Franchise Agreements and the potential consequences set forth above would similarly apply.

The outcome of any similar disputes with unions or guilds that represent our clients, including the commercial landscape that will exist in the future with our clients after such disputes, could have an adverse effect on our business. As with the WGA dispute, any revocation, non-renewal or termination of our or our clients’ franchises or licenses, including but not limited to the Franchise Agreements, including the limitation on our client representation business’ ability to generate new future packaging revenues or its ability to affiliate with other Endeavor companies that produce content, or any disputed application of, or unexpected change in franchise or licensing requirements (whether applicable to us, our clients or otherwise), could have an adverse effect on our business, financial condition, and results of operations.

We cannot be certain that additional financing will be available on reasonable terms when required, or at all.

From time to time, we may need additional financing, whether in connection with our capital improvements, acquisitions, or otherwise. Our ability to obtain additional financing, if and when required, will depend on investor demand, our operating performance, the condition of the capital markets and other factors. For example, if borrowings available under our first lien credit agreement entered into by certain of our subsidiaries in May 2014 in connection with the acquisition of IMG (as amended, restated, modified and/or supplemented from time to time, the “Credit Facilities”) and UFC Holdings, LLC’s term loan and revolving credit facilities (the “UFC Credit Facilities” and, collectively with the Credit Facilities, the “Senior Credit Facilities”), or borrowings under certain of our other debt facilities, are insufficient or unavailable at a reasonable cost, we may be required to adopt one or more alternatives to raise cash, such as incurring additional indebtedness, selling our assets, seeking to raise additional equity capital, or restructuring, which alternatives may not be available to us on favorable terms when required, or at all. Any of the foregoing could have a material adverse effect on our business. In addition, if we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences, or privileges senior to the rights of our Class A common stock, and our then existing stockholders may experience dilution.

Unfavorable outcomes in legal proceedings may adversely affect our business and operating results.

Our results may be affected by the outcome of pending and future litigation. Unfavorable rulings in our legal proceedings could result in material liability to us or have a negative impact on our reputation or relations with our employees or third parties. The outcome of litigation, including class action lawsuits, is difficult to assess or quantify. Plaintiffs in class action lawsuits may seek recovery of very large or indeterminate amounts and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. UFC is currently named in five related class-action lawsuits filed against it alleging that UFC violated Section 2 of the Sherman Act by monopolizing the alleged market for the promotion of elite professional MMA bouts and monopolizing the alleged market for elite professional MMA fighters’ services. Additionally, IMG is currently named in four claims against it in Milan, Italy alleging anti-competitive practices. See “Business—Legal Proceedings.” If we are unable to resolve these or other matters favorably, our business, operating results, and our financial condition may be adversely affected.

 

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In addition, we are currently, and from time to time in the future may be, subject to various other claims, investigations, legal and administrative cases and proceedings (whether civil or criminal), or lawsuits by governmental agencies or private parties. If the results of these investigations, proceedings, or suits are unfavorable to us or if we are unable to successfully defend against third-party lawsuits, we may be required to pay monetary damages or may be subject to fines, penalties, injunctions, or other censure that could have an adverse effect on our business, financial condition, and results of operations. Even if we adequately address the issues raised by an investigation or proceeding or successfully defend a third-party lawsuit or counterclaim, we may have to devote significant financial and management resources to address these issues, which could have an adverse effect on our business, results of operations, and financial condition.

Risks Related to Our Organization and Structure

We are a holding company and our principal asset is our indirect equity interests in Endeavor Operating Company and, accordingly, we are dependent upon distributions from Endeavor Operating Company to pay taxes and other expenses.

We are a holding company and our principal asset is our indirect ownership of Endeavor Operating Company. We have no independent means of generating revenue. As the indirect sole managing member of Endeavor Operating Company, we intend to cause Endeavor Operating Company to make distributions to its equityholders, including the members of Endeavor Operating Company (including Endeavor Profits Units holders) and Endeavor Manager, in amounts sufficient to cover the taxes on their allocable share of the taxable income of Endeavor Operating Company. As the sole managing member of Endeavor Manager, we intend to cause Endeavor Manager, to the extent it is able, to make non-pro rata distributions to us such that we will be able to cover all applicable taxes payable by us, any payments we are obligated to make under the tax receivable agreement we entered into as part of the Reorganization Transactions and other costs or expenses, but we are limited in our ability to cause Endeavor Operating Company to make distributions to its equityholders (including for purposes of paying corporate and other overhead expenses and dividends) under the Senior Credit Facilities. In addition, certain laws and regulations may result in restrictions on Endeavor Manager’s ability to make distributions to us, Endeavor Operating Company’s ability to make distributions to its equityholders, or the ability of Endeavor Operating Company’s subsidiaries to make distributions to it.

To the extent that we need funds and Endeavor Manager, Endeavor Operating Company or Endeavor Operating Company’s subsidiaries are restricted from making such distributions, under applicable law or regulation, as a result of covenants in the Senior Credit Facilities or otherwise, we may not be able to obtain such funds on terms acceptable to us or at all and, as a result, could suffer an adverse effect on our liquidity and financial condition. In certain situations, including where Endeavor Operating Company does not have sufficient cash to make tax distributions to all of its members in the full amount provided for in the Endeavor Operating Company Agreement, tax distributions made to Endeavor Manager may be reduced (relative to those tax distributions made to other members of Endeavor Operating Company) to reflect the income tax rates to which Endeavor Manager and Endeavor Group Holdings are subject and certain other factors. Tax distributions will generally be treated as advances of other distributions made under the Endeavor Operating Company Agreement, but no adjustments will be made to the exchange ratio for members of Endeavor Operating Company or Endeavor Manager who exercise the redemption rights described above to account for prior tax distributions (and tax distributions paid prior to such an exercise of redemption rights will not reduce distributions otherwise payable to Endeavor Manager in respect of Endeavor Operating Company Units acquired in connection with the exercise of such redemption rights).

Under the limited liability company agreement of Endeavor Operating Company (the “Endeavor Operating Company Agreement”), we expect Endeavor Operating Company, from time to time, to make distributions in cash to its equityholders, including the members of Endeavor Operating Company (including the Endeavor Profits Units holders) and Endeavor Manager, in amounts sufficient to cover the taxes on their allocable share of the taxable income of Endeavor Operating Company. We further expect that, under the limited liability company

 

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agreement of Endeavor Manager (the “Endeavor Manager LLC Agreement”), Endeavor Manager may make non-pro rata distributions in cash to us using the proceeds it receives from any such tax distributions by Endeavor Operating Company. As a result of (i) potential differences in the amount of net taxable income indirectly allocable to us and to Endeavor Operating Company’s other equityholders, (ii) the lower tax rate applicable to corporations as opposed to individuals, (iii) the favorable tax benefits that we anticipate from (a) redemptions or exchanges of Endeavor Operating Company Units (and paired shares of Class X common stock), in exchange for, at our election (subject to certain exceptions), either cash (based on the market price of a share of our Class A common stock) or shares of our Class A common stock, (b) payments under the tax receivable agreement and (c) the acquisition of interests in Endeavor Operating Company from its equityholders (other than Endeavor Group Holdings and Endeavor Manager) and (iv) the fact that tax distributions made in respect of Endeavor Operating Company Units will generally be made pro rata in respect of such Units as described in the Endeavor Operating Company Agreement, we expect that these tax distributions may be in amounts that exceed our tax liabilities. Our board of directors will determine the appropriate uses for any excess cash so accumulated, which may include, among other uses, the payment of obligations under the tax receivable agreement and the payment of other expenses. We will have no obligation to distribute such cash (or other available cash) to our stockholders. No adjustments to the exchange ratio for Endeavor Operating Company Units or Endeavor Manager Units and corresponding shares of common stock will be made as a result of any cash distribution by us or any retention of cash by us. To the extent we do not distribute such cash as dividends on our Class A common stock and instead, for example, hold such cash balances, or lend them to Endeavor Operating Company, this may result in shares of our Class A common stock increasing in value relative to the value of Endeavor Operating Company Units. The holders of Endeavor Operating Company Units may benefit from any value attributable to such cash balances if they acquire shares of Class A common stock in exchange for their Endeavor Operating Company Units (and paired shares of Class X common stock).

We are controlled by Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders, whose interests in our business may be different than yours, and our board of directors has delegated significant authority to an Executive Committee and to Messrs. Emanuel and Whitesell.

Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders, as a group, control approximately 89.2% of the combined voting power of our common stock (following the underwriters’ exercise of their option to purchase additional shares in full) as a result of their ownership of shares of our Class A common stock and Class X common stock, each share of which is entitled to 1 vote on all matters submitted to a vote of our stockholders, and Class Y common stock, each share of which is entitled to 20 votes on all matters submitted to a vote of our stockholders.

Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders collectively have the ability to substantially control our Company, including the ability to control any action requiring the general approval of our stockholders, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and stockholder amendments to our by-laws, and the approval of any merger or sale of substantially all of our assets. This concentration of ownership and voting power may also delay, defer, or even prevent an acquisition by a third party or other change of control of our Company, and may make some transactions more difficult or impossible without the support of Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders, even if such events are in the best interests of minority stockholders. This concentration of voting power may have a negative impact on the price of our Class A common stock. In addition, because shares of our Class Y common stock each have 20 votes per share on matters submitted to a vote of our stockholders, Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders will be able to control our Company as long as they own Class Y common stock representing more than a majority of the total voting power of our issued and outstanding common stock, voting together as a single class. Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders will continue to control the outcome of matters submitted to stockholders so long as they collectively hold 123,995,469 shares of Class Y common stock, which represents 18.2% of the outstanding shares of all our common stock outstanding. Holders of Class Y common stock would continue to control the outcome of matters submitted to stockholders where Class Y common stock represents 18.2% of the outstanding shares of all our common stock.

 

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Additionally, prior to a Triggering Event, pursuant to Section 141(a) of the Delaware General Corporation Law (“DGCL”), the Executive Committee will have all of the power and authority (including voting power) of the board of directors. The Executive Committee will have the authority to approve any actions of the Company, except for matters that must be approved by the Audit Committee of the board (or both the Executive Committee and the Audit Committee), or by a committee qualified to grant equity to persons subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for purposes of exempting transactions pursuant to Section 16b-3 thereunder, or as required under Delaware law, SEC rules and the rules of the Exchange. The Executive Committee consists of Messrs. Emanuel and Whitesell and two directors nominated to our board of directors by the Silver Lake Equityholders. The Executive Committee has delegated to Messrs. Emanuel and Whitesell the authority to manage the business of the Company with power and authority to approve any actions of the Company, except for certain specified actions that require the approval of the Executive Committee and as required under Delaware law, SEC rules and the rules of the Exchange. See “Management—Structure of the Board of Directors.”

Messrs. Emanuel’s and Whitesell’s, Executive Holdcos’, and the Silver Lake Equityholders’ interests may not be fully aligned with yours, which could lead to actions that are not in your best interest. Because Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders hold part of their economic interest in our business through Endeavor Operating Company, rather than through the public company, they may have conflicting interests with holders of shares of our Class A common stock. For example, Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders may have different tax positions from us, which could influence their decisions regarding whether and when we should dispose of assets or incur new or refinance existing indebtedness, and whether and when we should undergo certain changes of control within the meaning of the tax receivable agreement or terminate the tax receivable agreement. In addition, the structuring of future transactions may take into consideration these tax or other considerations even where no similar benefit would accrue to us. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.” Messrs. Emanuel’s and Whitesell’s, Executive Holdcos’, and the Silver Lake Equityholders’ significant ownership in us and resulting ability to effectively control us may discourage someone from making a significant equity investment in us, or could discourage transactions involving a change in control, including transactions in which you as a holder of shares of our Class A common stock might otherwise receive a premium for your shares over the then-current market price.

Section 203 of the DGCL may affect the ability of an “interested stockholder” to engage in certain business combinations, including mergers, consolidations or acquisitions of additional shares, for a period of three years following the time that the stockholder becomes an “interested stockholder.” An “interested stockholder” is defined to include persons owning directly or indirectly 15% or more of the outstanding voting stock of a corporation. We have elected in our amended and restated certificate of incorporation not to be subject to Section 203 of the DGCL. Nevertheless, our amended and restated certificate of incorporation contains provisions that will become operative following a Triggering Event and that have a similar effect to Section 203 of the DGCL, except that they provide that Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders and their respective affiliates and direct and indirect transferees will not be deemed to be “interested stockholders,” regardless of the percentage of our voting stock owned by them, and accordingly will not be subject to such restrictions.

Our amended certificate of incorporation provides that, to the fullest extent permitted by law, Endeavor Group Holdings renounces any interest or expectancy in a transaction or matter that may be a corporate opportunity for Endeavor Group Holdings and Messrs. Emanuel and Whitesell (other than in their capacity as officers and employees of the Company), Executive Holdcos, the Silver Lake Equityholders, or any of our non-employee directors have no duty to present such corporate opportunity to Endeavor Group Holdings and they may invest in competing businesses or do business with our clients or customers. To the extent that Messrs. Emanuel and Whitesell, Executive Holdcos, the Silver Lake Equityholders, or our non-employee directors invest in other businesses, they may have differing interests than our other stockholders. In addition, we may in the future partner with or enter into transactions with our pre-IPO investors or their affiliates, including with respect to future investments, acquisitions, and dispositions.

 

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For additional information regarding the share ownership of, and our relationship with, the Silver Lake Equityholders, you should read the information under the headings “Principal Stockholders” and “Certain Relationships and Related Party Transactions.”

We cannot predict the impact our capital structure and the concentrated control by Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders may have on our stock price or our business.

We cannot predict whether our multiple share class capital structure, combined with the concentrated control by Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders, will result in a lower trading price or greater fluctuations in the trading price of our Class A common stock, or will result in adverse publicity or other adverse consequences. In addition, some indices are considering whether to exclude companies with multiple share classes from their membership. For example, in July 2017, FTSE Russell, a provider of widely followed stock indices, stated that it plans to require new constituents of its indices to have at least five percent of their voting rights in the hands of public stockholders. In addition, in July 2017, S&P Dow Jones, another provider of widely followed stock indices, stated that companies with multiple share classes will not be eligible for certain of their indices. As a result, our Class A common stock will likely not be eligible for these stock indices. We cannot assure you that other stock indices will not take a similar approach to FTSE Russell or S&P Dow Jones in the future. Exclusion from indices could make our Class A common stock less attractive to investors and, as a result, the market price of our Class A common stock could be adversely affected.

We have a substantial amount of indebtedness, which could adversely affect our business.

As of March 31, 2021, we had an aggregate of $5.6 billion outstanding indebtedness under our Senior Credit Facilities, with the ability to borrow up to approximately $311.0 million more under revolving credit facilities under our Senior Credit Facilities, consisting primarily of availability under the UFC Credit Facilities. Additionally, as of March 31, 2021, we had certain other revolving line of credit facilities and long-term debt liabilities, primarily related to Endeavor Content, with total committed amounts of $365.0 million, of which $250.1 million was outstanding and $8.6 million was available for borrowing based on the supporting asset base, and similar to our Senior Credit Facilities, these facilities include restrictive covenants that may restrict certain business operations of the respective businesses who have borrowed from these facilities.

If we cannot generate sufficient cash flow from operations to service this debt, we may need to refinance this debt, dispose of assets, or issue equity to obtain necessary funds. Additionally, our credit rating has in the past and may in the future be downgraded. We do not know whether we will be able to take any of these actions on a timely basis, on terms satisfactory to us or at all.

This substantial amount of indebtedness could:

 

   

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing funds available for working capital, capital expenditures or other purposes;

 

   

require us to refinance in order to accommodate the maturity of the term loans under our Credit

Facilities in 2025 and the term loans under our UFC Credit Facilities in 2026;

 

   

increase our vulnerability to adverse economic and industry conditions, which could lead to a downgrade in our credit rating and may place us at a disadvantage compared to competitors who may have proportionately less indebtedness;

 

   

increase our cost of borrowing and cause us to incur substantial fees from time to time in connection with debt amendments or refinancings; and

 

   

limit our ability to obtain necessary additional financing for working capital, capital expenditures, or other purposes in the future, plan for or react to changes in our business and the industries in which we operate, make future acquisitions or pursue other business opportunities, and react in an extended economic downturn.

 

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Despite this substantial indebtedness, we may still have the ability to incur significantly more debt. The incurrence of additional debt could increase the risks associated with this substantial leverage, including our ability to service this indebtedness. In addition, because a portion of the borrowings under our credit facilities bear interest at a variable rate, our interest expense could increase, exacerbating these risks. Of the aggregate principal balance of $5.6 billion outstanding under the Senior Credit Facilities as of March 31, 2021, $1.5 billion has been fixed through interest rate swaps leaving $4.1 billion of floating rate debt under those facilities. A 1% increase in the interest rates charged on the outstanding amount of our floating rate debt would increase our annual interest expense by $41 million.

Restrictive covenants in the Senior Credit Facilities may restrict our ability to pursue our business strategies.

The credit agreements governing the terms of the Senior Credit Facilities restrict, among other things, asset dispositions, mergers and acquisitions, dividends, stock repurchases and redemptions, other restricted payments, indebtedness, loans and investments, liens, and affiliate transactions. The Senior Credit Facilities also contain customary events of default, including a change in control. These covenants, among other things, limit our ability to fund future working capital needs and capital expenditures, engage in future acquisitions or development activities, or otherwise realize the value of our assets and opportunities fully. Such covenants could limit the flexibility of our subsidiaries in planning for, or reacting to, changes in the entertainment and sports industry. Our ability to comply with these covenants is subject to certain events outside of our control. Additionally, we have in the past, and may in the future need to amend or obtain waivers to our existing covenants, and cannot guarantee that we will be able to obtain those amendments or waivers on commercially reasonable terms or at all. If we are unable to comply with these covenants, the lenders under the Senior Credit Facilities could terminate their commitments and accelerate repayment of our outstanding borrowings, which also may result in the acceleration of or default under any other debt we may incur in the future to which a cross-acceleration or cross-default provision applies. If such an acceleration were to occur, we may be unable to obtain adequate refinancing for our outstanding borrowings on favorable terms, or at all. We have pledged a significant portion of our assets as collateral under our Senior Credit Facilities. If we are unable to repay our outstanding borrowings when due, the lenders under the Senior Credit Facilities will also have the right to proceed against the collateral granted to them to secure the indebtedness owed to them, which may have an adverse effect on our business, financial condition, and operating results.

We will require a significant amount of cash to service our indebtedness. The ability to generate cash or refinance our indebtedness as it becomes due depends on many factors, some of which are beyond our control.

Our ability to make payments on, or to refinance our respective obligations under, our indebtedness will depend on future operating performance and on economic, financial, competitive, legislative, regulatory, and other factors. Many of these factors are beyond our control. Additionally, the terms of the UFC Credit Facilities restrict the ability of our UFC subsidiaries to make distributions to us, which may limit us from using funds from our UFC subsidiaries to make payments on our indebtedness under the Credit Facilities. Our consolidated cash balance also includes cash from other consolidated non-wholly owned entities, such as our Endeavor China business. These businesses may have restrictions in their ability to distribute cash to the rest of the company, including under the terms of applicable operating agreements or debt agreements, which may require the approval of certain of our investors based on the timing and amount of distribution. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to satisfy our respective obligations under our indebtedness or to fund our other needs. In order for us to satisfy our obligations under our indebtedness, we must continue to execute our business strategy. If we are unable to do so, we may need to refinance all or a portion of our indebtedness on or before maturity.

 

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We are exempt from certain corporate governance requirements since we are a “controlled company” within the meaning of the Exchange rules, and as a result our stockholders do not have the protections afforded by these corporate governance requirements.

Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders control, as a group, more than 50% of our combined voting power. As a result, we are considered a “controlled company” for the purposes of the Exchange rules and corporate governance standards, and therefore we are permitted to, and we intend to, elect not to comply with certain corporate governance requirements of the Exchange, including those that would otherwise require our board of directors to have a majority of independent directors and require that we either establish Compensation and Nominating and Corporate Governance Committees, each comprised entirely of independent directors, or otherwise ensure that the compensation of our executive officers and nominees for directors are determined or recommended to the board of directors by the independent members of the board of directors. Accordingly, holders of our Class A common stock do not have the same protections afforded to stockholders of companies that are subject to all of the rules and corporate governance standards of the Exchange, and the ability of our independent directors to influence our business policies and affairs may be reduced. We expect to remain a controlled company until Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders no longer control, as a group, more than 50% of our combined voting power. Each member of our control group holds Class A common stock and Class X common stock, each of which has 1 vote per share, and Class Y common stock, which has a 20-vote per share feature. See “Management—Controlled Company.” The shares of Class Y common stock held by our control group will be canceled/redeemed for no consideration upon the earlier of (i) the disposition of (a) the paired Endeavor Operating Company Units (and the corresponding shares of Class X common stock) and (b) the shares of Class A common stock (as a result of a redemption of paired Endeavor Operating Company Units (and the corresponding shares of Class X common stock)) paired with such Class Y common stock, as applicable, and (ii) with respect to all shares of Class Y common stock, a Triggering Event. Because there is no time-based sunset date for our Class Y common stock, we may continue to be a controlled company indefinitely.

We are required to pay certain of our pre-IPO investors, including certain Other UFC Holders, for certain tax benefits we may claim (or are deemed to realize) in the future, and the amounts we may pay could be significant.

In connection with the IPO, we acquired existing equity interests in Endeavor Operating Company from certain of our pre-IPO investors in exchange for the issuance of shares of our Class A common stock, Class Y common stock and rights to receive payments under the tax receivable agreement and acquired certain existing interests in Endeavor Operating Company from certain of the Other UFC Holders in exchange for cash and rights to receive payments under the tax receivable agreement. As a result of these acquisitions, we succeeded to certain tax attributes of certain of our pre-IPO investors and will receive the benefit of tax basis in the assets of Endeavor Operating Company and certain of its subsidiaries. In addition, redemptions or exchanges of Endeavor Operating Company Units from members of Endeavor Operating Company (other than Endeavor Manager) in exchange for shares of our Class A common stock or cash are expected to produce favorable tax attributes that would not be available to us in the absence of such redemptions or exchanges.

We have entered into the tax receivable agreement with the Post-IPO TRA Holders that provides for the payment by us to the Post-IPO TRA Holders (or their transferees of Endeavor Operating Company Units or other assignees) of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we realize or are deemed to realize (determined by using certain assumptions) as a result of (i) any tax basis in the assets of Endeavor Operating Company and certain of its subsidiaries resulting from (a) the acquisition of equity interests in Endeavor Operating Company from certain of our pre-IPO investors and the acquisition of interests in Endeavor Operating Company (or UFC Parent) from certain of the Other UFC Holders, (b) future redemptions or exchanges by us of Endeavor Operating Company Units from members of Endeavor Operating Company (other than Endeavor Manager) in exchange for shares of our Class A common stock or cash or (c) payments made under the tax receivable agreement, (ii) any net operating losses or certain other tax

 

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attributes of certain pre-IPO investors or Other UFC Holders that are available to us to offset income or gain earned after the mergers, (iii) any existing tax basis associated with Endeavor Operating Company Units, the benefit of which is allocable to us as a result of the exchanges of such Endeavor Operating Company Units for shares of our Class A common stock or cash, and (iv) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement. The tax receivable agreement makes certain simplifying assumptions regarding the determination of the cash savings that we realize or are deemed to realize from the covered tax attributes, which may result in payments pursuant to the tax receivable agreement in excess of those that would result if such assumptions were not made.

The actual tax benefit, as well as the amount and timing of any payments under the tax receivable agreement, will vary depending upon a number of factors, including, among others, the timing of redemptions or exchanges by members of Endeavor Operating Company, the price of our Class A common stock at the time of the redemptions or exchanges, the extent to which such redemptions or exchanges are taxable, the amount and timing of the taxable income we generate in the future and the tax rate then applicable, and the portion of our payments under the tax receivable agreement constituting imputed interest.

Future payments under the tax receivable agreement could be substantial. The payments under the tax receivable agreement are not conditioned upon any Post-IPO TRA Holder’s continued ownership of us.

In addition, the Post-IPO TRA Holders (or their transferees or other assignees) will not reimburse us for any payments previously made if any covered tax benefits are subsequently disallowed, except that any excess payments made to any Post-IPO TRA Holder (or such holder’s transferees or assignees) will be netted against future payments that would otherwise be made under the tax receivable agreement, if any, after our determination of such excess. We could make payments to the Post-IPO TRA Holders under the tax receivable agreement that are greater than our actual cash tax savings and may not be able to recoup those payments, which could negatively impact our liquidity.

In addition, the tax receivable agreement provides that, upon certain mergers, asset sales or other forms of business combination, or certain other changes of control, our or our successor’s obligations with respect to tax benefits would be based on certain assumptions, including that we or our successor would have sufficient taxable income to fully utilize the tax benefits covered by the tax receivable agreement. As a result, upon a change of control, we could be required to make payments under the tax receivable agreement that are greater than the specified percentage of our actual cash tax savings, which could negatively impact our liquidity.

In addition, the tax receivable agreement provides that in the case of a change in control of the Company or a material breach of our obligations under the tax receivable agreement, the Post-IPO TRA Holders will have the option to terminate the tax receivable agreement, and we will be required to make a payment to the Post-IPO TRA Holders covered by such termination in an amount equal to the present value of future payments (calculated using a discount rate equal to the lesser of 6.50 % or LIBOR plus 200 basis points, which may differ from our, or a potential acquirer’s, then-current cost of capital) under the tax receivable agreement, which payment would be based on certain assumptions, including those relating to our future taxable income. In these situations, our obligations under the tax receivable agreement could have a substantial negative impact on our, or a potential acquirer’s, liquidity and could have the effect of delaying, deferring, modifying, or preventing certain mergers, asset sales, other forms of business combinations, or other changes of control. These provisions of the tax receivable agreement may result in situations where the Post-IPO TRA Holders have interests that differ from or are in addition to those of our other stockholders. In addition, we could be required to make payments under the tax receivable agreement that are substantial, significantly in advance of any potential actual realization of such further tax benefits, and in excess of our, or a potential acquirer’s, actual cash savings in income tax.

Finally, because we are a holding company with no operations of our own, our ability to make payments under the tax receivable agreement is dependent on the ability of our subsidiaries to make distributions to us. The Senior Credit Facilities restrict the ability of our subsidiaries to make distributions to us, which could affect our

 

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ability to make payments under the tax receivable agreement. To the extent that we are unable to make payments under the tax receivable agreement as a result of restrictions in our Senior Credit Facilities, such payments will be deferred and will accrue interest until paid, which could negatively impact our results of operations and could also affect our liquidity in periods in which such payments are made.

Risks Related to Our Class A Common Stock

Future sales of our Class A common stock, or the perception in the public markets that these sales may occur, may depress the price of our Class A common stock.

Additional sales of a substantial number of shares of our Class A common stock in the public market, or the perception that such sales may occur, could have an adverse effect on our stock price and could impair our ability to raise capital through the sale of additional stock. As of May 12, 2021, we had 259,498,002 shares of Class A common stock issued and outstanding. In addition, 167,950,559 shares of Class A common stock may be issued upon the exercise of the redemption rights of our pre-IPO equityholders (other than outstanding Endeavor Profits Units and Endeavor Catchup Profits Units described below) described elsewhere in this prospectus. Furthermore, redemptions or exchanges of Endeavor Manager Units and Endeavor Operating Company Units (and the corresponding shares of Class X common stock) into Class A common stock will have a dilutive effect on the number of outstanding shares of our Class A common stock, even if the indirect or direct economic ownership of Endeavor Operating Company or Endeavor Manager, as applicable, by holders of our Class A common stock remain unchanged. Our Class A common stock is freely tradable without restriction under the Securities Act of 1933, as amended (the “Securities Act”), except for any Class A common stock that may be held or acquired by our directors, executive officers, and other affiliates (as that term is defined in the Securities Act), which will be restricted securities under the Securities Act.

Under the Registration Rights Agreement described under the heading “Certain Relationships and Related Party Transactions—Registration Rights Agreement,” certain of our equityholders, including Executive Holdcos and the Silver Lake Equityholders (our “Principal Stockholders”), have demand and piggyback rights that require us to file registration statements registering their Class A common stock (including shares of Class A common stock issuable upon the exercise by members of Endeavor Operating Company (other than Endeavor Manager) or members of Endeavor Manager (other than us) of their redemption rights described elsewhere in this prospectus) or to include sales of such Class A common stock in registration statements that we may file for ourselves or other stockholders. In the event that such registration rights are exercised and a large number of Class A common stock is sold in the public market or a significant number of shares are sold pursuant to the registration statement of which this prospectus forms a part, such sales could reduce the trading price of our Class A common stock. These sales could also impede our ability to raise future capital. All expenses in connection with any such registrations, including reimbursement of the reasonable fees and disbursements of one law firm for the selling stockholders (except that selling stockholders will be responsible for their pro rata share of underwriters’ commissions and discounts). See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

We and each of our executive officers and directors, the Silver Lake Equityholders and certain of our other existing equityholders have agreed with the underwriters that for a period of 180 days after April 28, 2021, we and they will not offer, sell, assign, transfer, pledge, contract to sell or otherwise dispose of or hedge any of our common stock, or any options or warrants to purchase any of our common stock or any securities convertible into, exchangeable for or that represent the right to receive our common stock (including, without limitation, Endeavor Operating Company Units and Endeavor Manager Units), subject to specified exceptions including that we may, during such 180-day period, (i) offer, contract to sell or issue Class A common stock or securities convertible into Class A common stock (including Endeavor Operating Company Units or Endeavor Manager Units) in connection with an acquisition or business combination (including the filing of a registration statement on Form S-4 or other appropriate form with respect thereto) or the entering into of a joint venture, provided that the aggregate number of shares of Class A common stock that may be issued (excluding any shares of Class A

 

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common stock, Endeavor Manager Units or Endeavor Operating Company Units offered or contracted to be sold pursuant to a signed agreement in connection with an acquisition, business combination, joint venture or any similar transaction solely to the extent no shares of Class A common stock, Endeavor Operating Company Units or Endeavor Manager Units are issued during the 180-day period) shall not exceed 10% of the total number of shares of Class A common stock (determined after giving effect to the assumed exchange of all Endeavor Operating Company Units and Endeavor Manager Units then outstanding for newly issued shares of Class A common stock) issued and outstanding as of the closing of our IPO and provided further that the acquirer of such common stock agrees in writing to be bound by the obligations and restrictions of our lock-up agreement, (ii) offer or issue Endeavor Operating Company Units to our employees or employees of any of our subsidiaries who were not employees of such entity as of April 28, 2021. Morgan Stanley & Co. LLC may, in its discretion, at any time without prior notice (except with respect to common stock held by our executive officers and directors as described in the lock-up agreement), release all or any portion of the common stock from the restrictions in any such agreement, and (iii) allow sales as necessary for paying taxes (including estimated taxes) or to satisfy the income and payroll tax withholding obligations as a result of vesting and/or settlement of equity awards under the 2021 Incentive Award Plan. In addition, the Management Equityholders are subject to market standoff restrictions with us in the Endeavor Manager LLC Agreement and Endeavor Operating Company LLC Agreement that restricts certain transfers of such shares of Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock, including equity awards issued under our equity incentive plans for one year following the closing of the IPO, covering an aggregate of 169,432,139 shares of Class A common stock. Notwithstanding the foregoing, up to 4,950,000 shares of our outstanding Class A common stock were available for sale beginning at the commencement of trading on the second trading day on which our common stock is traded on NYSE and up to an additional 1,300,000 shares of our outstanding Class A common stock on the effective date of the registration statement of which this prospectus forms a part. After the lock-up agreements and market standoff restrictions expire, up to an additional 163,182,139 shares of Class A common stock (including shares of Class A common stock issuable upon the exercise by members of Endeavor Operating Company (other than Endeavor Manager) or Endeavor Manager (other than us) of their redemption rights described elsewhere in this prospectus) may be sold by these equityholders in the public market either in a registered offering or pursuant to an exemption from registration, such as Rule 144 promulgated under the Securities Act (“Rule 144”). Of these shares, 130,632,043 shares may be immediately sold under Rule 144 without being subject to the volume, manner of sale and other restrictions of such rule.

In addition, subject to certain restrictions:

 

   

the former holders of 3,809,503 Endeavor Full Catch-up Profits Units which were converted into Endeavor Operating Company Units (following our achievement of a $25.10 price per share that would have fully satisfied their preference on distributions), may exchange their Endeavor Operating Company Units and paired shares of our Class X common stock and Class Y common stock. These holders may subsequently acquire shares of Class A common stock upon the exercise of their redemption rights;

 

   

the holders of 3,337,047 Endeavor Profits Units, which have a weighted-average per unit hurdle price of $17.68, will be able to exchange their Endeavor Profits Units into Endeavor Operating Company Units and paired shares of our Class X common stock and Class Y common stock. These holders may subsequently acquire shares of Class A common stock upon the exercise of their redemption rights; and

 

   

the former holders of 11,919,778 Endeavor Partial Catch-Up Profits Units, which were converted into Endeavor Profit Units that have a per unit hurdle price of $23.16 (following our achievement of a $25.10 price per share that would have fully satisfied their preference on distributions), may exchange their Endeavor Profits Units and paired shares of our Class X common stock. These holders may subsequently acquire shares of our Class A common stock upon the exercise of their redemption rights.

 

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In addition, we have initially reserved for issuance under our 2021 Incentive Award Plan 21,700,000 shares of Class A common stock. We granted equity awards in connection with the IPO under our 2021 Incentive Award Plan and, if the price of our Class A common stock increases over time, we will issue restricted stock pursuant to performance-based equity awards to Mr. Emanuel and Mr. Whitesell, as further described under “Executive Compensation—New Equity Awards.” Any shares of Class A common stock that we issue, including under our 2021 Incentive Award Plan or other equity incentive plans that we may adopt in the future, will dilute the percentage ownership held by then current holders of our Class A common stock. Moreover, while in the past the Company has historically settled Endeavor Phantom Units in cash, it may in its discretion settle these in equity in the future (through the 2021 Incentive Award Plan or otherwise), which would dilute the percentage ownership held by the investors who purchase Class A common stock.

Future resales of common stock may cause the market price of our securities to drop significantly, even if our business is doing well.

In connection with the IPO, we entered into a subscription agreement whereby we sold 75,584,747 shares of our Class A common stock which are being registered herein. As such, sales of a substantial number of shares of our Class A common stock in the public market could occur at any time, including pursuant to the registration statement of which this prospectus is a part. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Class A common stock. As registration statements for the sale of the shares held by the parties to the transaction agreement become available for use, including the registration statement of which this prospectus is a part, the sale or possibility of sale of these shares could have the effect of increasing the volatility in the market price of our Class A common stock, or decreasing the market price itself.

The price of our Class A common stock may be volatile, and you may be unable to resell your Class A common stock at or above your purchase price or at all.

The market price for our Class A common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including, among others:

 

   

trends and changes in consumer preferences in the industries in which we operate;

 

   

changes in general economic or market conditions or trends in our industry or the economy as a whole and, in particular, in the consumer and advertising marketplaces;

 

   

changes in key personnel;

 

   

our entry into new markets;

 

   

changes in our operating performance;

 

   

investors’ perceptions of our prospects and the prospects of the businesses in which we participate;

 

   

fluctuations in quarterly revenue and operating results, as well as differences between our actual financial and operating results and those expected by investors;

 

   

the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC;

 

   

announcements relating to litigation;

 

   

guidance, if any, that we provide to the public, any changes in such guidance or our failure to meet such guidance;

 

   

changes in financial estimates or ratings by any securities analysts who follow our Class A common stock, our failure to meet such estimates or failure of those analysts to initiate or maintain coverage of our Class A common stock;

 

   

downgrades in our credit ratings or the credit ratings of our competitors;

 

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the development and sustainability of an active trading market for our Class A common stock;

 

   

investor perceptions of the investment opportunity associated with our Class A common stock relative to other investment alternatives;

 

   

the inclusion, exclusion, or deletion of our Class A stock from any trading indices;

 

   

future sales of our Class A common stock by our officers, directors, and significant stockholders;

 

   

other events or factors, including those resulting from system failures and disruptions, hurricanes, wars, acts of terrorism, other natural disasters, or responses to such events;

 

   

price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; and

 

   

changes in accounting principles.

These and other factors may lower the market price of our Class A common stock, regardless of our actual operating performance. As a result, our Class A common stock may trade at prices significantly below the price at which you purchased your shares.

In addition, the stock markets, including the Exchange, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.

We do not expect to pay any cash dividends for the foreseeable future.

We currently expect to retain all of our future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends for the foreseeable future. The declaration and payment of future dividends to holders of our Class A common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial condition, earnings, legal requirements, tax obligations, restrictions in the debt instruments of our subsidiaries, including the Senior Credit Facilities, and other factors deemed relevant by our board of directors. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Historical Liquidity and Capital Resources—Debt Facilities” for more information on the restrictions the Senior Credit Facilities impose on our ability to declare and pay cash dividends. As a holding company, our ability to pay dividends depends on our receipt of cash dividends from our subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their respective jurisdictions of organization, agreements of our subsidiaries, or covenants under future indebtedness that we or they may incur.

If we are unable to effectively implement or maintain a system of internal control over financial reporting, we may not be able to accurately or timely report our financial results and our stock price could be adversely affected.

Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires us to evaluate the effectiveness of our internal controls over financial reporting as of the end of each fiscal year, including a management report assessing the effectiveness of our internal controls over financial reporting, and a report issued by our independent registered public accounting firm on that assessment, in each case beginning with the filing of our second Annual Report on Form 10-K. In fiscal year 2019, we identified a material weakness with our internal controls over financial reporting that resulted from not having a sufficiently documented risk assessment process to identify and analyze risks of misstatement due to error and/or fraud, and not having sufficiently documented compliance communication and investigation policies. This deficiency did not result in any error or restatement of our financial statements. We have since enhanced the documentation of our risk

 

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assessment process and controls to identify and analyze risks of misstatement due to error or fraud, and implemented process and controls over our enhanced compliance communication and investigation policies. Such controls have operated effectively over a sufficient period of time to conclude we have fully remediated this material weakness. In the future, it is possible that additional material weaknesses or significant deficiencies may be identified that we may be unable to remedy before the requisite deadline for those reports. Our ability to comply with the annual internal control reporting requirements will depend on the effectiveness of our financial reporting and data systems and controls across our company. We expect these systems and controls to require additional investment as we become increasingly more complex and our business grows. To effectively manage this complexity, we will need to continue to maintain and revise our operational, financial and management controls, and our reporting systems and procedures. Any weaknesses or deficiencies or any failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations, or result in material misstatements in our financial statements, which could adversely affect our business and reduce our stock price.

Provisions in our organizational documents and certain rules imposed by regulatory authorities may delay or prevent our acquisition by a third party.

Our certificate of incorporation and by-laws contain several provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval of our board of directors. These provisions, which may delay, prevent, or deter a merger, acquisition, tender offer, proxy contest or other transaction that stockholders may consider favorable, include the following, some of which may only become effective upon the Triggering Event:

 

   

the 20 vote per share feature of our Class Y common stock;

 

   

the fact that our Class Y common stock retains its 20 vote per share feature until such share of Class Y common stock is canceled/redeemed for no consideration upon, subject to certain exceptions, (i) the disposition of (a) the paired Endeavor Operating Company Units (and the corresponding shares of Class X common stock) and/or (b) the shares of Class A common stock (as a result of a redemption of paired Endeavor Operating Company Units (and the corresponding shares of Class X common stock) paired with such Class Y common stock or as a result of other transfers thereof) or (ii) a Triggering Event;

 

   

the division of our board of directors into three classes and the election of each class for three-year terms;

 

   

the sole ability of the Executive Committee, prior to the Triggering Event, to fill a vacancy on the board of directors;

 

   

prior to a Triggering Event and subject to certain exceptions, the vesting of all the power and authority of our board of directors to our Executive Committee;

 

   

advance notice requirements for stockholder proposals and director nominations;

 

   

after the Triggering Event, provisions limiting stockholders’ ability to call special meetings of stockholders, to require special meetings of stockholders to be called and to take action by written consent;

 

   

after the Triggering Event, in certain cases, the approval of holders representing at least 662/3% of the total voting power of the shares entitled to vote generally in the election of directors will be required for stockholders to adopt, amend or repeal our by-laws, or amend or repeal certain provisions of our certificate of incorporation;

 

   

the required approval of holders representing at least 662/3% of the total voting power of the shares entitled to vote at an election of the directors to remove directors; and

 

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the ability of our governing body to designate the terms of and issue new series of preferred stock without stockholder approval, which could be used, among other things, to institute a rights plan that would have the effect of significantly diluting the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our governing body.

These provisions of our certificate of incorporation and by-laws could discourage potential takeover attempts and reduce the price that investors might be willing to pay for shares of our Class A common stock in the future, which could reduce the market price of our Class A common stock. For more information, see “Description of Capital Stock.”

In the event of a merger, consolidation or tender or exchange offer, holders of our Class A common stock shall not be entitled to receive excess economic consideration for their shares over that payable to the holders of the Class C common stock.

No shares of Class C common stock, the primary purpose of which is to be available for issuance in connection with acquisitions, joint ventures, investments or other commercial arrangements, are currently issued and outstanding. If we choose to issue Class C common stock in the future, the holders of our Class A common stock shall not be entitled to receive economic consideration for their shares in excess of that payable to the holders of the then outstanding shares of Class C common stock in the event of a merger, consolidation or tender or exchange offer, even though our Class C common stock does not have the right to vote. This would result in a lesser payment to the holders of Class A common stock than if there are no shares of Class C common stock outstanding at the time of such merger, consolidation or tender or exchange offer. For more information, see “Description of Capital Stock.”

The provision of our certificate of incorporation requiring exclusive venue in the Court of Chancery in the State of Delaware for certain types of lawsuits and the federal district courts of the United States for the resolution of any complaint asserting a cause of action under the Securities Act may have the effect of discouraging lawsuits against our directors and officers.

Our amended and restated certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, (A) the Court of Chancery of the State of Delaware be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of our company, (ii) any action asserting a claim of breach of fiduciary duty owed by any director (including any director serving as a member of the Executive Committee), officer, agent or other employee or stockholder of our company to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, the amended and restated certificate of incorporation or our by-laws or as to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) any action asserting a claim governed by the internal affairs doctrine, in each case subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein or, if such court does not have subject matter jurisdiction thereof, the federal district court located in the State of Delaware; and (B) the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Notwithstanding the foregoing, the exclusive forum provision shall not apply to claims seeking to enforce any liability or duty created by the Exchange Act. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers. It is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in such action. If a court were to find the choice of forum provisions contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition, or results of operations.

 

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As a public company, our costs may increase, and the regular operations of our business may be disrupted.

We have historically operated as a privately owned company, and we have incurred, and expect to in the future incur, significant additional legal, accounting, reporting, and other expenses as a result of having publicly traded common stock, including, but not limited to, increased costs related to auditor fees, legal fees, directors’ fees, directors and officers insurance, investor relations, and various other costs. We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under the Exchange Act, the Sarbanes-Oxley Act and the Dodd–Frank Wall Street Reform and Consumer Protection Act, 2010, as well as rules implemented by the Securities and Exchange Commission (the “SEC”) and the Public Company Accounting Oversight Board. Compliance with these rules and regulations will make some activities more difficult, time-consuming, or costly, and increase demand, and, as a result, may place a strain on our systems and resources. Moreover, the additional demands associated with being a public company may disrupt regular operations of our business by diverting the attention of some of our senior management team away from revenue producing activities.

In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us, which could have an adverse effect on our business, financial condition, and results of operations.

Risks Related to Tax Matters

Tax matters may cause significant variability in our financial results.

Our businesses are subject to income taxation in the United States, as well as in many tax jurisdictions throughout the world. Tax rates in these jurisdictions may be subject to significant change. If our effective tax rate increases, our operating results and cash flow could be adversely affected. Our effective income tax rate can vary significantly between periods due to a number of complex factors including, but not limited to, projected levels of taxable income, pre-tax income being lower than anticipated in countries with lower statutory rates or higher than anticipated in countries with higher statutory rates, increases or decreases to valuation allowances recorded against deferred tax assets, tax audits conducted and settled by various tax authorities, adjustments to income taxes upon finalization of income tax returns, the ability to claim foreign tax credits, and changes in tax laws and their interpretations in countries in which we are subject to taxation.

We may be required to pay additional taxes as a result of the new partnership audit rules.

The Bipartisan Budget Act of 2015 changed the rules applicable to U.S. federal income tax audits of partnerships, including entities such as Endeavor Operating Company that are taxed as partnerships. Under these rules (which generally are effective for taxable years beginning after December 31, 2017), subject to certain exceptions, audit adjustments to items of income, gain, loss, deduction, or credit of an entity (and any holder’s share thereof) is determined, and taxes, interest, and penalties attributable thereto, are assessed and collected, at the entity level. Although it is uncertain how these rules will continue to be implemented, it is possible that they could result in Endeavor Operating Company (or any of its applicable subsidiaries that are or have been treated as partnerships for U.S. federal income tax purposes) being required to pay additional taxes, interest and penalties as a result of an audit adjustment, and we, as an indirect member of Endeavor Operating Company (or

 

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such other entities), could be required to indirectly bear the economic burden of those taxes, interest, and penalties even though we may not otherwise have been required to pay additional corporate-level taxes as a result of the related audit adjustment.

Under certain circumstances, Endeavor Operating Company may be eligible to make an election to cause holders of Endeavor Operating Company Units to take into account the amount of any understatement, including any interest and penalties, in accordance with such holders’ interest in Endeavor Operating Company in the year under audit. We will decide whether to cause Endeavor Operating Company to make this election in our sole discretion. If Endeavor Operating Company does not make this election, the then-current holders of Endeavor Operating Company Units (including Endeavor Group Holdings as an indirect member of Endeavor Operating Company) would economically bear the burden of the understatement even if such holders had a different percentage interest in Endeavor Operating Company during the year under audit, unless, and only to the extent, Endeavor Operating Company is able to recover such amounts from current or former impacted holders of Endeavor Operating Company. Similar rules also apply with respect to any of Endeavor Operating Company’s subsidiaries that are or have been treated as partnerships for U.S. federal income tax purposes.

The changes created by these new rules are sweeping, and in many respects, dependent on the promulgation of future regulations or other guidance by the U.S. Department of the Treasury.

The tax classification of Endeavor Operating Company could be challenged.

Endeavor Operating Company has been and we intend that it will continue to be treated as a partnership for federal and, if applicable, state or local income tax purposes and not as an association taxable as a corporation. However, if any taxing authority were to successfully assert otherwise, the tax consequences resulting therefrom would be materially different than those described elsewhere in this prospectus.

We may be required to fund withholding tax upon certain exchanges of Endeavor Operating Company Units into shares of our common stock by non-U.S. holders

In the event of a transfer by a non-U.S. transferor of an interest in a partnership that is engaged in a U.S. trade or business, the transferee generally must withhold tax in an amount equal to ten percent of the amount realized (as determined for U.S. federal income tax purposes) by the transferor on such transfer. After the Reorganization Transactions, holders of Endeavor Operating Company Units may include non-U.S. holders. Pursuant to the Endeavor Operating Company Agreement, any non-U.S. holders’ Endeavor Operating Company Units may be redeemed for, at our election (subject to certain exceptions), either cash (based on the market price of a share of our Class A common stock) or shares of our Class A common stock (which redemption, if made for shares of Class A common stock, would be effectuated via a direct purchase by Endeavor Group Holdings). It is expected that we would have to withhold ten percent of the amount realized (as determined for U.S. federal income tax purposes) by the non-U.S. holders in respect of any such transactions. We may not have sufficient cash to satisfy such withholding obligation, and, we may be required to incur additional indebtedness or sell shares of our Class A common stock in the open market to raise additional cash in order to satisfy our withholding tax obligations.

We may incur certain tax liabilities attributable to our pre-IPO investors and Other UFC Holders as a result of the transactions that occurred in connection with our IPO.

In connection with our IPO, certain of our pre-IPO investors and certain Other UFC Holders, including certain affiliates of Silver Lake, merged with and into Endeavor Group Holdings. See “Prospectus Summary—Recent Developments—IPO.” As the successor to these merged entities, Endeavor Group Holdings will generally succeed to and be responsible for any outstanding or historical tax liabilities of the merged entities, including any liabilities that might be incurred as a result of the mergers described in the previous sentence. Any such liabilities for which Endeavor Group Holdings is responsible could have an adverse effect on our liquidity and financial condition.

 

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Our ability to use certain net operating loss carryforwards and certain other tax attributes may be limited.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in ownership of the relevant corporation by “5% shareholders” (as defined under U.S. income tax laws) that exceeds 50 percentage points over a rolling three-year period. Similar rules apply under state tax laws. If our corporate subsidiaries experience one or more ownership changes in connection with transactions in our stock, then we may be limited in our ability to use our corporate subsidiaries’ net operating loss carryforwards and other tax assets to reduce taxes owed on the net taxable income that such subsidiaries earn. Any such limitations on the ability to use net operating loss carryforwards and other tax assets could adversely impact our business, financial condition, and operating results.

General Risk Factors

We may face labor shortages that could slow our growth.

The successful operation of our business depends upon our ability to attract, motivate, and retain a sufficient number of qualified employees. Shortages of labor may make it increasingly difficult and expensive to attract, train, and retain the services of a satisfactory number of qualified employees and could adversely impact our events and productions. Competition for qualified employees could require us to pay higher wages, which could result in higher labor costs and could have an adverse effect on our business, financial condition, and results of operations.

We also rely on contingent workers and volunteers in order to staff our live events and productions, and our failure to manage our use of such workers effectively could adversely affect our business, financial condition, and results of operations. We could potentially face various legal claims from contingent workers and volunteers in the future, including claims based on new laws or stemming from employees being misclassified. We may be subject to shortages, oversupply, or fixed contractual terms relating to contingent workers. Our ability to manage the size of, and costs associated with, the contingent workforce may be subject to additional constraints imposed by local laws.

Exchange rates may cause fluctuations in our results of operations.

Because we own assets overseas and derive revenues from our international operations, we may incur currency translation losses or gains due to changes in the values of foreign currencies relative to the U.S. Dollar. We cannot, however, predict the effect of exchange rate fluctuations upon future operating results. Although we cannot predict the future relationship between the U.S. Dollar and the currencies used by our international businesses, principally the British Pound and the Euro, we experienced a foreign exchange rate net loss of less than $0.1 million for the quarter ended March 31, 2021. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Risk.”

Costs associated with, and our ability to, obtain insurance could adversely affect our business.

Heightened concerns and challenges regarding property, casualty, liability, business interruption, cancellation, and other insurance coverage have resulted from terrorist and related security incidents along with varying weather-related conditions and incidents, including those in connection with the COVID-19 pandemic. As a result, we may experience increased difficulty obtaining pandemic coverage or high policy limits of coverage at a reasonable cost and with reasonable deductibles. We cannot assure you that future increases in insurance costs and difficulties obtaining high policy limits and reasonable deductibles will not adversely impact our profitability, thereby possibly impacting our operating results and growth. We have a significant investment in property and equipment at each of our venues, which are generally located near major cities and which hold events typically attended by a large number of people.

 

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We cannot assure you that our insurance policy coverage limits, including insurance coverage for property, casualty, liability and business interruption losses, and acts of terrorism, would be adequate should one or multiple adverse events occur, or that our insurers would have adequate financial resources to sufficiently or fully pay our related claims or damages. We cannot assure you that adequate coverage limits will be available, offered at a reasonable cost, or offered by insurers with sufficient financial soundness. The occurrence of such an incident or incidents affecting any one or more of our venues could have an adverse effect on our financial position and future results of operations if asset damage or company liability were to exceed insurance coverage limits, or if an insurer were unable to sufficiently or fully pay our related claims or damages.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about us or our business, the price of our Class A common stock and trading volume could decline.

The trading market for our Class A common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our Class A common stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who cover us downgrades our Class A common stock or publishes inaccurate or unfavorable research about us or our business, our share price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which could cause our stock price and trading volume to decline. In addition, if our operating results fail to meet the expectations of securities analysts, our stock price would likely decline.

In making your investment decision, you should understand that we have not authorized any other party to provide you with information concerning this public offering or us.

You should carefully evaluate all of the information in this prospectus. We have in the past received, and may continue to receive, a high degree of media coverage, including coverage that is not directly attributable to statements made by our officers or employees, that incorrectly reports on statements made by our officers or employees, or that is misleading as a result of omitting information provided by us, our officers, or our employees. We have not authorized any other party to provide you with information concerning this public offering or us.

Future changes to U.S. and foreign tax laws could adversely affect us.

The Group of Twenty (“the G20”), the OECD, the U.S. Congress and Treasury Department and other government agencies in jurisdictions where we and our affiliates do business have had an extended focus on issues related to the taxation of multinational corporations, including, but not limited to, transfer pricing, country-by-country reporting and base erosion. As a result, the tax laws in the United States and other countries in which we and our affiliates do business could change on a prospective or retroactive basis, and any such changes could have an adverse effect on our worldwide tax liabilities, business, financial condition, and results of operations.

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. You should not place undue reliance on forward-looking statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project” or, in each case, their negative, or other variations or comparable terminology and expressions. These statements are based on assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this prospectus, you should understand that these statements are not guarantees of performance or results and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. By their nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Although we believe that the forward-looking statements contained in this prospectus are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:

 

   

the impact of the COVID-19 global pandemic on our business, financial condition, liquidity and results of operations;

 

   

changes in public and consumer tastes and preferences and industry trends;

 

   

the effect of factors beyond our control, such as adverse economic conditions, on our operations;

 

   

our ability to adapt to or manage new content distribution platforms or changes in consumer behavior resulting from new technologies;

 

   

our reliance on our professional reputation and brand name;

 

   

our dependence on the relationships of our management, agents, and other key personnel with clients across many content categories;

 

   

our ability to identify, sign, and retain clients;

 

   

our ability to identify, recruit, and retain qualified and experienced agents and managers;

 

   

our ability to represent clients and also develop and sell content, which may create a conflict of interest;

 

   

our ability to avoid or manage conflicts of interest arising from our client and business relationships;

 

   

the loss or diminished performance of members of our executive management and other key employees;

 

   

our dependence on key relationships with television and cable networks, satellite providers, digital streaming partners, corporate sponsors, and other distribution partners;

 

   

our ability to effectively manage the integration of and recognize economic benefits from businesses acquired in our recent and future transactions, our operations at our current size, and any future growth;

 

   

the conduct of our operations through joint ventures and other investments with third parties;

 

   

immigration restrictions and related factors;

 

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failure in technology, including at live events, or security breaches of our information systems;

 

   

the unauthorized disclosure of sensitive or confidential client or customer information;

 

   

our substantial indebtedness;

 

   

our ability to protect our trademarks and other intellectual property rights, including our brand image and reputation, and the possibility that others may allege that we infringe upon their intellectual property rights;

 

   

the risks associated with the legislative, judicial, accounting, regulatory, political and economic risks and conditions specific to both domestic and international markets;

 

   

fluctuations in foreign currency exchange rates;

 

   

litigation and other proceedings to the extent uninsured or underinsured;

 

   

our ability to comply with the U.S. and foreign governmental regulations to which we are subject;

 

   

our compliance with certain franchise and licensing requirements of unions and guilds and dependence on unionized labor;

 

   

our control by Messrs. Emanuel and Whitesell, the Executive Holdcos, and the Silver Lake Equityholders;

 

   

risks related to our organization and structure;

 

   

risks related to tax matters; and

 

   

risks related to our Class A common stock.

These and other factors are more fully discussed in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and elsewhere in this prospectus. These risks could cause actual results to differ materially from those implied by forward-looking statements in this prospectus. Even if our results of operations, financial condition and liquidity and the development of the industry in which we operate are consistent with the forward looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods.

All information contained in this prospectus is materially accurate and complete as of the date of this prospectus. You should keep in mind, however, that any forward-looking statement made by us in this prospectus, or elsewhere, speaks only as of the date on which we make it. New risks and uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us. We have no obligation to update any forward-looking statements in this prospectus after the date of this prospectus, except as required by federal securities laws. All subsequent written and oral forward-looking statements concerning the proposed transaction or other matters and attributable to us or any other person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to within this prospectus. In light of these risks and uncertainties, you should keep in mind that any event described in a forward-looking statement made in this prospectus or elsewhere might not occur.

 

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USE OF PROCEEDS

We will not receive any proceeds from the sale of shares of common stock by the selling stockholders.

 

 

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DETERMINATION OF OFFERING PRICE

Our Class A common stock is listed on the NYSE under the symbol “EDR”. The actual offering price by the selling stockholders of the shares of our Class A common stock covered by this prospectus will be determined by prevailing market prices at the time of sale, by private transactions negotiated by the selling stockholders or as otherwise described in the section entitled “Plan of Distribution.”

 

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DIVIDEND POLICY

We do not anticipate declaring or paying any cash dividends to holders of our Class A common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance the growth of our business. If we decide to pay cash dividends in the future, the declaration and payment of such dividends will be at the sole discretion of the Executive Committee, prior to the Triggering Event, and thereafter of our board of directors and may be discontinued at any time. In determining the amount of any future dividends, our board of directors will take into account any legal or contractual limitations, restrictions in our debt agreements, including the Senior Credit Facilities, our actual and anticipated future earnings, cash flow, debt service and capital requirements, the amount of distributions to us from Endeavor Operating Company and other factors that our board of directors may deem relevant. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Debt Facilities” for more information on the restrictions the Senior Credit Facilities impose on our ability to declare and pay cash dividends. Because we are a holding company, our cash flow and ability to pay dividends depends upon the financial results and cash flows of our operating subsidiaries and the distribution or other payment of cash to us in the form of dividends or otherwise from Endeavor Operating Company. See “Risk Factors—Risks Related Our Class A Common Stock—We do not expect to pay any cash dividends for the foreseeable future.”

We expect that Endeavor Operating Company will make distributions to each of its members, including Endeavor Manager and holders of Endeavor Profits Units, in respect of the U.S. federal, state and local income tax liability attributable to each member’s allocable share of taxable income of Endeavor Operating Company, calculated using an assumed tax rate equal to the highest marginal combined income tax rate applicable to an individual or corporation resident in Los Angeles, California or New York, New York (whichever rate is higher), taking into account the deductibility of applicable state and local income taxes for U.S. federal income tax purposes (which are subject to substantial limitations for tax years 2018 through 2025). Tax distributions will be made quarterly, on an estimated basis. Tax distributions made in respect of Endeavor Operating Company Units (but not Endeavor Profits Units) will generally be made pro rata in respect of such Units, as described in the Endeavor Operating Company Agreement. However, in certain situations, tax distributions made to Endeavor Manager may be reduced (relative to those tax distributions made to other members of Endeavor Operating Company) to reflect the income tax rates to which Endeavor Manager and Endeavor Group Holdings are subject and certain other factors. Tax distributions made to a member of Endeavor Operating Company will generally be treated as an advance of and shall be credited against future distributions to such member and no adjustments will be made to the exchange ratio for members of Endeavor Operating Company or Endeavor Manager who exercise the redemption rights described above to account for prior tax distributions (and tax distributions paid prior to such an exercise of redemption rights will not reduce distributions otherwise payable to Endeavor Manager in respect of Endeavor Operating Company Units acquired in connection with the exercise of such redemption rights). We expect that Endeavor Manager will further distribute the proceeds of any such tax distributions to us on a non-pro rata basis.

 

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Table of Contents

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma consolidated statement of operations for the year ended December 31, 2020 and the three months ended March 31, 2021 give effect to (i) the Reorganization Transactions described under “Prospectus Summary—Recent Developments—IPO, Private Placement and UFC Buyout,” (ii) the creation or acquisition of certain tax assets in connection with the IPO and the Reorganization Transactions and the creation or acquisition of related liabilities in connection with entering into the tax receivable agreement with the Post-IPO TRA Holders, (iii) the adoption of the 2021 Incentive Award Plan, the issuance of the IPO grants upon the completion of the IPO, and the modification of certain pre-IPO equity-based awards, (iv) the IPO, the exercise by the underwriters option to purchase additional shares and the concurrent Private Placements and the application of those net proceeds, (v) the UFC Buyout, and (vi) the reduction of debt of $600 million as described under “Prospectus Summary—Recent Developments—Senior Credit Facilities,” as if each had occurred on January 1, 2020. The unaudited pro forma consolidated balance sheet as of March 31, 2021 gives effect to (i) the Reorganization Transactions described under “Prospectus Summary—Recent Developments—IPO, Private Placement and UFC Buyout ,” (ii) the acquisition or creation of certain tax assets in connection with the IPO and the Reorganization Transactions and the creation or acquisition of related liabilities in connection with entering into the tax receivable agreement with the Post-IPO TRA Holders, (iii) the adoption of the 2021 Incentive Award Plan, the issuance of the IPO grants upon the completion of the IPO, and the modification of certain pre-IPO equity-based awards, (iv) the IPO, the exercise of the underwriters’ option to purchase additional shares and the concurrent Private Placements and the application of those net proceeds, (v) the UFC Buyout and the fees and expenses related thereto, and (vi) the reduction of debt of $600 million, as if each had occurred on March 31, 2021.

The unaudited pro forma financial information has been derived from Endeavor Operating Company’s historical consolidated financial statements to give effect to pro forma events that are directly attributable to the Reorganization Transactions and the offering. The unaudited pro forma consolidated financial information reflects pro forma adjustments that are described in the accompanying notes and are based on available information and certain assumptions we believe are reasonable, but are subject to change.

Our historical financial information for the year ended December 31, 2020 has been derived from Endeavor Operating Company’s audited consolidated financial statements and accompanying notes included elsewhere in this prospectus. Our historical financial information for the three months ended March 31, 2021 has been derived from Endeavor Operating Company’s unaudited consolidated financial statements and accompanying notes included elsewhere in this prospectus. The unaudited pro forma financial information does not purport to be indicative of our results of operations or financial position had the relevant transactions occurred on the dates assumed and does not project our results of operations or financial position for any future period or date.

The unaudited pro forma financial information should be read together with “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our and Endeavor Operating Company’s respective consolidated financial statements and related notes thereto included elsewhere in this prospectus.

 

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Table of Contents

Unaudited Pro Forma Consolidated Statement of Operations

Year Ended December 31, 2020

 

(In thousands, except per share data)    Endeavor
Operating
Company,
LLC
Actual
    Adjustments
for the
Reorganization
Transactions
    As Adjusted
Before the
IPO
    Adjustments
for the IPO,
UFC Buyout
and the Use
of Proceeds
    Endeavor
Group
Holdings,

Inc.
Pro Forma
 

Revenue

   $ 3,478,743     $ —       $ 3,478,743     $ —       $ 3,478,743  

Operating expenses:

          

Direct operating costs

     1,745,275       —         1,745,275       —         1,745,275  

Selling, general and administrative expenses

     1,442,316       —         1,442,316       395,628 (a)      1,837,944  

Insurance recoveries

     (86,990     —         (86,990     —         (86,990

Depreciation and amortization

     310,883       —         310,883       —         310,883  

Impairment charges

     220,477       —         220,477       —         220,477  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     3,631,961       —         3,631,961       395,628       4,027,589  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (153,218     —         (153,218     (395,628     (548,846

Other (expense) income:

          

Interest expense, net

     (284,586     —         (284,586    
29,404
(o) 
    (255,182

Other income (expense), net

     81,087       —         81,087      
(28,000
)(o) 
   
53,087
 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes and equity losses of affiliates

     (356,717     —         (356,717     (394,224     (750,941

Provision for (benefit from) income taxes

     8,507       (4,968 )(b)      3,539       (4,153 )(b)      (614
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before equity losses of affiliates

     (365,224     4,968       (360,256     (390,071     (750,327

Equity losses of affiliates, net of tax

     (260,094     —         (260,094     —         (260,094
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (625,318     4,968       (620,350     (390,071     (1,010,421

Net income (loss) attributable to non-controlling interests

     29,616       (307,890 )(c)(d)      (278,274     (53,043 )(c)(d)      (331,317
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to Endeavor Group Holdings, Inc.

   $ (654,934   $ 312,858     $ (342,076   $ (337,028   $ (679,104
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma loss per share data:

          

Basic and diluted loss per share of Class A Common stockholders:

          

Basic

           $ (2.63

Diluted

           $ (2.63

Weighted average number of shares used in computing loss per share(e)

          

Basic

             257,986,944  

Diluted

             257,986,944  

See accompanying notes to unaudited pro forma financial information.

 

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Table of Contents

Unaudited Pro Forma Consolidated Statement of Operations

Three Months Ended March 31, 2021

 

(In thousands, except per share data)   Endeavor
Operating
Company,
LLC
Actual
    Adjustments
for the
Reorganization
Transactions
    As Adjusted
Before
the IPO
    Adjustments
for the IPO,
UFC Buyout
and the Use
of Proceeds
    Endeavor
Group
Holdings, Inc.
Pro Forma
 

Revenue

  $ 1,069,582     $ —       $ 1,069,582     $ —       $ 1,069,582  

Operating expenses:

         

Direct operating costs

    546,392       —         546,392       —         546,392  

Selling, general and administrative expenses

    381,113       —         381,113       19,773 (a)      400,886  

Insurance recoveries

    (19,657     —         (19,657     —         (19,657

Depreciation and amortization

    67,236       —         67,236       —         67,236  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    975,084       —         975,084       19,773       994,857  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    94,498       —         94,498       (19,773     74,725  

Other (expense) income:

         

Interest expense, net

    (68,351     —         (68,351     10,002 (o)      (58,349

Other income (expense), net

    (3,215     —         (3,215     —         (3,215
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and equity losses of affiliates

    22,932       —         22,932       (9,771     13,161  

Provision for (benefit from) income taxes

    5,085       (504 )(b)      4,581       (2,019 )(b)      2,562  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before equity losses of affiliates

    17,847       504       18,351       (7,752     10,599  

Equity losses of affiliates, net of tax

    (15,471     —         (15,471     —         (15,471
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    2,376       504       2,880       (7,752     (4,872

Net income (loss) attributable to non-controlling interests

    27,246       (11,643 )(c)(d)      15,603       (1,631 )(c)(d)      13,972  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to Endeavor Group Holdings, Inc.

  $ (24,870   $ 12,147     $ (12,723   $ (6,121   $ (18,844
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma loss per share data:

         

Basic and diluted loss per share of Class A Common stockholders:

         

Basic

          $ (0.07

Diluted

          $ (0.07

Weighted average number of shares used in computing loss per share(e)

         

Basic

            257,986,944  

Diluted

            257,986,944  

See accompanying notes to unaudited pro forma financial information.

 

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Table of Contents

Unaudited Pro Forma Consolidated Balance Sheet

As of March 31, 2021

 

(In thousands, except per interest and
share data)

   Endeavor
Operating
Company, LLC
Actual
     Adjustments
for the
Reorganization
Transactions
    As Adjusted
Before
the IPO
     Adjustments
for the IPO,
UFC Buyout
and the Use of
Proceeds(f)
    Endeavor
Group
Holdings, Inc.
Pro Forma
 

Assets

            

Current Assets:

            

Cash and cash equivalents

   $ 880,880      $ —       $ 880,880      $ 423,262 (f)    $ 1,304,142  

Restricted cash

     167,219        —         167,219        —         167,219  

Accounts receivable

     519,478        —         519,478        —         519,478  

Deferred costs

     195,038        —         195,038        —         195,038  

Other current assets

     189,108        —         189,108        (8,581 )(n)     180,527  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     1,951,723        —         1,951,723        414,681       2,366,404  

Property and equipment, net

     604,920        —         604,920        —         604,920  

Operating lease right-of-use
assets

     374,473        —         374,473        —         374,473  

Intangible assets, net

     1,550,160        —         1,550,160        —         1,550,160  

Goodwill

     4,181,616        —         4,181,616        —         4,181,616  

Investments

     225,065        —         225,065        —         225,065  

Other assets

     719,778        —         719,778        —         719,778  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 9,607,735      $  —       $ 9,607,735      $ 414,681     $ 10,022,416  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Liabilities, redeemable interests and members’/shareholders’ equity

            

Current Liabilities:

            

Accounts payable

   $ 497,218      $ —       $ 497,218      $ (4,555 )(n)    $ 492,663  

Accrued liabilities

     371,002        —         371,002        (2,705 )(n)     368,297  

Current portion of long-term debt

     103,213        —         103,213        —         103,213  

Current portion of operating lease liabilities

     58,700        —         58,700        —         58,700  

Deferred revenue

     660,269        —         660,269        —         660,269  

Deposits received on behalf of clients

     162,893        —         162,893        —         162,893  

Other current liabilities

     64,199        —         64,199        —         64,199  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     1,917,494        —         1,917,494        (7,260     1,910,234  

Long-term debt

     5,768,324        —         5,768,324        (579,743 )(o)      5,188,581  

Tax receivable agreement obligations

     —          45,539 (j)      45,539        30,637 (j)      76,176  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Long-term debt operating lease liabilities

     382,246        —         382,246        —         382,246  

Other long-term liabilities

     365,386        5,199 (j)       370,585        (3,546 )(h)(j)      367,039  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     8,433,450        50,738       8,484,188        (559,912     7,924,276  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Redeemable non-controlling interests

     168,773        22,519 (k)      191,292        (13,950 )(h)      177,342  

Redeemable equity

     22,519        (22,519 )(k)      —          —         —    

 

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Table of Contents

(In thousands, except per interest and
share data)

   Endeavor
Operating
Company, LLC
Actual
    Adjustments
for the
Reorganization
Transactions
    As Adjusted
Before the
IPO
    Adjustments
for the IPO,
UFC
Buyout and
the Use of
Proceeds(f)
    Endeavor
Group
Holdings, Inc.
Pro Forma
 

Members’/Shareholders’ Equity:

          

Class A common stock (par value, $0.00001), shares authorized and shares outstanding

     —         1 (i)       1       1 (i)       2  

Class B common stock (par value, $0.00001), shares authorized and shares outstanding

     —         —         —         —         —    

Class C common stock (par value, $0.00001), shares authorized and shares outstanding

     —         —         —         —         —    

Class X common stock (par value, $0.00001), shares authorized and shares outstanding

     —         1 (i)       1       —   (i)      1  

Class Y common stock (par value, $0.00001), shares authorized and shares outstanding

     —         2 (i)       2       —   (i)      2  

Additional paid-in capital

     —         185,768 (g)      185,768       1,169,383 (g)      1,355,151  

Accumulated deficit

     —         —         —         (329,182 )(m)      (329,182

Members’ capital

     447,320       (447,320 )(k)      —         —         —    

Accumulated other comprehensive loss

     (174,234     82,112 (l)      (92,122     12,693 (l)      (79,429
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Endeavor Operating Company, LLC/Endeavor Group Holdings, Inc. members’/shareholders’ equity

     273,086       (179,436     93,650       852,895       946,545  

Nonredeemable non-controlling interest

     709,907       128,698 (l)      838,605       135,648 (l)      974,253  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total members’/shareholders’ equity

     982,993       (50,738     932,255       988,543       1,920,798  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities, redeemable interests and members’/shareholders’ equity

   $ 9,607,735     $ —       $ 9,607,735     $ 414,681     $ 10,022,416  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited pro forma financial information.

 

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Table of Contents

Notes to Unaudited Pro Forma Financial Information

 

(a)

Reflects the effects of the following equity-based compensation expenses:

 

   

$155.6 million and $19.6 million of equity-based compensation expense for the year ended December 31, 2020 and the three months ended March 31, 2021, respectively, in relation to new awards under the 2021 Incentive Award Plan issued to certain employees and executives of the Company in connection with the IPO and vesting over periods greater than one year commencing on the awards’ grant date, which for pro forma purposes would be January 1, 2020. Such awards were granted by Endeavor Group Holdings, accordingly none of the related expense is attributable to non-controlling interests.

 

   

$244.0 million and $0.2 million of equity-based compensation expense at Endeavor Operating Company for the year ended December 31, 2020 and the three months ended March 31, 2021, respectively, in relation to the modification of certain pre-IPO equity-based awards primarily to remove certain forfeiture and discretionary call terms.

 

   

$4.0 million of equity-based compensation expense reversal at Endeavor Operating Company for the year ended December 31, 2020 in relation to elimination of put rights in connection with IPO (refer to note (h)).

 

(b)

Endeavor Operating Company has been, and will continue to be, treated as a partnership for U.S. federal and state income tax purposes. Following the reorganization, we are subject to U.S. federal income taxes, in addition to state, local and international taxes, with respect to our allocable share of any taxable income of Endeavor Operating Company. As a result, the consolidated statements of operations reflect adjustments to our income tax expense to reflect the effective tax rate of (0.99%) and 19.98% for the year ended December 31, 2020 and the three months ended March 31, 2021, respectively. In addition, following further adjustments for the IPO and Private Placements, the UFC Buyout and the use of proceeds, the pro forma consolidated statements of operations reflects adjustments to our income tax expense to reflect the effective tax rate of 0.08% and 19.47% for the year ended December 31, 2020 and the three months ended March 31, 2021, respectively. The effective tax rates include provisions for U.S. federal income taxes and our estimate of the total apportioned statutory rate for all state, local and/or foreign jurisdictions.

 

(c)

As described in “Prospectus Summary—Recent Developments—IPO, Private Placement and UFC Buyout,” upon completion of the Reorganization Transactions, Endeavor Group Holdings became the sole managing member of Endeavor Manager, which is the sole managing member of Endeavor Operating Company. Endeavor Group Holdings owns less than 100% of the economic interest in Endeavor Operating Company through Endeavor Manager but has the sole voting rights and controls the management of Endeavor Operating Company.

Upon completion of the Reorganization Transactions and prior to the IPO, Endeavor Group Holdings’ indirect ownership percentage in Endeavor Operating Company is 52.87%. Net loss attributable to non-controlling interests represents 47.13% of net loss.

Immediately following the completion of the IPO, Endeavor Group Holdings’ indirect ownership percentage in Endeavor Operating Company is 60.16%. Net loss attributable to non-controlling interests represents 39.84% of net loss.

 

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Table of Contents
(d)

Reflects the effects on net loss attributable to non-controlling interests relating to the following ($ in thousands):

 

     Year Ended
December 31, 2020
    Three Months Ended
March 31, 2021
 

Adjustments for the Reorganization Transactions

    

Historical loss apportioned to non-controlling interest(1)

   $ (308,653   $ (11,721

Additional corporation tax benefit allocable to non-controlling interest(2)

     763       78  
  

 

 

   

 

 

 
   $ (307,890   $ (11,643

Adjustments for the IPO and Private Placements and the Use of Proceeds

    

Change in allocation of historical loss to non-controlling interest(3)

   $ 47,711     $ 1,812  

Additional stock-based compensation expense apportioned to non-controlling interest(4)

     (95,616     (92

Additional income tax expense apportioned to non-controlling interest(5)

     435       213  

Change in allocation of historical income to non-controlling interest for the UFC Buyout(6)

     (17,289     (7,579

Reduction of interest expense apportioned to non-controlling interest(7)

     11,716       4,015  
  

 

 

   

 

 

 
   $ (53,043   $ (1,631

 

  (1)

This allocation is computed based upon the non-controlling interest in Endeavor Operating Company of 47.13%, upon completion of the Reorganization Transactions and prior to the IPO and Private Placements, multiplied by historical net loss attributable to Endeavor Operating Company of $654.9 million and $24.9 million for the year ended December 31, 2020 and the three months ended March 31, 2021, respectively.

  (2)

This allocation is computed based upon the non-controlling interest in Endeavor Manager of 15.36%, upon completion of the Reorganization Transactions and prior to the IPO and Private Placements, multiplied by additional corporation tax benefit of $5.0 million and $0.5 million for the year ended December 31, 2020 and the three months ended March 31, 2021, respectively.

  (3)

Computed based upon the 7.29% decrease in the non-controlling interest in Endeavor Operating Company from 47.13% to 39.84%, multiplied by historical net loss attributable to Endeavor Operating Company of $654.9 million and $24.9 million for the year ended December 31, 2020 and the three months ended March 31, 2021, respectively.

  (4)

This allocation is computed based upon the non-controlling interest in Endeavor Operating Company of 39.84%, multiplied by additional net stock-based compensation expense of $240.0 million and $0.2 million at Endeavor Operating Company for the year ended December 31, 2020 and the three months ended March 31, 2021, respectively (refer note (a)).

  (5)

Computed based upon the non-controlling interest in Endeavor Manager of 10.46% multiplied by additional income tax benefit of $4.2 million and $2.0 million, as a result of the increase in our proportionate interest in Endeavor Operating Company following the use of proceeds of the IPO and Private Placements, for the year ended December 31, 2020 and for the three months ended March 31, 2021, respectively.

  (6)

Computed based upon the increase in the ownership interest at Endeavor Group Holdings in UFC multiplied by the historical net income attributable to Endeavor Operating Company.

  (7)

Computed based upon the non-controlling interest in Endeavor Manager of 39.84% multiplied by the reduction of interest expense of $29.4 million and $10.0 million, as a result of the increase in our proportionate interest in Endeavor Operating Company following the use of proceeds of the IPO and Private Placements, for the year ended December 31, 2020 and for the three months ended March 31, 2021, respectively.

 

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(e)

The weighted average number of shares underlying the basic loss per share calculation reflects only the 257,986,944 shares of Class A common stock, as they are the only outstanding shares after the IPO and the exercise of the underwriters’ option to purchase additional shares, which participate in the economics of Endeavor Group Holdings. The weighted average number of shares underlying the diluted loss per share calculation similarly reflects the 257,986,944 shares of Class A common stock as any conversion of the Class A common stock options would have an anti-dilutive effect on loss per share. Additionally, the exchange of Endeavor Operating Company Units or Endeavor Manager Units together with paired shares of Class X common stock would not have a dilutive effect on loss per share as loss attributable to Endeavor Group Holdings would increase proportionately with each exchange.

 

(f)

The following sets forth the sources and uses of funds in connection with the IPO of 24,495,000 shares of Class A common stock at a public offering price of $24.00 per share, which included the exercise of the underwriters’ option to purchase additional shares of 3,195,000 shares of Class A common stock at a price of $24.00 per share , the Private Placements at a price of $24.00 per share and the UFC Buyout:

Sources:

 

   

$587.9 million gross cash proceeds to us from the offering of Class A common stock in the IPO and the exercise of the underwriters’ option to purchase additional shares; and

 

   

$1,377.1 million gross cash proceeds to us from the sale of Class A common stock in the Private Placements.

 

Uses:

 

   

we used $79.4 million to pay underwriting discounts and commissions and offering expenses (which were borne by Endeavor Operating Company through a reduction in the contributions described immediately below), $1.3 million of which has been paid as of March 31, 2021 and is classified as other current assets on the consolidated balance sheet (refer to note (n));

 

   

we used $835.7 million to purchase Endeavor Operating Company Units (or interests in UFC Parent) directly from certain of the Other UFC Holders (or their affiliates) at a price of $24.00 per unit (with respect to Endeavor Operating Company Units);

We contributed $1,053.1 million to Endeavor Manager in exchange for a number of Endeavor Manager Units equal to the contribution amount, divided by the price of $24.00 per share paid by the underwriters for shares of our Class A common stock in the IPO. Endeavor Manager then, in turn, contributed such contribution amount to Endeavor Operating Company in exchange for an equal number of Endeavor Operating Company Units. Endeavor Operating Company used $3.2 million of such contribution amount to pay a portion of the $79.4 million of expenses, leaving Endeavor Operating Company with $1,049.9 million of estimated remaining net proceeds from the IPO (including the sale of shares under the over-allotment option) and the concurrent private placements. Endeavor Operating Company will use such remaining proceeds for working capital and general corporate purposes, including the approximate $628 million used to repay outstanding borrowings under our Senior Credit Facilities and a related early prepayment fee.

 

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(g)

Reflects the effects on additional paid-in capital relating to the following ($ in thousands):

 

Adjustments for the Reorganization Transactions

  

Par value of Class A, X and Y common stock issued

   $ (4.0

Proportionate allocation of historical member’s capital to Endeavor Group Holdings(1)

     236,509  

Basis differences in Endeavor Operating Company (refer to note (j))

     (58,774

Deferred tax assets, net of valuation allowances, recognized (refer to note (j))

     53,576  

TRA liability (refer to note (j))

     (45,539
  

 

 

 
   $ 185,768  

Adjustments for the IPO and Private Placements and the Use of Proceeds

  

Proceeds from offering and Private Placements of Class A common stock

   $ 1,964,963  

Less: par value of shares of Class A common stock issued

     (0.2

Reduction of proceeds for offering costs

     (69,480

Reduction for the UFC Buyout

     (431,821

Change in Endeavor Operating Company’s net assets after the offering and the UFC Buyout attributable to the non-controlling interest

     (418,849

Issuance of new equity-based compensation awards in Endeavor Group Holdings upon the consummation of the IPO (refer to note (a))

     155,643  

Basis differences in Endeavor Operating Company (refer to note (j))

     (36,480

Change in deferred tax assets, net of valuation allowances, recognized (refer to note (j))

     36,043  

Change in TRA liability (refer to note (j))

     (30,636
  

 

 

 
   $ 1,169,383  

 

  (1)

This allocation is computed based upon Endeavor Group Holdings’ interest in Endeavor Operating Company of 52.87%, upon completion of the Reorganization Transactions and prior to the IPO and Private Placements, multiplied by historical members’ capital of $447.3 million.

 

(h)

Reflects the elimination, in connection with the IPO, of certain put rights previously granted to certain senior executives whereby such individuals could elect to sell vested equity interests to Endeavor Operating Company. As of March 31, 2021, Endeavor Group Holdings had $13.9 million recorded in redeemable non-controlling interest and $4.0 million in other long-term liabilities in relation to such put rights, which is being reclassified to nonredeemable non-controlling interest and derecognized, respectively.

 

(i)

Represents the par value of shares of our Class A, Class X and Class Y common stock that we will issue in connection with the Reorganization Transactions, the Private Placements and the UFC Buyout. See Reorganization Transactions as described in “Prospectus Summary—Recent Developments—IPO, Private Placement and UFC Buyout.”

 

(j)

In connection with the mergers of certain of the pre-IPO investors with and into Endeavor Group Holdings, we acquired each entities’ respective units of Endeavor Operating Company and will succeed to their aggregate historical tax basis.

Adjustments for the Reorganization Transactions

As part of the reorganization, the total tax benefit from this step-up in tax basis is approximately $1,109.3 million and will be amortized over 15 years pursuant to Section 197 of the U.S. Internal Revenue Code of 1986, as amended. We estimate that it is more likely than not that we will not realize the full benefit represented by the deferred tax asset and therefore, recorded a valuation allowance resulting in a net deferred tax asset of $53.6 million. In addition, as part of these mergers, we entered into a tax receivable agreement with the Post-IPO TRA Holders to pay them 85% of the tax savings realized. We have recorded a TRA liability of $45.5 million, which represents 85% of the tax savings that we are more likely than not expected to realize. The $8.1 million difference between the net deferred tax asset and the TRA liability is recorded as an increase in additional paid-in capital.

 

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Adjustments for the IPO and Private Placements and Use of Proceeds

There is an increase of $36.0 million in the net deferred tax asset described above. Accordingly, the related TRA liability increased by $30.6 million. The difference between such increases is recorded as an increase to additional paid-in capital. Additionally, the deferred tax liability increased by $36.5 million.

 

(k)

Represents the elimination of $447.3 million of historical members’ capital in Endeavor Operating Company, and related recognition of $236.5 million and $210.8 million of additional paid-in capital and nonredeemable non-controlling interests, respectively, in consolidated Endeavor Group Holdings as described in notes (g) and (l). In addition, redeemable equity for put rights previously granted of $22.5 million (refer to note (h)) are reclassed to redeemable non-controlling interests in consolidated Endeavor Group Holdings. See Reorganization Transactions as described in “Prospectus Summary—Recent Developments—IPO, Private Placement and UFC Buyout.”

 

(l)

Reflects the effects on nonredeemable non-controlling interest relating to the following ($ in thousands):

 

Adjustments for the Reorganization Transactions

  

Proportionate allocation of historical capital to nonredeemable non-controlling interest(1)

   $ 210,810  

Proportionate allocation of historical accumulated other comprehensive loss to nonredeemable non-controlling interest(1)

     (82,112
  

 

 

 
   $ 128,698  

Adjustments for the IPO and Private Placements and the Use of Proceeds

  

Reduction for the UFC Buyout

   $ (413,722

Change in Endeavor Operating Company’s net assets after the offering and the UFC Buyout attributable to the nonredeemable non-controlling interest.

     418,849  

Change in allocation of accumulated other comprehensive loss to nonredeemable non-controlling interest(2)

     (12,693

Elimination of equity unit put rights—reclassification of redeemable non-controlling interest to nonredeemable non-controlling interest (refer note (h))

     13,950  

Elimination of equity unit put rights—proportionate allocation of credit to income to nonredeemable non-controlling interest

     1,587  

Effects of the equity-based compensation expenses at Endeavor Operating Company for modification of certain pre-IPO equity-based awards-proportionate allocation of expense to nonredeemable non-controlling interest

     146,904  

Effects of the partial write-off of previously capitalized deferred issuance costs and original issuance discount for the $600 million reduction in debt and the approximate $28 million early repayment fee—proportionate allocation of expense to nonredeemable non-controlling interest

     (19,227
  

 

 

 
   $ 135,648  

 

  (1)

This allocation is computed based upon the nonredeemable non-controlling interest in Endeavor Operating Company of 47.13%, upon completion of the Reorganization Transactions and prior to the IPO and Private Placements, multiplied by historical members’ capital of $447.3 million, and accumulated other comprehensive loss of $174.2 million, respectively.

  (2)

Computed based upon the 7.29% decrease in the nonredeemable non-controlling interest in Endeavor Operating Company from 47.13% to 39.84%, following the IPO and Private Placements and use of proceeds, multiplied by historical members’ capital of $447.3 million, and accumulated other comprehensive loss of $174.2 million, respectively.

 

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(m)

Reflects the effects on retained earnings relating to the following ($ in thousands):

 

Adjustments for the IPO and Private Placements and the Use of Proceeds

  

Elimination of equity unit put rights—proportionate allocation of non-recurring credit to income to retained earnings(1)

   $ 2,396  

Reflects the effects of equity-based compensation expenses (refer to note (a))(1)

     (302,547

Reflects the effect of the partial write-off of previously capitalized deferred issuance costs and original discount for the $600 million reduction in debt and the related approximate $28 million early repayment fee(1)

     (29,031
  

 

 

 
   $ (329,182

 

  (1)

This allocation is computed based upon the ownership interest in Endeavor Operating Company of 60.16%, following the IPO and Private Placements and use of proceeds, multiplied by the non-recurring income of $4.0 million for the termination of put rights (refer to note (h)), $244.2 million non-recurring equity-based compensation expense (refer to note (a)) and the $20.3 million write-off of previously capitalized deferred issuance costs and original discount. In addition, the effects of equity-based compensation expenses include $155.6 million for new awards granted by Endeavor Group Holdings (refer to note (a)).

 

(n)

Reflects the reclassification of capitalized pre-IPO offering costs from other current assets to additional paid-in capital and the settlement of such unpaid costs in accounts payable and accrued liabilities as of March 31, 2021.

 

(o)

We caused Endeavor Operating Company to use $600 million of the net proceeds to repay outstanding borrowings under our Senior Credit Facilities. The related impact to the pro forma consolidated balance sheet reflects the reduction in the net carrying value of our long-term debt from such repayment offset by $20.3 million of partial write-off of previously capitalized deferred issuance costs and original issuance discount, as if such repayment had occurred on March 31, 2021. The related impact to the pro forma consolidated statements of operations reflects changes to interest expense as if the repayment had occurred on January 1, 2020, including the impact on amortization of deferred issuance costs and original issuance discount as if these had been partially written off on January 1, 2020 in connection with such partial repayment. Such adjustment reflects a reduction in interest expense of $29.4 million and $10.0 million for the year ended December 31, 2020 and the three months ended March 31, 2021, respectively. In addition, the consolidated statement of operations for the year ended December 31, 2020 reflects an adjustment of $28 million for an estimated early prepayment fee.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

We were formed as a Delaware corporation in January 2019 and have not, to date, conducted any activities other than those incident to our formation and the preparation of this prospectus and the registration statement of which this prospectus forms a part. On May 3, 2021, we closed our initial public offering.

The selected historical consolidated statements of operations data for the years ended December 31, 2018, 2019 and 2020 and the selected historical consolidated balance sheet data as of December 31, 2019 and 2020 presented below have been derived from Endeavor Operating Company’s audited consolidated financial statements included elsewhere in this prospectus. The selected historical consolidated statements of operations data for the years ended December 31, 2016 and 2017 and the selected historical consolidated balance sheet data as of December 31, 2016, 2017 and 2018 presented below have been derived from Endeavor Operating Company’s audited consolidated financial statements not included in this prospectus. The selected historical consolidated statements of operations data for the three months ended March 31, 2020 and 2021 and the selected historical consolidated balance sheet data as of March 31, 2021 have been derived from Endeavor Operating Company’s unaudited consolidated financial statements included elsewhere in this prospectus.

The results of operations for the periods presented below are not necessarily indicative of the results to be expected for any future period. Please refer to the footnotes below as well as the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview—Factors that May Influence Future Results of Operations” for additional information on the factors that impact the comparability of the information presented below.

You should read the following information in conjunction with “Unaudited Pro Forma Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our respective consolidated financial statements and related notes thereto included elsewhere in this prospectus.

 

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The following table sets forth selected historical consolidated financial data of Endeavor Operating Company for the periods presented.

Consolidated Statements of Operations Data:

 

    Years Ended December 31,     Three Months
Ended March 31,
 
(in thousands, except per
share data)
  2016(1)     2017(2)     2018     2019     2020     2020     2021  

Revenue

  $ 2,366,960     $ 3,020,116     $ 3,613,478     $ 4,570,970     $ 3,478,743     $ 1,190,397     $ 1,069,582  

Total operating expenses

    2,364,114       3,078,241       3,720,897       4,360,434       3,631,961       1,136,633       975,084  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss) from continuing operations

    2,846       (58,125     (107,419     210,536       (153,218     53,764       94,498  

Interest expense, net

    (197,707     (261,226     (277,200     (270,944     (284,586     (69,984     (68,351

(Loss) income from continuing operations, net of tax

    (129,130     (200,159     (463,694     (525,661     (625,318     (51,261     2,376  

Income (loss) from discontinued operations, net of tax (including gain on sale in 2018)

    30,814       26,991       694,998       (5,000     —       —         —    

Net (loss) income

    (98,316     (173,168     231,304       (530,661     (625,318     (51,261     2,376  

Net (loss) income attributable to non-controlling interests

    (58,417     (111,919     (85,241     23,158       29,616       3,695       27,246  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to Endeavor Operating Company, LLC

  $ (39,899   $ (61,249   $ 316,545     $ (553,819   $ (654,934   $ (54,956   $ (24,870
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated Balance Sheet Data:

 

     As of December 31,      Three Months
Ended March 31,
 
(in thousands)    2016(1)      2017(2)      2018      2019      2020      2021  

Cash and cash equivalents

   $ 368,181      $ 800,026      $ 768,080      $ 705,348      $ 1,008,485      $ 880,880  

Total assets, including discontinued operations

     8,308,228        8,893,460        9,665,132        9,292,299        9,633,634        9,607,735  

Long-term debt, including current portion

     4,405,608        4,587,545        4,642,013        5,045,273        5,925,805        5,768,324  

Total liabilities, including discontinued operations

     6,034,382        6,257,278        6,674,443        7,424,214        8,478,885        8,433,450  

Redeemable non-controlling interests

     140,669        149,368        155,666        136,809        168,254        168,773  

Redeemable equity

     —        —        43,693        43,693        22,519        22,519  

Members’ equity

     599,282        1,258,015        1,585,066        913,274        277,847        447,320  

Nonredeemable non-controlling interests

     1,533,895        1,228,799        1,206,264        774,309        686,129        709,907  

Total members’ equity

     2,133,177        2,486,814        2,791,330        1,687,583        963,976        982,993  

 

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(1)

The consolidated statement of operations data for the year ended December 31, 2016 and the consolidated balance sheet data as of December 31, 2016 includes the effects of the UFC Acquisition since August 18, 2016.

(2)

The consolidated balance sheet data as of December 31, 2017 includes the effects of the issuance of 508.2 million Class A common units for approximately $1.3 billion.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this prospectus, as well as the information presented under “Selected Historical Consolidated Financial Data.” The historical consolidated financial data discussed below reflect our historical results of operations and financial position and relate to periods prior to the Reorganization Transactions described in “Prospectus Summary—Recent Developments—IPO” and do not give effect to pro forma adjustments. As a result, the following discussion does not reflect the significant impact that such events will have on us. See “Unaudited Pro Forma Financial Information” for more information.

The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this prospectus, particularly in “Risk Factors” and “Forward-Looking Statements.” Unless otherwise indicated, references in this prospectus to 2018, 2019, 2020 and 2021 are to our fiscal years ended or ending December 31, 2018, 2019, 2020 and 2021, respectively.

BUSINESS OVERVIEW

Endeavor is a premium intellectual property, content, events, and experiences company. We own and operate premium sports properties, including the UFC, produce and distribute sports and entertainment content, own and manage exclusive live events and experiences, and represent top sports and entertainment talent, as well as blue chip corporate clients. Founded as a client representation business, we expanded organically and through strategic mergers and acquisitions, investing in new capabilities, including sports operations and advisory, events and experiences management, media production and distribution, brand licensing, and experiential marketing. The addition of these new capabilities and insights transformed our business into an integrated global platform anchored by owned and managed premium intellectual property.

Segments

We operate our business in three segments: (i) Owned Sports Properties; (ii) Events, Experiences & Rights; and (iii) Representation.

Owned Sports Properties

Our Owned Sports Properties segment is comprised of a unique portfolio of scarce sports properties, including UFC, PBR and Euroleague, that generate significant growth through innovative rights deals and exclusive live events.

Through the UFC, the world’s premier professional MMA organization, we produce more than 40 live events annually which are broadcast in over 160 countries and territories to approximately one billion TV households. UFC was founded in 1993 and has grown in popularity after hosting more than 500 events and reaching a global audience through an increasing array of broadcast license agreements and our owned FIGHT PASS streaming platform. The value of our content is demonstrated by our licensing arrangements with ESPN and other international broadcasters and our increasing consumer engagement is reflected by the growth of FIGHT PASS subscribers and overall follower growth and engagement across our social channels.

PBR is the world’s premier bull riding circuit with more than 500 bull riders from the United States, Australia, Brazil, Canada, and Mexico, competing in more than 200 bull riding events each year pre-pandemic. PBR is one of America’s fastest growing sports with annual attendance for its premier series quadrupling since its inception in 1995.

 

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We have an up to 20-year partnership with Euroleague, which could extend into 2036, to manage and capitalize on all of the commercial business of the league, including media rights, sponsorship, content production, licensing, digital distribution, events staging, and hospitality, for which we receive a management fee. Euroleague is one of the most popular indoor sports leagues in the world, averaging attendance of over 8,500 per game in the 2019-2020 season.

Events, Experiences & Rights

In our Events, Experiences & Rights segment, we own, operate, and provide services to a diverse portfolio of over 800 live events annually, including sporting events covering 20 sports across 25 countries, international fashion weeks, art fairs and music, culinary and lifestyle festivals. We own and operate many of these events, including the Miami Open, HSBC Champions, Frieze Art Fair, New York Fashion Week, and Hyde Park Winter Wonderland, and we have a strategic partnership with the PGA-sanctioned Asian Tour. We also operate other events on behalf of third parties, including the AIG Women’s British Open and Fortnite World Cup. Through On Location, we are a leader in providing premium experiences, historically providing more than 900 per year for sporting and music events such as the Super Bowl, Ryder Cup, NCAA Final Four, and Coachella.

We are one of the largest independent global distributors of sports video programming and data. We sell media rights globally on behalf of more than 150 clients such as the International Olympic Committee (“IOC”), the NFL, and National Hockey League (“NHL”), as well as for our owned assets and channels. We also provide league advisory services given the array of experience we have to offer. Through IMG ARENA, we work with more than 470 leading sportsbook brands worldwide to deliver live streaming video and data feeds for more than 45,000 sports events annually, as well as for on-demand virtual sports products including our own UFC Event Centre. We also leverage the technology derived from IMG ARENA to provide streaming video solutions to our clients and our owned assets via Endeavor Streaming.

Additionally, we own and operate IMG Academy, a leading academic and sports training institution located in Florida.

Representation

Our Representation segment provides services to more than 7,000 talent and corporate clients and includes our content division, Endeavor Content. Our Representation business deploys a subset of our integrated capabilities on behalf of our clients.

Through our client representation and management businesses, including the WME talent agency and IMG Models, we represent a diverse group of talent across entertainment, sports, and fashion, including actors, directors, writers, athletes, models, musicians, and other artists, in a variety of mediums, such as film, television, books, and live events. Through our 160over90 business, we provide brand strategy, marketing, advertising, public relations, analytics, digital, activation, and experiential services to many of the world’s largest brands. Through IMG Licensing, we provide IP licensing services to a large portfolio of entertainment, sports, and consumer product brands, including representing these clients in the licensing of their logos, trade names, and trademarks. Endeavor Content provides a premium alternative to traditional content studios, offering a range of services including content development, production, financing, sales, and advisory services for creators.

Components of Our Operating Results

Revenue

In our Owned Sports Properties segment, we primarily generate revenue via media rights fees, pay-per-view, sponsorships, ticket sales, subscriptions and license fees. In our Events, Experiences & Rights segment, we primarily generate revenue from media rights sales, production service and studio fees, sponsorships, ticket and premium experience sales, subscriptions, streaming fees, tuition, profit sharing, and commissions. In our

 

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Representation segment, we generate revenue primarily through commissions, packaging fees, marketing and consulting fees, production fees, and content licensing fees.

Direct Operating Costs

Our direct operating costs primarily include third-party expenses associated with the production of events and experiences, content production costs, operation of our training and education facilities, and fees for media rights, including required payments related to sales agency contracts when minimum sales guarantees are not met.

Selling, General and Administrative

Our selling, general and administrative expenses primarily include personnel costs as well as rent, professional service costs, and other overhead required to support our operations and corporate structure.

Provision for Income Taxes

Endeavor Operating Company is a limited liability company, which is treated as a partnership for U.S. federal income tax purposes and is therefore not subject to U.S. corporate income taxes. Endeavor Operating Company’s U.S. and foreign corporate subsidiaries are subject to entity-level taxes. Endeavor Operating Company is also subject to entity-level income taxes in certain U.S. state and local jurisdictions.

Impact of the COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The COVID-19 pandemic has rapidly changed market and economic conditions globally, including significantly impacting the entertainment and sports industries as well as our business, results of operations, financial position and cash flows.

The COVID-19 pandemic resulted in various governmental restrictions and began to have a significant adverse impact on our business and operations beginning in March 2020, including the lack of ticketed PBR and UFC events and the early cancellation of the 2019-2020 Euroleague season adversely impacting our Owned Sports Properties segment; the postponement or cancellation of live sporting events and other in-person events adversely impacting our Events, Experiences & Rights segment; and stoppages of entertainment productions, including film, television shows and music events, as well as reduced corporate spending on marketing, experiential and activation, adversely impacting our Representation segment. Furthermore, following the merger of our IMG College business with Learfield, the operating results of the merged business have been weaker than anticipated driven by lower than expected sales and have been further impacted by COVID-19 as a result of the delay, cancellation of or shortened college football season and the prohibition of fans by many teams, which has resulted in impairment charges at Learfield IMG College adversely impacting our equity earnings. We also recognized goodwill and intangible asset impairment charges primarily at our Events, Experiences & Rights segment, driven by lower projections as a result of the impact of COVID-19 and restructuring in certain of our businesses. In the future, any further impact to our business as a result of COVID-19 could result in additional impairments of goodwill, intangibles, long-term investments and long-lived assets.

In response to the COVID-19 pandemic, we implemented cost-savings initiatives across the organization in 2020, including salary reductions, hiring freezes, furloughs, reduced work arrangements, and reductions of our workforce, eliminating costs for consultants, reducing travel and expenses, reducing our marketing spend, cancelling internal company events, and reducing other operating expenses, capital expenditures, and acquisition activity. We believe the actions we have taken and continue to implement will enhance our financial flexibility and provide us the ability to scale up quickly as the impact of the COVID-19 pandemic subsides.

 

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Additionally, in order to protect the health and safety of our employees, particularly given the severity of the pandemic in New York, California and London, we have continued to limit access to our corporate offices and our corporate workforce has spent, and continues to spend, a significant amount of time working from home during this period. Access to our offices will remain limited until we are able to safely and responsibly re-open them on a broader basis in accordance with governmental and public health guidance, as well as health and safety policies tailored to our operations. In addition to other cost-cutting measures taken during COVID-19, we have negotiated rent deferrals under certain of our leases for some portion of the work-from-home period. This deferred rent will be repaid into 2022.

While activity has resumed in certain of our businesses and restrictions have been lessened or lifted—for example, major sporting events for which we have media rights have restarted without, or with limited numbers of, fans and have gradually increased permitted fan attendance, film and television productions have begun in certain areas around the world, fashion photo shoots have taken place virtually, and students have returned to IMG Academy—restrictions impacting certain of our businesses remain in effect in locations where we are operating and could in the future be reduced or increased, or removed or reinstated. As a result of this and numerous other uncertainties, including the duration of the pandemic, the effectiveness of mass vaccinations and other public health efforts to mitigate the impact of the pandemic, additional postponements or cancellations of live sporting events and other in-person events, and changes in consumer preferences towards our business and the industries in which we operate, we are unable to accurately predict the full impact of COVID-19 on our business, results of operations, financial position and cash flows, but acknowledge that its impact on our business and results of operations may be material. The ongoing pandemic has had a significant impact on our cash flows from operations. We expect that recovery will continue to be gradual and that the wider impact on revenue and cash flows will vary, but will generally depend on the factors listed above and the general uncertainty surrounding COVID-19. As an example, for those live events that resume, attendance may continue at significantly reduced levels throughout 2021, and any resumption may bring increased costs to comply with new health and safety guidelines. After considering the impact of COVID-19, the effects of the Company’s related cost saving initiatives and the proceeds received from the IPO and Private Placements, the Company believes that existing cash, cash generated from operations and available capacity for borrowings under its credit facilities will satisfy working capital requirements, capital expenditures, and debt service requirements for at least the succeeding year.

Factors that May Influence Future Results of Operations

Our financial results of operations may not be comparable from period to period due to several factors. Key factors affecting our results of operations are summarized below.

Industry Growth

Our financial profile is associated with several secular trends in the industries we serve. Demand for our services and owned assets is, in part, driven by the growth of our underlying end markets and how much capital our clients invest to support their businesses. We are also impacted by how much consumers spend to access content and immersive experiences. The level of consumer spending depends, in turn, on consumer content consumption trends as well as preferences related to specific formats of consumption.

Our Owned Sports Properties segment benefits from the growth of the global sports market, which according to The Business Research Company (via MRDC) was $144 billion in 2019 and includes revenues from sports media rights, tickets, sponsorship, and merchandising. This figure is expected to increase to $172 billion by 2023, reflecting a 4% CAGR. Spending on sports media rights continues to be a significant component of revenues in the sports industry with rights values appreciating consistently over the past decade. Our market constituents include linear and digital distributors, which acquire sports media rights and broadcast sports content. In 2019, global sports media rights spend was $39 billion, having grown at a 9% CAGR since 2017, according to The Business Research Company (via MRDC), and this is expected to grow at an 8% CAGR to

 

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$53 billion in 2023. The rise of streaming, increased legalization of sports betting, increased competition from tech entrants, and continued viewership appeal attribute to the projected growth on the rights price tags.

Our Events, Experiences & Rights segment also benefits from the growth in demand for sports media as well as live events. According to Technavio (Infiniti Research’s “Global Ticket Market 2018-2022” and “Ticket Market by Event Type, Source, and Geography—Forecast and Analysis 2020-2024”), the global sporting events, concerts, and performing arts ticket industry segment was $79 billion in 2019 and is expected to grow at a 5% CAGR to $102 billion by 2024. This growth has also benefited from secular tailwinds as consumers, particularly millennials, continue to seek more unique tactile experiences that they can document and broadcast through social media.

Our Representation segment is driven by growth in the television and film industry, demand for live music events, as well as marketing spend by brands. According to Ampere Analysis, the combined spend in both global film and television content was $128 billion in 2019 and is expected to grow at a 7% CAGR to $183 billion by 2024. Television subscription fees across traditional cable, satellite and OTT distribution channels are rising, increasing the value of television and film content. The proliferation of acquirers of content, including broadcast networks, cable networks, satellite providers and OTT providers such as Netflix, Amazon, Hulu, HBO Max, ViacomCBS, and Comcast, has increased the competition for high-quality, original programming as well as library content. The film industry is also benefitting from growth in digital home viewing and premium movie-going experiences. As a sign of the importance of live events across the media landscape, in 2018 the top-earning musicians generated more of their income from touring than from any other source, according to Billboard. Additionally, sponsorships have become a key strategy for brands to obtain exposure, achieve better recall, communicate themes and achieve increased consumer engagement.

Our ability to generate revenue is highly sensitive to rapidly changing consumer preferences and industry trends, as well as the popularity of the talent and brands we represent, and the assets, including sports leagues and events, that we own. In the near term, we also expect our ability to generate revenue will be impacted by our ability to adapt to changes in the industries in which we operate due to the impact of COVID-19, such as safety protocols allowing talent to return to production sets, music venues, and other live events, and transitioning to digital offerings where in person attendance is restricted. In addition, our success depends on our ability to offer premium content through popular channels of distribution that meet the changing preferences of the broad consumer market and respond to competition from an expanding array of choices facilitated by technological developments in the delivery of content. We believe our platform, at the core of the entertainment, sports, and content ecosystem, is highly responsive to changing consumer preferences and industry trends, with the ability to create, procure and cultivate satisfying consumer content, all while successfully completing strategic acquisitions and further expanding our capabilities. Our longevity, industry-leading access, scale and global footprint are emblematic of our ability to address challenges and risks related to our business and our growth strategy.

Organic Growth Investments

We have built businesses organically that take advantage of our unique role within the sports and entertainment ecosystem, and we will continue to invest in such areas. For example, we developed sports data distribution capabilities through IMG ARENA to address the emergence of online sports gaming services. We grew IMG ARENA primarily organically and the business now provides video feeds to more than 470 sportsbook brands globally and distributes data and streaming for more than 45,000 sporting events annually. We used this technology as the foundation for Endeavor Streaming, our content streaming services platform which provides streaming video solutions to our clients and our owned assets.

In 2017, we started Endeavor Content, a premium content studio providing a full-service alternative to traditional studios, offering a range of services including content development, production, financing, sales, and advisory services for creators. Since its inception, Endeavor Content has financed and/or sold more than 200 projects, including “La Land,” “Just Mercy,” “Hamilton,” “Normal People,” and “See.”

 

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Acquisitions

A key component of our growth strategy is to utilize the breadth and scale of our platform to identify attractive opportunities to either enhance our existing businesses or grow our portfolio of owned assets. Our platform and agency-driven insights allow us to identify new industry trends and related acquisition opportunities, and we often benefit from inbound and proprietary opportunities. We have a core competency in evaluating and integrating these acquisitions with a disciplined approach.

In April 2016, we acquired experiential marketing agencies Fusion Marketing and IMG Live to strengthen our marketing capabilities and, in August 2016, we acquired a controlling financial interest in UFC, the world’s premier professional MMA organization. These acquisitions increased our portfolio of owned assets and reinforced our leading position in the entertainment and sports industry. Immediately after the closing of the IPO, we consummated the UFC Buyout whereby we acquired equity interests in UFC Parent from the Other UFC Holders. See “—UFC Buyout.”

In January 2018, we acquired 160over90, a full-service branding and marketing service group specializing in the higher education, sports and lifestyle sectors. Subsequently, we rebranded our marketing capabilities (including Fusion Marketing, IMG Live and others) under the 160over90 brand. In May 2018, we acquired NeuLion, a technology product and service provider specializing in digital video broadcasting, streaming and distribution, and monetization of live and on-demand content to internet-enabled devices. These acquisitions complement our platform by broadening our brand management and digital streaming capabilities.

In January 2020, we acquired On Location, a premium experiential hospitality business that serves iconic rights holders with extensive experience in ticketing, curated hospitality, live event production, and travel management in the worlds of sports and entertainment. The NFL is a minority owner and strategic partner in On Location.

These and future acquisitions may make it more difficult to evaluate our performance period over period. We have significant goodwill and intangible assets from prior acquisitions. The amortization of definite-lived intangibles assets will continue to adversely impact our results of operations. Future acquisitions may increase such goodwill and intangible asset balances, further adversely impacting our results of operations. We remain focused on executing our long-term goals and objectives, which include integrating our acquisitions and continuing to seek opportunities to further enhance our platform.

Timing of Events

Our financial results and liquidity needs vary from quarter-to-quarter or year-to-year depending on the timing of our owned and represented events, signing of business transactions on behalf of our clients (e.g., film production, book releases, or music tours), and representing entities tied to marquee global occasions (e.g., the Super Bowl). However, given the scale, breadth, and diversity of our clients and our portfolio of owned assets, we are not dependent on any one single client. Because our results may vary significantly from quarter-to-quarter or year-to-year, our financial results for one quarter or one year cannot necessarily be compared to another quarter or year and may not be indicative of our future financial performance in subsequent quarters or years.

Equity Method Investment in Learfield IMG College

Effective December 31, 2018, we completed the merger of our IMG College business with Learfield to form Learfield IMG College. Our financial results are impacted by our 36% ownership of the equity interests of Learfield IMG College, which is recognized as an equity method investment. Following the merger, the combined business performed weaker than anticipated and the operating results have been further adversely impacted in 2020 by the impact of COVID-19 on college sports. Such operating performance has resulted in Learfield IMG College recognizing impairment charges that have adversely impacted our results. As a result, we

 

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have recognized equity losses of affiliates, net of tax, of approximately $366.8 million and $250.7 million for the years ended December 31, 2019 and December 31, 2020, respectively. Our operating results may continue to be adversely impacted by the operating results of Learfield IMG College. The carrying value of our investment as of March 31, 2021, was approximately $88.7 million. Subsequent to March 31, 2021, certain existing Learfield IMG College investors recapitalized the Learfield IMG College business with an aggregate equity contribution of approximately $242 million, which included an investment from Endeavor of approximately $109.1 million. Following the investment and recapitalization, our ownership in Learfield IMG College is approximately 42%. This investment will continue to be accounted for under the equity method of accounting.

Market and Economic Conditions.

Our business depends on discretionary consumer and corporate spending. Many factors related to corporate spending and discretionary consumer spending, including economic conditions affecting disposable consumer income such as pandemics (e.g., COVID-19), unemployment levels, fuel prices, interest rates, changes in tax rates and tax laws that impact companies or individuals and inflation, can impact our operating results. While consumer and corporate spending may decline at any time for reasons beyond our control, the impacts on our results of operations become more acute in periods of a slowing economy or recession, which may be accompanied by changes in corporate sponsorship and advertising and decreases in attendance at live entertainment and sports events. During periods of reduced economic activity, many consumers have historically reduced their discretionary spending and advertisers have reduced their sponsorship and advertising expenditures, which can result in a reduction in sponsorship opportunities. A prolonged period of reduced consumer or corporate spending (including as a result of the continued COVID-19 pandemic), could have an adverse effect on our business, financial condition and results of operations.

Risks Associated with Future Results of Operations

For additional information on the risks associated with future results of operations, please see “Risk Factors—Risks Related to Our Business,” “Risk Factors—Risks Related to Our Business—The impact of the COVID-19 global pandemic could continue to materially and adversely affect our business, financial condition, and results of operations,” “Risk Factors—Risks Related to Our Business—Changes in public and consumer tastes and preferences and industry trends could reduce demand for our services and content offerings and adversely affect our business,” “Risk Factors—Risks Related to Our Business—Our ability to generate revenue from discretionary and corporate spending on entertainment and sports events, such as corporate sponsorships and advertising, is subject to many factors, including many that are beyond our control, such as general macroeconomic conditions,” “Risk Factors—Risks Related to Our Business—Owning and managing certain events for which we sell media and sponsorship rights, ticketing and hospitality exposes us to greater financial risk. If the live events that we own and manage are not financially successful, our business could be adversely affected,” “Risk Factors—Risks Related to Our Business—We are signatory to certain franchise agreements of unions and guilds and are subject to certain licensing requirements of the states in which we operate. We are also signatories to certain collective bargaining agreements and depend upon unionized labor for the provision of some of our services. Our clients are also members of certain unions and guilds that are signatories to collective bargaining agreements. Any expiration, termination, revocation or non-renewal of these franchises, collective bargaining agreements, or licenses and any work stoppages or labor disturbances could adversely affect our business” and “Business—Growth Strategies.”

UFC Buyout

Substantially simultaneous with the closing of the IPO, we consummated the UFC Buyout whereby we acquired equity interests in UFC Parent (including warrants of UFC Parent from the Other UFC Holders (or their affiliates) resulting in Endeavor Operating Company directly or indirectly owning 100% of the equity interests of UFC Parent.

 

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As a result of the UFC Buyout, we no longer attribute income (loss) to non-controlling interests in our consolidated statement of operations and recognize a reduction in nonredeemable non-controlling interests on our consolidated balance sheet. Furthermore, restrictions on dividends under the UFC LLC Agreement are no longer in place after the UFC Buyout, although restrictions from the UFC Credit Facilities remain in place.

Reorganization

Prior to the closing of the IPO on May 3, 2021, we undertook the Reorganization Transactions described in “Prospectus Summary—Recent Developments—IPO.” Endeavor Group Holdings is now a holding company, and its principal asset is an equity interest in a newly formed subsidiary of Endeavor Group Holdings, Endeavor Manager, of which Endeavor Group Holdings serves as the managing member. Endeavor Manager is in turn the managing member of Endeavor Operating Company. Endeavor Group Holdings manages and operates the business and controls the strategic decisions and day-to-day operations of Endeavor Manager as its sole managing member, and Endeavor Operating Company as its indirect sole managing member, and also has a substantial financial interest in Endeavor Manager and Endeavor Operating Company. Accordingly, Endeavor Group Holdings consolidates the results of operations of Endeavor Manager and Endeavor Operating Company, and a portion of Endeavor Group Holding’s net income (loss) is allocated to non-controlling interests to reflect the entitlements of certain former members of Endeavor Operating Company who retain ownership interests in Endeavor Manager and Endeavor Operating Company.

After consummation of the IPO and the Reorganization Transactions described above, we became subject to U.S. federal, state and local income taxes with respect to our allocable share of any taxable income of Endeavor Manager and Endeavor Operating Company, and we are taxed at the prevailing corporate tax rates. Endeavor Operating Company makes distributions to us in an amount sufficient to allow us to pay our tax obligations and operating expenses, including distributions to fund any ordinary course payments due under the Tax Receivable Agreement. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

In addition, we have begun implementing and will continue to implement additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to continue to incur expenses related to these steps and, among other things, additional directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses. We have recognized and will continue to recognize certain non-recurring costs as part of our transition to a publicly traded company, consisting of professional fees and other expenses.

 

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RESULTS OF OPERATIONS

The following is a discussion of our consolidated results of operations for the years ended December 31, 2018, 2019 and 2020 and the three months ended March 31, 2020 and 2021. This information is derived from our accompanying consolidated financial statements prepared in accordance with GAAP. The results of operations of the IMG College business are presented as discontinued operations for the periods prior to its disposal effective December 31, 2018.

 

     Years ended December 31,     Three Months ended
March 31,
 
(in thousands)    2018     2019     2020     2020     2021  

Revenue

   $ 3,613,478     $ 4,570,970     $ 3,478,743     $ 1,190,397     $ 1,069,582  

Operating expenses:

          

Direct operating costs

     1,722,134       2,323,269       1,745,275       681,284       546,392  

Selling, general and administrative expenses

     1,632,804       1,753,938       1,442,316       388,971       381,113  

Insurance recoveries

     —       —       (86,990     (17,119     (19,657

Depreciation and amortization

     365,959       280,749       310,883       80,447       67,236  

Impairment charges

     —       2,478       220,477       3,050       —  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     3,720,897       4,360,434       3,631,961       1,136,633       975,084  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income from continuing operations

     (107,419     210,536       (153,218     53,764       94,498  

Other (expense) income:

          

Interest expense, net

     (277,200     (270,944     (284,586     (69,984     (68,351

Other income (expense), net

     57,519       (69,226     81,087       25,357       (3,215
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before income taxes and equity losses of affiliates

     (327,100     (129,634     (356,717     9,137       22,932  

Provision for income taxes

     88,235       3,371       8,507       48,604       5,085  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before equity losses of affiliates

     (415,335     (133,005     (365,224     (39,467     17,847  

Equity losses of affiliates, net of tax

     (48,359     (392,656     (260,094     (11,794     (15,471
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations, net of tax

     (463,694     (525,661     (625,318     (51,261     2,376  

Income (loss) from discontinued operations, net of tax (including gain on sale in 2018)

     694,998       (5,000     —       —       —  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     231,304       (530,661     (625,318     (51,261     2,376  

Net (loss) income attributable to non-controlling interests

     (85,241     23,158       29,616       3,695       27,246  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Endeavor Operating Company, LLC

   $ 316,545     $ (553,819   $ (654,934   $ (54,956   $ (24,870
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenue

Revenue decreased $120.8 million, or 10.1%, to $1,069.6 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

 

   

Owned Sports Properties increased by $51.3 million, or 22.1%. The increase was primarily driven by an increase in media rights fees and event related revenue due to the increase in the number of events held at UFC.

 

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Events, Experiences & Rights decreased by $129.2 million, or 19.3%. The decline was primarily attributable to cancellations, postponements and capacity restrictions of live sport events and other in-person events partially offset by an increase in media rights fees primarily driven by the delay of the 2020 soccer season in Europe, which resulted in modified schedules for most leagues moving matches into 2021, all resulting from COVID-19.

 

   

Representation decreased by $43.8 million, or 15.0%. The decline was primarily driven by the impact of COVID-19 on corporate spending on marketing and experiential activations as well as a reduction at Endeavor Content due to fewer content deliveries in the three months ended March 31, 2021.

Revenue decreased $1,092.2 million, or 23.9%, to $3,478.7 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 (excluding the impact of On Location, revenue decreased 30.2% in the year ended December 31, 2020 compared to the year ended December 31, 2019).

 

   

Owned Sports Properties increased by $16.9 million, or 1.8%. The increase in our Owned Sports Properties segment was driven by increased rights fees at UFC of $20.0 million, in addition to a $24.9 million increase from a contract termination fee, partially offset by the lower number of events as well as the lack of ticket sales for UFC and PBR events and the early cancellation of the Euroleague season from the impact of COVID-19.

 

   

Events, Experiences & Rights decreased by $390.7 million, or 19.7%. The decline was primarily attributable to COVID-19 related impacts which resulted in the postponement or cancellation of live sporting events and other in-person events starting in mid-March and was partially offset by $289.5 million related to the acquisition of On Location.

 

   

Representation decreased by $729.9 million, or 43.6%. The decline was primarily driven by the impact of COVID-19 on talent and brand representation due to the stoppages of entertainment productions, including film, television shows, and music events, as well as reduced corporate spending on marketing and activation starting in mid-March.

Revenue increased $957.5 million, or 26.5%, to $4,571.0 million for the year ended December 31, 2019 compared to 2018.

 

   

Owned Sports Properties increased by $163.0 million, or 21.1%. The growth was primarily driven by increased media rights fees from the UFC long-term domestic media rights and residential pay-per-view contracts with ESPN that became effective in the first half of 2019.

 

   

Events, Experiences & Rights increased by $433.0 million, or 27.9%, compared to the period prior. The growth was attributable to increased media rights fees, primarily related to major soccer events, which only had a partial year in 2018.

 

   

Representation increased by $367.7 million, or 28.1%. The growth was primarily driven by talent and brand representation, delivery of additional film and television projects at Endeavor Content, and growth in 160over90 and Licensing.

Direct operating costs

Direct operating costs decreased $134.9 million, or 19.8%, to $546.4 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The decrease was primarily attributable to approximately $226 million of reduced event costs resulting from the postponement, cancellation and capacity restrictions of sports and live events due to COVID-19. This decrease was partially offset by an increase of approximately $108 million in media rights costs related to the COVID-19 delay of the 2020 soccer season in Europe, which resulted in modified schedules for most leagues moving matches into 2021.

Direct operating costs decreased $578.0 million, or 24.9%, to $1,745.3 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease was primarily attributable to

 

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approximately $541 million of reduced event costs, media rights fees and sports production costs resulting from the postponement or cancellation of sports and live events due to COVID-19 (of which approximately $75 million relates to timing of deferred media rights costs that will be recognized as direct operating costs during 2021 when such sports events occur) and approximately $222 million of lower content amortization expenses due to a reduction in content delivery in 2020, partially offset by approximately $234 million of increases in costs related to On Location acquired in January 2020.

Direct operating costs increased $601.1 million, or 34.9%, to $2,323.3 million for the year ended December 31, 2019 compared to 2018. Approximately $335 million of the increase was attributable to media rights fees, primarily related to major soccer events, which only had a partial year in 2018, as well as growth in IMG ARENA. Approximately $195 million of the increase was attributable to content amortization expenses primarily related to the delivery of film and television projects at Endeavor Content. The remaining increase related to higher costs in owned events and sports production and 160over90.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased $7.9 million, or 2.0%, to $381.1 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The decrease was principally due to lower cost of personnel, reduced travel and other operating expenses resulting from the ongoing impact of our 2020 COVID-19 related cost savings initiatives.

Selling, general and administrative expenses decreased $311.6 million, or 17.8%, to $1,442.3 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease principally reflects our COVID-19 related cost savings initiatives including lower cost of personnel resulting from pay reductions, furloughs and workforce reductions, and reduced travel and other operating expenses. This decrease was partially offset by $56.9 million of selling, general and administrative costs associated with On Location. We expect that certain of our SG&A costs will increase as COVID-19 related restrictions ease over time and business activity increases.

Selling, general and administrative expenses increased $121.1 million, or 7.4%, to $1,753.9 million for the year ended December 31, 2019 compared to 2018. The increase principally reflects higher personnel related costs, primarily related to acquisitions including NeuLion and growth in our existing businesses, and higher professional service costs including offering costs incurred, offset by a decrease of $48.0 million in equity-based compensation expense.

In connection with the IPO, we are expecting to incur a one-time equity-based compensation charge of approximately $225 million relating to the treatment of existing equity interests in Endeavor Operating Company as a result of the Reorganization Transactions (which charge, for the avoidance of doubt, did not involve the issuance of any equity).

Insurance recoveries

We maintain events cancellation insurance policies for a significant number of our events. For the three months ended March 31, 2021 and 2020, we recognized $19.7 million and $17.1 million of insurance recoveries, respectively, which primarily related to cancelled events in our Events, Experiences & Rights segment due to COVID-19.

For the year ended December 31, 2020, we recorded $87.0 million of insurance recoveries, which primarily relate to cancelled events in our Events, Experiences & Rights segment, as well as in PBR in our Owned Sports Properties segment, due to COVID-19.

 

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Depreciation and amortization

Depreciation and amortization decreased $13.2 million, or 16.4%, to $67.2 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The decrease was primarily driven by certain UFC intangible assets becoming fully amortized in August 2020.

Depreciation and amortization increased $30.1 million, or 10.7%, to $310.9 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase was primarily driven by the amortization of intangible assets recognized in connection with our 2020 acquisitions of On Location and the remaining 50% of the membership interests of FC Diez Media.

Depreciation and amortization decreased $85.2 million to $280.7 million for the year ended December 31, 2019 compared to 2018. The decrease was primarily driven by certain intangible assets related to the UFC Acquisition becoming fully amortized, partially offset by the amortization of intangible assets recognized in connection with the acquisition of NeuLion in May 2018.

Impairment charges

For the three months ended March 31, 2020, we recorded $3.1 million of intangible asset impairment charges primarily in our Events, Experiences & Rights and Representation segments.

For the year ended December 31, 2020, we recorded $220.5 million of goodwill and intangible asset impairment charges primarily at our Events, Experiences & Rights segment, driven by lower projections as a result of the impact of COVID-19 and restructuring in certain of our businesses.

Interest expense, net

Interest expense, net decreased $1.6 million to $68.4 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, principally due to the decline in interest rates and the repricing of the UFC Credit Facilities offset by an increase in our indebtedness.

Interest expense, net increased $13.6 million to $284.6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019, principally due to lower short-term rates, partially offset by higher indebtedness incurred through additional borrowings.

Interest expense, net decreased $6.3 million to $270.9 million for the year ended December 31, 2019 compared to 2018, principally due to lower short-term interest rates.

Other income (expense), net

Other income (expense), net changed from income of $25.4 million for the three months ended March 31, 2020 to expense of $3.2 million for the three months ended March 31, 2021. The expense for the three months ended March 31, 2021 included an $11.4 million loss due to the change in the fair value of embedded foreign currency derivatives partially offset by $7.8 million of gains from changes in fair value of equity investments. The income for the three months ended March 31, 2020 primarily included a $27.1 million gain recognized for the acquisition of the remaining 50% membership interests of FC Diez Media and a $8.1 million gain related to the deconsolidation of Asian Tour Media partially offset by $8.1 million related to foreign currency transaction losses and $2.3 million related to the write off of certain investments.

Other income (expense), net changed from expense of $69.2 million for the year ended December 31, 2019 to income of $81.1 million for the year ended December 31, 2020. The expense for the year ended December 31, 2019 primarily included a $27.4 million impairment of equity investments and related note receivable and a

 

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$39.3 million loss related to the change in the fair value of embedded foreign currency derivatives. The income for the year ended December 31, 2020 included gains of $27.1 million, $8.1 million, $15.3 million and $12.7 million recorded for the acquisition of the remaining 50% of the membership interests of FC Diez Media, the deconsolidation of Asian Tour Media, the gain on the sale of an investment and the change in the fair value of embedded foreign currency derivatives, respectively.

Other income (expense), net changed from income of $57.5 million for the year ended December 31, 2018 to expense of $69.2 million for the year ended December 31, 2019. The income of $57.5 million for the year ended December 31, 2018 was primarily driven by a net increase in the fair value for certain equity investments and a gain on the disposal of a business partially offset by an increase in the fair value of the UFC warrant liabilities. The expense of $69.2 million for the year ended December 31, 2019 was primarily driven by a $27.4 million impairment of equity investments and related note receivable and a $39.3 million loss related to the change in the fair value of embedded foreign currency derivatives.

Provision for income taxes

The provision for income taxes decreased $43.5 million to $5.1 million for the three months ended March 31, 2021. The change was primarily due to tax expense of $32.3 million related to acquisitions and subsequent tax restructuring during the three months ended March 31, 2020 as compared to March 31, 2021.

The provision for income taxes increased $5.1 million to $8.5 million for the year ended December 31, 2020 compared to 2019. The change is primarily due to tax expense of $24.1 million related to the On Location Events acquisition and subsequent tax restructuring, $10.2 million to revise the tax provision related to a prior year acquisition and subsequent tax restructuring, offset by a $7.2 million decrease in unrecognized tax benefits, and the release of $19.1 million of valuation allowances on net deferred U.S. tax assets, exclusive of deferred tax liabilities on indefinite lived intangible assets, state income taxes, and foreign tax credits.

The provision for income taxes decreased $84.9 million to $3.4 million for the year ended December 31, 2019 compared to 2018. The decrease in the provision was primarily due to net tax expense of $21.8 million related to the 2018 acquisition of NeuLion and subsequent tax restructuring, and $17.5 million of tax expense related to the tax impact of losses recognized on certain agreements for foreign statutory purposes subject to limitation under foreign tax law in 2018 as compared to 2019, and in 2019, a $31.3 million decrease in tax expense related to foreign operations and a $14.8 million decrease in state income taxes.

Equity losses of affiliates, net of tax

Equity losses of affiliates increased $3.7 million to $15.5 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Equity losses for the three months ended March 31, 2021 is primarily due to the losses related to our investment in Learfield IMG College. Equity losses for the three months ended March 31, 2020 is primarily due to the losses related to our investment in Learfield IMG College and the impairment of one of our investments offset by income from our investment in FC Diez Media (prior to the acquisition of the remaining 50% membership interests).

Equity losses of affiliates decreased $132.6 million to $260.1 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. Equity losses were primarily due to the $250.7 million of losses from our Learfield IMG College investment. The decrease in equity losses of affiliates was primarily driven by lower equity method impairments.

Equity losses of affiliates increased $344.3 million to $392.7 million for the year ended December 31, 2019 compared to 2018. The increase in equity losses of affiliates was primarily driven by our investment in Learfield IMG College. The results of Learfield IMG College for the year ended December 31, 2019 include a charge as a result of its annual goodwill and indefinite-lived intangible assets impairment test. Additionally, during the year ended December 31, 2019, the Company recorded an other-than-temporary impairment of $117.0 million resulting from continued losses and limited expectations for recovery.

 

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Income (loss) from discontinued operations, net of tax

Loss from discontinued operations was $5.0 million for the year ended December 31, 2019 compared to income from discontinued operations of $695.0 million for the year ended December 31, 2018. The loss for the year ended December 31, 2019 reflects an amendment to the working capital adjustment related to the disposal of our IMG College business. The income for the year ended December 31, 2018 reflects the gain we recorded on the sale of our IMG College business of $729.3 million, partially offset by the results of the IMG College business which were adversely affected by professional fees related to the merger with Learfield.

Net (loss) income attributable to non-controlling interests

Net income attributable to non-controlling interests increased $23.6 million to $27.2 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase was primarily driven by the increase in the net income attributable to the UFC.

Net income attributable to non-controlling interests increased $6.5 million to $29.6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase was primarily driven by an increase in net income from UFC offset by the net loss allocated to the non-controlling interest holders from the acquisition of On Location.

Net income attributable to non-controlling interests was $23.2 million for the year ended December 31, 2019 compared to net loss attributable to non-controlling interests of $85.2 million for the year ended December 31, 2018. The change to net income was primarily driven by UFC generating net income for the year ended December 31, 2019 as compared to a net loss for 2018, as well as the partial year impact of the redemption of the UFC Class P Units that occurred in the third quarter of 2019.

SEGMENT RESULTS OF OPERATIONS

We classify our business into three reporting segments: Owned Sports Properties; Events, Experiences & Rights; and Representation. Our Chief Operating Decision Maker evaluates the performance of our segments based on segment Revenue and segment Adjusted EBITDA. Management believes segment Adjusted EBITDA is indicative of operational performance and ongoing profitability and is used to evaluate the operating performance of our segments and for planning and forecasting purposes, including the allocation of resources and capital.

Segment operating results reflect earnings before corporate and unallocated shared expenses. Segment operating results include allocations of certain costs, including facilities, technology, and other shared services costs, which are allocated based on metrics designed to correlate with consumption. These allocations are agreed-upon amounts between the businesses and may differ from amounts that would be negotiated in arm’s length transactions.

 

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The following tables display Revenue and Adjusted EBITDA for each of our segments.

 

     Years ended December 31,     Three months ended
March 31,
 
(in thousands)    2018     2019     2020     2020     2021  

Revenue:

          

Owned Sports Properties

   $ 772,732     $ 935,765     $ 952,624     $ 232,167     $ 283,481  

Events, Experiences & Rights

     1,551,222       1,984,221       1,593,509       668,776       539,610  

Representation

     1,306,129       1,673,796       943,873       292,734       248,909  

Eliminations

     (16,605     (22,812     (11,263     (3,280     (2,418
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenue

   $ 3,613,478     $ 4,570,970     $ 3,478,743     $ 1,190,397     $ 1,069,582  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA:

          

Owned Sports Properties

   $ 271,186     $ 417,203     $ 457,589     $ 102,294     $ 145,549  

Events, Experiences & Rights

     125,326       146,888       59,224       69,123       39,050  

Representation

     333,618       375,061       211,977       68,613       61,483  

Corporate

     (179,044     (205,649     (145,240     (54,492     (46,616

Owned Sports Properties

The following table sets forth our Owned Sports Properties segment results for the years ended December 31, 2018, 2019 and 2020 and the three months ended March 31, 2020 and 2021:

 

     Years ended December 31,     Three months ended
March 31,
 
(in thousands)    2018     2019     2020     2020     2021  

Revenue

   $ 772,732     $ 935,765     $ 952,624     $ 232,167     $ 283,481  

Direct operating costs

   $ 350,317     $ 332,427     $ 312,935     $ 90,458     $ 92,216  

Selling, general and administrative expenses

   $ 140,734     $ 180,107     $ 185,835     $ 39,441     $ 47,712  

Adjusted EBITDA

   $ 271,186     $ 417,203     $ 457,589     $ 102,294     $ 145,549  

Adjusted EBITDA margin

     35.1     44.6     48.0     44.1     51.3

March 31, 2021 compared to March 31, 2020

Revenue for the three months ended March 31, 2021 increased $51.3 million, or 22.1%, to $283.5 million, compared to the three months ended March 31, 2020. The increase was driven primarily by an increase in media rights fees and event related revenue due to the increase in the number of events held at UFC. This increase was partially offset by a reduced number of events and lack of ticket sales at PBR due to COVID-19.

Direct operating costs for the three months ended March 31, 2021 increased $1.8 million, or 1.9%, to $92.2 million, compared to the three months ended March 31, 2020. The increase was attributable to an increase in the number of UFC events held in the three months ended March 31, 2021 partially offset by savings from holding events at the UFC APEX facility and a reduced number of PBR events.

Selling, general and administrative expenses for the three months ended March 31, 2021 increased $8.3 million, or 21.0%, to $47.7 million, compared to the three months ended March 31, 2020. The increase was primarily attributable to an increase in travel expenses related to UFC’s Fight Island 3.0.

Adjusted EBITDA for the three months ended March 31, 2021 increased $43.3 million, or 42.3%, to $145.5 million, compared to the three months ended March 31, 2020. The increase in Adjusted EBITDA was primarily driven by increased revenue at UFC slightly offset by the increase in selling, general and administrative expenses.

 

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December 31, 2020 compared to December 31, 2019

Revenue for the year ended December 31, 2020 increased $16.9 million, or 1.8%, to $952.6 million, compared to the year ended December 31, 2019. The increase was driven by increased rights fees at UFC of $20.0 million, in addition to a $24.9 million increase from a contract termination fee, partially offset by the impacts from COVID-19 as UFC and PBR had fewer events and events that occurred had limited to no ticket revenue from April through September, and the cancellation of the 2019-2020 Euroleague season in March.

Direct operating expenses for the year ended December 31, 2020 decreased $19.5 million, or 5.9%, to $312.9 million, compared to the year ended December 31, 2019. The decrease was attributable to reduced event costs at the UFC by holding certain events at the UFC APEX facilities during 2020 and a reduction in the number of events at PBR in 2020.

Selling, general and administrative expenses for the year ended December 31, 2020 increased $5.7 million, or 3.2%, to $185.8 million, compared to the year ended December 31, 2019. The increase was primarily attributable to higher cost of personnel of approximately $10 million partially offset by cost savings initiatives in other operating expenses. Corporate allocations remained relatively unchanged in 2020 from 2019.

Adjusted EBITDA for the year ended December 31, 2020 increased $40.4 million, or 9.7%, to $457.6 million, compared to the year ended December 31, 2019. The increase in Adjusted EBITDA was primarily due to increased revenue at UFC as well as decreased direct operating costs, partially offset by declines in PBR and Euroleague due to the COVID-19 related impacts described above.

December 31, 2019 compared to December 31, 2018

Revenue for the year ended December 31, 2019 increased $163.0 million, or 21.1%, to $935.8 million, compared to the year ended December 31, 2018. The increase was primarily driven by increased UFC media rights fees. UFC signed new long-term domestic media rights and residential pay-per-view contracts with ESPN that became effective in the first half of 2019. The domestic residential pay-per-view contract with ESPN helps reduce variability in our live events revenues through a fixed media rights fee. The revenue increase of $278.0 million in Media rights was offset by decreased Events and performance revenue of $116.4 million, which primarily related to the transition of sales of residential pay per view for UFC events from cable and satellite providers on an event-by-event basis to inclusion in the long-term media rights contract with ESPN.

Direct operating expenses for the year ended December 31, 2019 decreased $17.9 million, or 5.1%, to $332.4 million, compared to the year ended December 31, 2018. The decrease was primarily attributable to a decline in production expenses related to The Ultimate Fighter, which was not produced in 2019, and a reduction in commission expense associated with domestic residential pay-per-view after entering into the fixed media rights fee arrangement with ESPN.

Selling, general and administrative expenses for the year ended December 31, 2019 increased $39.4 million, or 28.0%, to $180.1 million, compared to the year ended December 31, 2018. The increase was primarily related to cost of personnel associated with opening the UFC Shanghai Performance Institute and the UFC APEX facilities in Las Vegas in addition to other operating expenses. Corporate allocations remained relatively unchanged in 2019 from 2018.

Adjusted EBITDA for the year ended December 31, 2019 increased $146.0 million, or 53.8%, to $417.2 million, compared to the year ended December 31, 2018. The increase in Adjusted EBITDA was due to the ESPN contracts signed in 2019 for the U.S. television rights and U.S. pay-per-view rights as well as improved live event revenue, additional events, and improved sponsorship revenue and was partially offset by the increase in selling, general and administrative expenses.

 

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Events, Experiences & Rights

The following table sets forth our Events, Experiences & Rights segment results for the years ended December 31, 2018, 2019 and 2020 and the three months ended March 31, 2020 and 2021:

 

     Years ended December 31,     Three months ended
March 31,
 
(in thousands)    2018     2019     2020     2020     2021  

Revenue

   $ 1,551,222     $ 1,984,221     $ 1,593,509     $ 668,776     $ 539,610  

Direct operating costs

   $ 1,069,265     $ 1,461,451     $ 1,246,793     $ 513,750     $ 421,536  

Selling, general and administrative expenses

   $ 354,463     $ 388,005     $ 387,203     $ 110,871     $ 100,271  

Adjusted EBITDA

   $ 125,326     $ 146,888     $ 59,224     $ 69,123     $ 39,050  

Adjusted EBITDA margin

     8.1     7.4     3.7     10.3     7.2

March 31, 2021 compared to March 31, 2020

Revenue for the three months ended March 31, 2021 decreased $129.2 million, or 19.3%, to $539.6 million, compared to the three months ended March 31, 2020. Event and performance revenues decreased $244.5 million attributable to the 2021 cancellations of Hyde Park Winter Wonderland, Frieze LA and Rio Open among others and restrictions around the NFL Playoffs, Super Bowl and Bowl Games in 2021 partially offset by the Miami Open taking place in 2021 but cancelled in 2020 all due to COVID-19. These declines were partially offset by an increase in media rights fees of $106.5 million primarily driven by the COVID-19 delay of the 2020 soccer season in Europe, which resulted in modified schedules for most leagues moving matches into 2021.

Direct operating costs for the three months ended March 31, 2021 decreased $92.2 million, or 17.9%, to $421.5 million, compared to the three months ended March 31, 2020. The decrease was driven by a reduction in live event costs of $206.9 million due to COVID-19 related event cancellations, delays and restrictions partially offset by an increase in media rights expenses of $108 million due to the increase in number of matches in 2021.

Selling, general and administrative expenses for the three months ended March 31, 2021 decreased $10.6 million, or 9.6%, to $100.3 million, compared to the three months ended March 31, 2020. The decrease was primarily driven by reduced cost of personnel, travel and other operating expenses resulting from our 2020 COVID-19 related cost savings initiatives.

Adjusted EBITDA for the three months ended March 31, 2021 decreased $30.1 million, or 43.5%, to $39.1 million, compared to the three months ended March 31, 2020. The decrease in Adjusted EBITDA was primarily driven by the reduction in revenue partially offset by the decrease in related direct operating costs, reduced selling, general and administrative expenses and an increase in insurance recoveries related to cancelled events.

December 31, 2020 compared to December 31, 2019

Revenue for the year ended December 31, 2020 decreased $390.7 million, or 19.7%, to $1,593.5 million, compared to the year ended December 31, 2019. Revenue decreased $680.2 million primarily from our media rights and live event revenues attributable to COVID-19 related event cancellations or delays, partially offset by $289.5 million related to the acquisition of On Location in January 2020. Revenue declined due to the delay of the soccer season in Europe which resulted in modified schedules for most leagues, as well as the cancellation or delay of major tennis and golf events which negatively impacted our media rights and sports production revenues. Events revenue declined due to the cancellations of the Miami Open and Hyde Park Winter Wonderland as well as other cancelled or postponed events, motorsports and exhibitions. Excluding the impact of the On Location acquisition, revenue decreased 34.3% for 2020 compared to 2019.

Direct operating expenses for the year ended December 31, 2020 decreased $214.7 million, or 14.7%, to $1,246.8 million, compared to the year ended December 31, 2019. Direct operating expenses decreased $445.1

 

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million primarily from a reduction in media rights fees of $137.3 million (of which approximately $75 million relates to timing of deferred media rights costs that will be recognized as direct operating costs during 2021 when such sports events occur) and live event costs of $284.3 million due to COVID-19 related event cancellations or delays, partially offset by $230.4 million of direct operating expenses from On Location.

Selling, general and administrative expenses for the year ended December 31, 2020 decreased $0.8 million, or 0.2%, to $387.2 million compared to the year ended December 31, 2019. Selling, general and administrative expenses decreased $57.7 million primarily from our cost savings initiatives implemented across the segment, which focused on cost of personnel, travel and other operating expenses as a result of COVID-19; such decrease was primarily offset by selling, general and administrative expenses from On Location of $56.9 million. Corporate allocations remained relatively unchanged in 2020 from 2019.

Adjusted EBITDA for the year ended December 31, 2020 decreased $87.7 million, or 59.7%, to $59.2 million, compared to the year ended December 31, 2019. The decrease in Adjusted EBITDA was primarily due to declines in revenue and related direct operating expenses as noted above and was partially offset by On Location and the benefit from the cost savings initiatives implemented across the segment, as well as insurance recoveries related to certain events of $81.4 million.

December 31, 2019 compared to December 31, 2018

Revenue for the year ended December 31, 2019 increased $433.0 million, or 27.9%, to $1,984.2 million, compared to the year ended December 31, 2018. Approximately $304 million of the increase is attributable to the sale of media rights, primarily related to major soccer events, which only had a partial year in 2018. The increase in revenue was also driven by growth in events, including the King Tut exhibition, as well as strong growth from sports production, gaming rights and IMG Academy.

Direct operating expenses for the year ended December 31, 2019 increased $392.2 million, or 36.7%, to $1,461.5 million, compared to the year ended December 31, 2018. The increase was primarily attributable to increased media rights fees of $349.1 million primarily related to major soccer event rights and increased event costs of $34.0 million.

Selling, general and administrative expenses for the year ended December 31, 2019 increased $33.5 million, or 9.5%, to $388.0 million, compared to the year ended December 31, 2018. The increase was primarily attributable to increased cost of personnel and other operating expenses. Corporate allocations remained relatively unchanged in 2019 from 2018.

Adjusted EBITDA for the year ended December 31, 2019 increased $21.6 million, or 17.2%, to $146.9 million, compared to the year ended December 31, 2018. The increase in Adjusted EBITDA was primarily due to organic growth of our events and IMG Academy businesses partially offset by increased losses from media contracts related to major soccer events in the first full calendar year of the contracts.

Representation

The following table sets forth our Representation segment results for the years ended December 31, 2018, 2019 and 2020 and the three months ended March 31, 2020 and 2021:

 

     Years ended December 31,     Three months ended
March 31,
 
(in thousands)    2018     2019     2020     2020     2021  

Revenue

   $ 1,306,129     $ 1,673,796     $ 943,873     $ 292,734     $ 248,909  

Direct operating costs

   $ 313,715     $ 550,589     $ 190,259     $ 68,898     $ 35,058  

Selling, general and administrative expenses

   $ 659,085     $ 744,394     $ 543,813     $ 155,226     $ 152,159  

Adjusted EBITDA

   $ 333,618     $ 375,061     $ 211,977     $ 68,613     $ 61,483  

Adjusted EBITDA margin

     25.5     22.4     22.5     23.4     24.7

 

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March 31, 2021 compared to March 31, 2020

Revenue for the three months ended March 31, 2021 decreased $43.8 million, or 15.0%, to $248.9 million, compared to the three months ended March 31, 2020. The decrease was primarily attributable to the impact of COVID-19 on corporate spending on marketing and experiential activations as well as a reduction at Endeavor Content due to fewer content deliveries in the three months ended March 31, 2021.

Direct operating costs for the three months ended March 31, 2021 decreased $33.8 million, or 49.1%, to $35.1 million, compared to the three months ended March 31, 2020. The decrease was primarily attributable to the above mentioned impact of COVID-19 on experiential activations and reduced content deliveries.

Selling, general and administrative expenses for the three months ended March 31, 2021 decreased $3.1 million, or 2.0%, to $152.2 million, compared to the three months ended March 31, 2020. The decrease was primarily driven by reduced cost of personnel, travel and other operating expenses.

Adjusted EBITDA for the three months ended March 31, 2021 decreased $7.1 million, or 10.4%, to $61.5 million, compared to the three months ended March 31, 2020. The decrease in Adjusted EBITDA was driven by the decline in revenue partially offset by the decline in direct operating costs and selling, general and administrative expenses.

December 31, 2020 compared to December 31, 2019

Revenue for the year ended December 31, 2020 decreased $729.9 million, or 43.6%, to $943.9 million, compared to the year ended December 31, 2019. The decrease was due to the impact of COVID-19 on talent and brand representation due to stoppages of entertainment productions, including film, television shows, and music events, disruption of Endeavor Content film and television projects, as well as reduced corporate spending on marketing and activation.

Direct operating expenses for the year ended December 31, 2020 decreased $360.3 million, or 65.4%, to $190.3 million, compared to the year ended December 31, 2019. The decline is primarily due to lower content amortization expenses of approximately $222 million due to a reduction in content delivery in 2020 and approximately $93 million due to the reduction of experiential marketing activations.

Selling, general and administrative expenses for the year ended December 31, 2020 decreased $200.6 million, or 26.9%, to $543.8 million, compared to the year ended December 31, 2019. The decline was primarily related to cost savings initiatives across the segment focused on cost of personnel, travel and operating expenses in response to COVID-19. Corporate allocations remained relatively unchanged in 2020 from 2019.

Adjusted EBITDA for the year ended December 31, 2020 decreased $163.1 million, or 43.5%, to $212.0 million, compared to the year ended December 31, 2019. The decrease in Adjusted EBITDA was primarily due to declines in revenue and related direct operating expenses as noted above, which were partially offset by cost savings initiatives.

December 31, 2019 compared to December 31, 2018

Revenue for the year ended December 31, 2019 increased $367.7 million, or 28.1%, to $1,673.8 million, compared to the year ended December 31, 2018. The increase in revenue was primarily driven by strong growth in our talent and brand representation, delivery of additional film and television projects at Endeavor Content, and growth in marketing and licensing.

Direct operating expenses for the year ended December 31, 2019 increased $236.9 million, or 75.5%, to $550.6 million, compared to the year ended December 31, 2018. The increase was primarily related to higher content amortization expenses of approximately $195 million primarily from the delivery of film and television projects in 2019.

 

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Selling, general and administrative expenses for the year ended December 31, 2019 increased $85.3 million, or 12.9%, to $744.4 million, compared to the year ended December 31, 2018. The increase in selling, general and administrative expenses primarily related to increased cost of personnel. Corporate allocations remained relatively unchanged in 2019 from 2018.

Adjusted EBITDA for the year ended December 31, 2019 increased $41.4 million, or 12.4%, to $375.1 million, compared to the year ended December 31, 2018. The increase in Adjusted EBITDA was primarily due to the revenue growth and related direct operating expenses noted above particularly client and brand representation as well as licensing, partially offset by an increase in costs related to personnel and higher content amortization expenses.

Corporate

Corporate primarily consists of overhead, personnel costs, and costs associated with corporate initiatives that are not fully allocated to the operating divisions. Such expenses include compensation and other benefits for corporate office employees, rent, professional fees related to internal control compliance and monitoring, financial statement audits and legal, information technology, and insurance that is managed through our corporate office.

The following table sets forth our results for Corporate for the years ended December 31, 2018, 2019 and 2020 and the three months ended March 31, 2020 and 2021:

 

     Years ended December 31,     Three months ended
March 31,
 
(in thousands)    2018     2019     2020     2020     2021  

Adjusted EBITDA

   $ (179,044   $ (205,649   $ (145,240   $ (54,492   $ (46,616

March 31, 2021 compared to March 31, 2020

Adjusted EBITDA for the three months ended March 31, 2021 improved $7.9 million, or 14.5%, to $(46.6) million, compared to the three months ended March 31, 2020. The decrease in expenses was primarily due to reduced cost of personnel, travel, and professional fees.

December 31, 2020 compared to December 31, 2019

Adjusted EBITDA improved $60.4 million for the year ended December 31, 2020 to $(145.2) million compared to the year ended December 31, 2019. The decrease in expenses was primarily due to lower cost of personnel, travel, and professional fees associated with a cost reduction effort which began in March 2020 in response to COVID-19.

December 31, 2019 compared to December 31, 2018

Adjusted EBITDA of $(205.6) million for the year ended December 31, 2019 represents an increase of $26.6 million as compared to the year ended December 31, 2018. The increase in expenses was primarily driven by additional corporate personnel and rent required to support the growth of our business, as well as an increase in resources supporting digital efforts across the company.

NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA is a non-GAAP financial measure and is defined as net income (loss), excluding the results of discontinued operations, income taxes, net interest expense, depreciation and amortization, equity-based compensation, merger, acquisition and earn-out costs, certain legal costs, restructuring, severance and impairment charges, certain non-cash fair value adjustments, certain equity earnings, COVID-19 related expenses, and certain other items, when applicable. Adjusted EBITDA margin is a non-GAAP financial measure defined as Adjusted EBITDA divided by Revenue.

 

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Management believes that Adjusted EBITDA is useful to investors as it eliminates the significant level of non-cash depreciation and amortization expense that results from our capital investments and intangible assets recognized in business combinations, and improves comparability by eliminating the significant level of interest expense associated with our debt facilities, as well as income taxes, which may not be comparable with other companies based on our tax structure.

Adjusted EBITDA and Adjusted EBITDA margin are used as the primary bases to evaluate our consolidated operating performance.

Adjusted Net Income is a non-GAAP financial measure and is defined as net income (loss) attributable to Endeavor Operating Company adjusted to exclude the results of discontinued operations and our share (excluding those relating to non-controlling interests) of the adjustments used to calculate Adjusted EBITDA, other than income taxes, net interest expense and depreciation, on an after tax basis, the release of tax valuation allowances and other tax items.

Adjusted Net Income adjusts income or loss from continuing operations attributable to the Company for items that are not considered to be reflective of our operating performance. Management believes that such non-GAAP information is useful to investors and analysts as it provides a better understanding of the performance of our continuing operations for the periods presented and, accordingly, facilitates the development of future projections and earnings growth prospects.

Adjusted EBITDA, Adjusted EBITDA margin and Adjusted Net Income should not be considered substitutes for the reported results prepared in accordance with GAAP and should not be considered in isolation or as alternatives to net income as indicators of our financial performance. Although we use Adjusted EBITDA, Adjusted EBITDA margin and Adjusted Net Income as financial measures to assess the performance of our business, such use is limited because it does not include certain material costs necessary to operate our business. Our presentation of Adjusted EBITDA, Adjusted EBITDA margin and Adjusted Net Income should not be construed as indications that our future results will be unaffected by unusual or nonrecurring items. These non-GAAP financial measures, as determined and presented by us, may not be comparable to related or similarly titled measures reported by other companies. Set forth below are reconciliations of our most directly comparable financial measures calculated in accordance with GAAP to these non-GAAP financial measures on a consolidated basis.

 

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Adjusted EBITDA

 

(in thousands)    Years ended December 31,     Three months ended
March 31,
 
   2018     2019     2020     2020     2021  

Net income (loss)

   $ 231,304     $ (530,661   $ (625,318     (51,261     2,376  

(Income) loss from discontinued operations, net of tax (including gain on sale in 2018)

     (694,998     5,000      
—  
 
    —         —    

Provision for income taxes

     88,235       3,371       8,507       48,604       5,085  

Interest expense, net

     277,200       270,944       284,586       69,984       68,351  

Depreciation and amortization

     365,959       280,749       310,883       80,447       67,236  

Equity-based compensation expense(1)

     149,138       101,188       91,271       7,771       16,491  

Merger, acquisition and earn-out costs(2)

     66,577       49,869       22,178       10,162       10,985  

Certain legal costs(3)

     26,677       29,681       12,520       2,802       3,952  

Restructuring, severance and impairment(4)

     38,363       42,441       271,868       16,942       407  

Fair value adjustment—Droga5(5)

     38,962       3,734       405       —         —    

Fair value adjustment—equity
investments(6)

     (67,318     11,759       469       2,809       (7,799

Equity method losses—Learfield IMG College(7)

     —       366,797       250,726       11,756       18,805  

COVID-19 related costs(8)

     —       —       2,692       210       —    

Other(9)

     30,987       98,631       (58,240     (23,985     13,577  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 551,086     $ 733,503     $ 572,547       176,241       199,466  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) margin

     6.4     (11.6 )%      (18.0 )%      (4.3 )%      0.2

Adjusted EBITDA margin

     15.3     16.0     16.5     14.8     18.6

 

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Adjusted Net Income

 

(in thousands)   Years ended December 31,     Three months ended
March 31,
 
  2018     2019     2020     2020     2021  

Net income (loss)

  $ 231,304     $ (530,661   $ (625,318   $ (51,261   $ 2,376  

Net loss (income) attributable to non-controlling interests

    85,241       (23,158     (29,616     (3,695     (27,246
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Endeavor Operating Company, LLC

    316,545       (553,819     (654,934     (54,956     (24,870

(Income) loss from discontinued operations, net of tax (including gain on sale in 2018)

    (694,998     5,000       —       —         —    

Amortization

    301,162       209,243       225,492       59,964       45,728  

Equity-based compensation expense(1)

    149,138       101,188       91,271       7,771       16,491  

Merger, acquisition and earn-out costs(2)

    66,577       49,869       22,178       10,162       10,985  

Certain legal costs(3)

    26,677       29,681       12,520       2,802       3,952  

Restructuring, severance and impairment(4)

    38,363       42,441       271,868       16,942       407  

Fair value adjustment—Droga5(5)

    38,962       3,734       405      

Fair value adjustment—equity investments(6)

    (67,318     11,759       469       2,809       (7,799

Equity method losses—Learfield IMG College(7)

    —       366,797       250,726       11,756       18,805  

COVID-19 related costs(8)

    —       —       2,692       210       —    

Other(9)

    30,987       98,631       (58,240     (23,985     13,577  

Tax effects of adjustments(10)

    (9,295     (29,757     (25,528     1,366       (6,319

Adjustments allocated to non-controlling interests(11)

    (135,990     (93,899     (69,272     (23,365     (12,847

Valuation allowance and other tax items(12)

    39,307       —       15,164       32,338       —  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Income

  $ 100,117     $ 240,868     $ 84,811     $ 43,814     $ 58,110  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Equity-based compensation expense represents primarily non-cash compensation expense associated with our equity-based compensation plans.

The increase for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 was primarily due to new awards granted subsequent to March 31, 2020 and expense related to our future incentive awards. Equity-based compensation was recognized in all segments and Corporate for the three months ended March 31, 2021 and 2020.

The decrease for the year ended December 31, 2020 as compared to the year ended December 31, 2019 was primarily due to fewer awards being granted in 2020. For the year ended December 31, 2019 and 2020, equity-based compensation expense primarily related to our Owned Sports Properties and Representation segments and Corporate.

The decrease for the year ended December 31, 2019 as compared to the year ended December 31, 2018 was primarily due to lower expense recorded for modifications offset by expense for new awards granted in 2019 and a full year of expense from grants awarded in 2018. In 2018 and 2019, equity-based compensation expense primarily related to our Owned Sports Properties and Representation segments and Corporate.

 

(2)

Includes (i) certain costs of professional advisors related to mergers, acquisitions, dispositions or joint ventures and (ii) fair value adjustments for contingent consideration liabilities related to acquired businesses and compensation expense for deferred consideration associated with selling shareholders that are required to remain our employees.

Such costs for the three months ended March 31, 2021 primarily related to fair value adjustments for contingent consideration liabilities related to acquired businesses and acquisition earn-out adjustments of

 

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approximately $7 million, which primarily related to our Events, Experiences & Rights and Representation segments. Professional advisor costs were approximately $4 million and primarily related to our Events, Experiences & Rights segment.

Such costs for the three months ended March 31, 2020 primarily related to acquisition earn-out adjustments of approximately $6 million, primarily related to our Representation segment. Professional advisor costs were approximately $4 million primarily related to our Events, Experiences & Rights segment.

Such costs for the year ended December 31, 2020 primarily related to professional advisor costs of approximately $13 million and primarily related to our Events, Experiences & Rights segment. Acquisition earn-out adjustments were approximately $9 million primarily related to our Representation segment.

Such costs for the year ended December 31, 2019 primarily related to our Representation segment, of which the largest component was earn-out adjustments, as well as our Events, Experiences & Rights segment, of which the largest component was professional advisor costs. Acquisition earn-out adjustments were approximately $34 million.

Such costs for the year ended December 31, 2018 primarily related to our Representation segment, of which the largest component was earn-out adjustments as well as approximately $31 million of professional advisor costs primarily related to our Representation and Events, Experiences & Rights segments. Acquisition earn-out adjustments were approximately $36 million.

 

(3)

Includes costs related to certain litigation or regulatory matters impacting all of our segments and Corporate.

(4)

Includes certain costs related to our restructuring activities and non-cash impairment charges.

Such costs for the three months ended March 31, 2021 primarily related to severance related to the cessation of operations of certain events in our Events, Experiences & Rights segment.

Such costs for the three months ended March 31, 2020 included approximately $10 million related to the impairment of certain other assets and investments, approximately $3 million related to the impairment of intangible assets and approximately $4 million for severance and restructuring expenses, in each case primarily related to COVID-19, and primarily related to our Owned Sports Properties and Events, Experiences & Rights segments.

Such costs for the year ended December 31, 2020 included approximately $220 million related to the impairment of intangible assets and goodwill, approximately $19 million related to the impairment of certain other assets and investments and approximately $32 million for severance and restructuring expenses, in each case primarily related to COVID-19, and primarily related to our Owned Sports Properties and Events, Experiences & Rights segments and Corporate.

Such costs for the year ended December 31, 2019 included approximately $29 million related to the impairment of certain investments and approximately $14 million for severance and restructuring expenses and primarily related to our Representation and Events, Experiences & Rights segments.

Such costs for the year ended December 31, 2018 primarily related to severance and restructuring expenses, including costs related to the cessation of operations of certain events and the impairment of related assets, and had a comparable impact on our Events, Experiences & Rights and Representation segments.

 

(5)

Reflects the change in fair value of our investment in Droga5, which was accounted for using the fair value option through the disposal of our interest in April 2019; such non-cash fair value adjustments relate to our Representation segment; and adjustment for cash items including receipt of working capital adjustments and other amounts after disposal.

(6)

Includes the net change in fair value for certain equity investments with and without readily determinable fair values, based on observable price changes, in accordance with ASU 2016-01 and ASU 2018-03 effective January 1, 2018.

(7)

Relates to equity method losses, including impairment charges, from our investment in Learfield IMG College following the merger of our IMG College business with Learfield in December 2018. Prior to its disposal in December 2018, income or loss from our IMG College business is classified as discontinued operations.

 

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(8)

Includes COVID-19 related expenses that are non-recurring and incremental costs that would have otherwise not been incurred. Such adjustment does not include the write-off of $11.0 million and $9.3 million of deferred event costs, net of insurance recoveries, for the year ended December 31, 2020 and the three months ended March 31, 2020, respectively, which is adjusted in our Events, Experiences & Rights segment profitability measure.

(9)

For the three months ended March 31, 2021, other costs were comprised primarily of a loss of approximately $11 million related to non-cash fair value adjustments of embedded foreign currency derivatives, which related primarily to our Events, Experiences & Rights segment and approximately $2 million related to transaction costs associated with the repricing of the UFC Credit Facilities in our Owned Sports Properties segment.

For the three months ended March 31, 2020, other costs were comprised primarily of a gain of approximately $27 million related to the consolidation of a previously held equity interest in FC Diez Media, a gain of approximately $8 million associated with the deconsolidation of Asian Tour Media Pte. Ltd., a gain of approximately $2 million related to non-cash fair value adjustments of embedded foreign currency derivatives and an approximately $3 million increase related to purchase price adjustments to deferred revenue and ticket inventory at On Location, all of which related primarily to our Events, Experiences & Rights segment, and losses of approximately $8 million on foreign exchange transactions, which related to all of our segments and Corporate.

For the year ended December 31, 2020, other costs primarily comprised of a gain of approximately $27 million related to the consolidation of a previously held equity interest in FC Diez Media, a gain of approximately $15 million related to the sale of an investment, a gain of approximately $8 million associated with the deconsolidation of Asian Tour Media Pte. Ltd., a gain of approximately $13 million related to non-cash fair value adjustments of embedded foreign currency derivatives and approximately $3 million increase related to purchase price adjustments to deferred revenue and ticket inventory at On Location, which related primarily to our Events, Experiences & Rights segment.

For the year ended December 31, 2019, other costs primarily comprised charges of approximately $17 million related to the impairment of a note receivable due from an equity investment related to our Representation segment, approximately $39 million related to non-cash fair value adjustments of embedded foreign currency derivatives related to our Events, Experiences & Rights segment, approximately $7 million of costs associated with the refinancing of our UFC Credit Facilities, which related primarily to our Owned Sports Properties segment, charges of approximately $28 million related to our prior initial public offering costs and $5 million related to a premium on the redemption of certain equity units held by an investor, which related to Corporate.

For the year ended December 31, 2018, other costs primarily comprised charges of approximately $19 million of costs associated with the refinancing of our Credit Facilities, which related primarily to Corporate, approximately $19 million related to the non-cash fair value adjustment of our UFC warrant liability at the Owned Sports Properties segment, as well as approximately $8 million of losses on foreign exchange transactions, which related primarily to our Events, Experiences & Rights segment and Corporate. In 2018, these charges were partially offset by approximately $18 million of a gain on disposal of a business, which related to our Representation segment.

 

(10)

Reflects the U.S. and non-U.S. tax impacts with respect to each adjustment noted above, as applicable.

(11)

Reflects the share of the adjustments noted above that are allocated to our non-controlling interests, net of tax.

(12)

Such items for the three months ended March 31, 2020 relate to a $32.3 million tax expense recorded as a result of acquisitions and subsequent tax restructurings.

Such items for the year ended December 31, 2020 relate to a $34.3 million tax expense recorded as a result of acquisitions and subsequent tax restructurings, and the release of $19.1 million of valuation allowances on net deferred U.S. tax assets, exclusive of deferred tax liabilities on indefinite lived intangible assets, state income taxes, and foreign tax credits.

 

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Such items for the year ended December 31, 2018 relate to a $21.8 million net tax expense recorded as a result of our acquisition of NeuLion and subsequent tax restructuring and $17.5 million related to the tax impact of losses recognized on certain agreements for foreign statutory purposes, subject to limitation under foreign tax law.

Quarterly financial data

The following tables present selected historical consolidated statements of operations data, as well as Adjusted EBITDA and Adjusted Net (Loss) Income, for each of the quarters in the years ended December 31, 2019 and 2020 and the three months ended March 31, 2021. This quarterly data has been derived from our unaudited consolidated financial statements. The adjustments for the three months ended March 31, 2020 and 2021, as well as the annual impacts of such quarterly adjustments noted below for the years ended December 31, 2019 and 2020 are described above.

 

    Three months ended  
(in thousands)   March 31,
2019
    June 30,
2019
    Sept. 30,
2019
    Dec. 31,
2019
    March 31,
2020
    June 30,
2020
    Sept. 30,
2020
    Dec. 31,
2020
    March 31,
2021
 

Revenue

  $ 1,009,706     $ 1,038,846     $ 1,224,476     $ 1,297,942     $ 1,190,397     $ 462,914     $ 864,492     $ 960,940     $ 1,069,582  

Operating (loss) income from continuing operations

    (22,557     32,921       124,178       75,994       53,764       (251,918     66,581       (21,645     94,498  

Net income (loss)

    (152,642     (67,654     (183,356     (127,009     (51,261     (495,765     (21,819     (56,473     2,376  

Adjusted EBITDA

    83,980       165,695       263,799       220,029       176,241       45,424       178,331       172,551       199,466  

Adjusted Net Income (Loss)

    232       46,995       107,223       86,418       43,814       (36,948     8,398       69,547       58,110  

Adjusted EBITDA

 

    Three months ended  
(in thousands)   Mar. 31,
2019
    June 30,
2019
    Sept. 30,
2019
    Dec. 31,
2019
    Mar. 31,
2020
    June 30,
2020
    Sept. 30,
2020
    Dec. 31,
2020
    March 31,
2021
 

Net income (loss)

  $ (152,642   $ (67,654   $ (183,356   $ (127,009   $ (51,261   $ (495,765   $ (21,819   $ (56,473   $ 2,376  

Loss from discontinued operations, net of tax

    —       5,000       —       —       —       —       —       —       —    

(Benefit from) provision for income taxes

    (22,429     13,652       6,629       5,519       48,604       (4,049     (941     (35,107     5,085  

Interest expense, net

    71,366       70,718       63,351       65,509       69,984       71,693       71,277       71,632       68,351  

Depreciation and amortization

    78,511       64,842       67,092       70,304       80,447       84,751       76,471       69,214       67,236  

Equity-based compensation expense

    9,905       35,542       19,006       36,735       7,771       9,204       20,602       53,694       16,491  

Merger, acquisition and earn-out costs

    12,357       13,777       10,284       13,451       10,162       (859     6,682       6,193       10,985  

Certain legal costs

    4,658       5,152       15,005       4,866       2,802       3,357       1,646       4,715       3,952  

Restructuring, severance and impairment

    3,088       28,922       2,209       8,222       16,942       195,305       952       58,669       407  

Fair value adjustment—Droga5

    10,080       (6,346     —       —       —       473       —       (68     —    

Fair value adjustment—equity investments

    7,044       239       966       3,510       2,809       2,950       (1,547     (3,743     (7,799

Equity method losses—Learfield IMG College

    6,896       12,287       239,301       108,313       11,756       195,781       31,354       11,835       18,805  

COVID-19 related costs

    —       —       —       —       210       2,193       426       (137     —  

Other

    55,146       (10,436     23,312       30,609       (23,985     (19,610     (6,772     (7,873     13,577  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 83,980     $ 165,695     $ 263,799     $ 220,029     $ 176,241     $ 45,424     $ 178,331     $ 172,551     $ 199,466  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Adjusted Net Income (Loss)

 

    Three months ended  
(in thousands)   March 31,
2019
    June 30,
2019
    Sept. 30,
2019
    Dec. 31,
2019
    March 31,
2020
    June 30,
2020
    Sept. 30,
2020
    Dec. 31,
2020
    March 31,
2021
 

Net income (loss)

  $ (152,642   $ (67,654   $ (183,356   $ (127,009   $ (51,261   $ (495,765   $ (21,819   $ (56,473   $ 2,376  

Net loss (income) attributable to non-controlling interests

    17,948       9,770       (42,827     (8,049     (3,695     29,211       (58,430     3,298       (27,246
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Endeavor Operating Company, LLC

    (134,694     (57,884     (226,183     (135,058     (54,956     (466,554     (80,249     (53,175     (24,870

Loss from discontinued operations, net of tax

    —       5,000       —         —         —         —         —         —         —    

Amortization

    62,342       48,481       48,082       50,338       59,964       63,494       55,315       46,719       45,728  

Equity-based compensation expense

    9,905       35,542       19,006       36,735       7,771       9,204       20,602       53,694       16,491  

Merger, acquisition and earn-out costs

    12,357       13,777       10,284       13,451       10,162       (859     6,682       6,193       10,985  

Certain legal costs

    4,658       5,152       15,005       4,866       2,802       3,357       1,646       4,715       3,952  

Restructuring, severance and impairment

    3,088       28,922       2,209       8,222       16,942       195,305       952       58,669       407  

Fair value adjustment—Droga5

    10,080       (6,346     —         —         —         473       —         (68     —    

Fair value adjustment—equity investments

    7,044       239       966       3,510       2,809       2,950       (1,547     (3,743     (7,799

Equity method losses—Learfield IMG College

    6,896       12,287       239,301       108,313       11,756       195,781       31,354       11,835       18,805  

COVID-19 related costs

    —         —         —         —         210       2,193       426       (137     —    

Other

    55,146       (10,436     23,312       30,609       (23,985     (19,610     (6,772     (7,873     13,577  

Tax effects of adjustments

    (11,964     2,063       (4,686     (15,170     1,366       (6,354     (6,960     (13,580     (6,319

Adjustments allocated to non-controlling interests

    (24,626     (29,802     (20,073     (19,398     (23,365     (16,328     (13,051     (16,528     (12,847

Valuation allowance and other tax items

    —         —         —         —         32,338       —         —         (17,174     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Income (Loss)

  $ 232     $ 46,995     $ 107,223     $ 86,418     $ 43,814     $ (36,948   $ 8,398     $ 69,547     $ 58,110  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIQUIDITY AND CAPITAL RESOURCES

Historical liquidity and capital resources

Sources and uses of cash

Cash flows from operations have historically funded our day-to-day operations, revenue-generating activities, and routine capital expenditures, as well as serviced our long-term debt. Our other principal use of cash has been the acquisition of businesses, which have been funded primarily through equity contributions from our pre-IPO institutional investors and the issuance of long-term debt.

Debt facilities

As of March 31, 2021, we had an aggregate of $5.6 billion outstanding indebtedness under our first lien credit agreement entered into by certain of our subsidiaries in May 2014 in connection with the acquisition of IMG (as amended, restated, modified and/or supplemented from time to time, the “Credit Facilities”) and UFC Holdings, LLC’s term loan and revolving credit facilities (the “UFC Credit Facilities” and, collectively with the Credit Facilities, the “Senior Credit Facilities”). As of March 31, 2021, we had available borrowing capacity of approximately $311 million under the Senior Credit Facilities, consisting primarily of availability under the UFC Credit Facilities.

Credit Facilities

As of March 31, 2021, we have borrowed an aggregate of $3.1 billion of term loans under the Credit Facilities. The loans bear interest at a variable interest rate equal to either, at our option, adjusted LIBOR or the

 

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Alternate Base Rate (the “ABR”) plus, in each case, an applicable margin. LIBOR term loans accrue interest at a rate equal to adjusted LIBOR plus 2.75%, with a LIBOR floor of 0.00%. ABR term loans accrue interest at a rate equal to (i) the highest of (a) the Federal Funds Effective Rate plus 0.50%, (b) the prime rate, (c) adjusted LIBOR for a one-month interest period plus 1.00% and (d) 1.00%, plus (ii) 1.75%. The term loans under the Credit Facilities include 1% principal amortization payable in equal quarterly installments and mature on May 18, 2025.

In May 2020, we issued a separate tranche of term loans, which accrue interest at a rate equal to adjusted LIBOR plus 8.50%, with a LIBOR floor of 1.00%.

On May 20, 2019, we executed $1.5 billion in interest rate hedges to swap a portion of our debt from floating interest expense to fixed. The LIBOR portion of the facility has been fixed at a coupon of 2.12% for five years commencing from June 2019 until June 2024. As of March 31, 2021, approximately 49% of our Term Loans is hedged. See Note 11, “Debt”, to our unaudited consolidated financial statements for Endeavor Operating Company, LLC included elsewhere in this prospectus, for further detail on the Credit Facilities.

As of March 31, 2021, we have the option to borrow incremental term loans in an aggregate amount equal to at least $290.0 million, subject to market demand, and may be able to borrow additional funds depending on our First Lien Leverage Ratio (as defined under the Credit Facilities). The credit agreement governing our Credit Facilities includes certain mandatory prepayment provisions relating to, among other things, the incurrence of additional debt.

The Credit Facilities also include a revolving credit facility which has $200.0 million of capacity with letter of credit and swingline loan sub-limits of up to $75.0 million and $20.0 million, respectively. Revolving credit facility borrowings under the Credit Facilities bear interest at a variable interest rate equal to either, at our option, adjusted LIBOR or the ABR plus, in each case, an applicable margin. LIBOR revolving loans accrue interest at a rate equal to adjusted LIBOR plus 2.00-2.50%, depending on the First Lien Leverage Ratio, with a LIBOR floor of 0.00%. ABR revolving loans accrue interest at a rate equal to (i) the highest of (a) the Federal Funds Effective Rate plus 0.50%, (b) the prime rate, (c) adjusted LIBOR for a one-month interest period plus 1.00% and (d) 1.00%, plus (ii) 1.00-1.50%, depending on the First Lien Leverage Ratio. We pay Letter of Credit fees of 0.125% and a commitment fee of 0.25-0.50%, based on our First Lien Leverage Ratio. As of March 31, 2021, we had $69.1 million outstanding under this revolving credit facility and outstanding letters of credit of $25.0 million. The revolving facility matures on May 18, 2023.

The revolving facility under the Credit Facilities is subject to a financial covenant if greater than 35% of the borrowing capacity of the revolving credit facility is utilized (excluding cash collateralized letters of credit and non-cash collateralized letters of credit of up to $50.0 million) at the end of each quarter. For the financial covenant test period ended March 31, 2021, we repaid $94.0 under the revolving credit facility such that the quarterly covenant test was not applicable. Subsequently, we drew $94 million under the revolving credit facility in April 2021.

In April 2021, we entered into an amendment to the credit agreement governing the Credit Facilities to, among other things, waive the financial covenant for the test periods ending June 30, 2021, September 30, 2021 and December 31, 2021. In addition, following the successful completion of our initial public offering in April 2021, the maturity date of the revolving credit facility was extended to May 18, 2024.

The Credit Facilities contain certain restrictive covenants around indebtedness, liens, fundamental changes, guarantees, investments, asset sales, and transactions with affiliates.

The borrower’s obligations under the Credit Facilities are guaranteed by certain of our indirect wholly-owned domestic restricted subsidiaries, subject to certain exceptions. All obligations under the Credit Facilities and the related guarantees are secured by a perfected first priority lien on substantially all of the borrower’s and the guarantors’ tangible and intangible assets, in each case, subject to permitted liens and certain exceptions.

 

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UFC Credit Facilities

As of March 31, 2021, we have borrowed an aggregate of $2.4 billion of first lien term loans under the UFC Credit Facilities. Following a repricing under the UFC Credit Facilities in January 2021, borrowings under the UFC Credit Facilities bear interest at a variable interest rate equal to either, at our option, adjusted LIBOR or the ABR plus, in each case, an applicable margin. LIBOR term loans accrue interest at a rate equal to an adjusted LIBOR plus 2.75%-3.00%, depending on the First Lien Leverage Ratio, in each case with a LIBOR floor of 0.75%. ABR term loans accrue interest at a rate equal to (i) the highest of (a) the Federal Funds Effective Rate plus 0.50%, (b) the prime rate, (c) adjusted LIBOR for a one-month interest period plus 1.00% and (d) 1.75%, plus (ii) 1.75%-2.00%. The term loans under the UFC Credit Facilities include 1% principal amortization payable in equal quarterly installments and mature on April 29, 2026. See Note 11, “Debt,” to our unaudited consolidated financial statements for Endeavor Operating Company, LLC included elsewhere in this prospectus for further detail on the UFC Credit Facilities.

As of March 31, 2021, we have the option to borrow incremental loans in an aggregate amount equal to at least $455.0 million, subject to market demand, and may be able to borrow additional funds depending on our First Lien Leverage Ratio (as defined under the UFC Credit Facilities). The credit agreement governing the UFC Credit Facilities includes certain mandatory prepayment provisions relating to, among other things, the incurrence of additional debt.

The UFC Credit Facilities also include a revolving credit facility, which had $205.0 million of total borrowing capacity and letter of credit and swingline loan sub-limits of up to $40.0 million and $15.0 million, respectively. Revolving credit facility borrowings under the UFC Credit Facilities bear interest at a variable interest rate equal to either, at our option, adjusted LIBOR or ABR plus, in each case, an applicable margin. LIBOR revolving loans accrue interest at a rate equal to an adjusted LIBOR plus 3.50-4.00%, depending on the First Lien Leverage Ratio, in each case with a LIBOR floor of 0.00%. ABR revolving loans accrue interest at a rate equal to (i) the highest of (a) the Federal Funds Effective Rate plus 0.50%, (b) the prime rate, (c) adjusted LIBOR for a one-month interest period plus 1.00% and (d) 1.00%, plus (ii) 2.50-3.00%, depending on the First Lien Leverage Ratio. We pay a commitment fee on the revolving credit facility under the UFC Credit Facilities of 0.25-0.50%, based on the First Lien Leverage Ratio and Letter of Credit fees of 0.125%. As of March 31, 2021, we have no borrowings outstanding under this revolving credit facility and no outstanding letters of credit. The revolving facility under the UFC Credit Facilities matures on April 29, 2024.

The revolving facility under the UFC Credit Facilities is subject to a financial covenant if greater than 35% of the borrowing capacity of the revolving credit facility (excluding cash collateralized letters of credit and non-cash collateralized letters of credit of up to $10.0 million) is utilized at the end of any fiscal quarter. This covenant was not tested on March 31, 2021, as we had no borrowings outstanding under this revolving credit facility.

The UFC Credit Facilities contain certain restrictive covenants around indebtedness, liens, fundamental changes, guarantees, investments, asset sales and transactions with affiliates.

The borrower’s obligations under the UFC Credit Facilities are guaranteed by certain of UFC Parent’s indirect wholly-owned domestic restricted subsidiaries, subject to certain exceptions. All obligations under the UFC Credit Facilities and the related guarantees are secured by a perfected first priority lien on substantially all of the borrower’s and the guarantors’ tangible and intangible assets, in each case, subject to permitted liens and certain exceptions.

Restrictions on dividends

Both the Credit Facilities and the UFC Credit Facilities contain restrictions on our ability to make distributions and other payments from the respective credit groups and which therefore limit our ability to receive

 

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cash from our operating units to make dividends to the holders of Class A common stock. These restrictions on dividends include exceptions for, among other things, (1) amounts necessary to make tax payments, (2) a limited annual amount for employee equity repurchases, (3) distributions required to maintain the parent entities, (4) other specific allowable situations and (5) a general restricted payment basket, as defined in each of the Credit Facilities and the UFC Credit Facilities. Subsequent to March 31, 2021, the UFC LLC Agreement was amended to remove certain covenants restricting distributions and other payments.

Other debt

As of March 31, 2021, we had certain other revolving line of credit facilities and long-term debt liabilities, primarily related to Endeavor Content and On Location, with total committed amounts of $365.0 million, of which $250.1 million was outstanding and $8.6 million was available for borrowing based on the supporting asset base. Such facilities have maturity dates in 2025, bearing interest at rates ranging from 1.75% to 2.75%.

Other debt includes our Endeavor Content facility (the “Endeavor Content Facility,” which is an asset-based facility (“ABL”) used to fund television and film production). As of March 31, 2021, our Endeavor Content Facility had total capacity of $325.0 million, and we had $220.5 million borrowed. Our ability to borrow under the facility depends on there being sufficient borrowing base capacity which in turn depends on the number and size of productions we are engaged in and the value of future receipts for the productions. The amounts borrowed under the facility will increase if we enter into additional productions, or decrease if we reduce our production activity. The Endeavor Content Facility matures on March 31, 2025.

Other debt also includes our On Location revolving credit agreement, which has $20.0 million of total borrowing capacity and letter of credit and swingline loan sub-limits of up to $3.0 million each (the “OL Credit Facility”). As of March 31, 2021, we had $19.6 million outstanding under the OL Credit Facility and no letters of credit outstanding. The OL Credit Facility matures on February 27, 2025.

Both the Endeavor Content Facility and the OL Credit Facility contain restrictions that are substantially similar to those in the Credit Facilities and the UFC Credit Facilities.

 

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Cash Flows Overview

Years ended December 31, 2018, 2019 and 2020 and the three months ended March 31, 2020 and 2021

 

    Years ended December 31,     Three months ended
March 31,
 
(in thousands)   2018     2019     2020     2020     2021  

Net loss from continuing operations, adjusted for non-cash items

  $ 200,147     $ 562,920     $ 313,929     $ 85,187     $ 125,943  

Changes in working capital

    165,780       (30,890     176,381       78,541       13,264  

Changes in non-current assets and liabilities

    (244,796     (134,127     (329,092     (71,206     (210,037
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities from continuing operations

  $ 121,131     $ 397,903     $ 161,218     $ 92,522     $ (70,830

Net cash (used in) provided by investing activities from continuing operations

  $ (164,809   $ 46,083     $ (315,792   $ (351,779   $ 7,610  

Net cash provided by (used in) financing activities from continuing operations

  $ 11,616     $ (428,140   $ 453,989     $ 313,884     $ (77,843

Discontinued operations:

         

Net cash provided by (used in) operating
activities

  $ 36,544     $ (5,000     —         —         —    

Net cash used in investing activities

    (6,951     —         —         —         —    

Net cash used in financing activities

    (64     —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows provided by (used in) discontinued operations

  $ 29,529     $ (5,000   $  —       $ —       $ —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

March 31, 2021 compared to March 31, 2020

Operating activities changed from $92.5 million of cash provided in the three months ended March 31, 2020 to $70.8 million of cash used in the three months ended March 31, 2021. Cash used in the three months ended March 31, 2021 primarily represents an increase in other assets of $189.4 million from additional investments in Endeavor Content film assets and an increase in accounts receivable of $76.8 million. Cash provided in the three months ended March 31, 2020 primarily represents an increase in accounts payable and accrued liabilities of $89.6 million and a decrease in deferred costs of $103.1 million due to the adverse impact from COVID-19 resulting in changes to the timing of payments from modified event and media rights schedules.

Investing activities changed from $351.8 million of cash used in the three months ended March 31, 2020 to $7.6 million of cash provided in the three months ended March 31, 2021. Cash provided in the three months ended March 31, 2021 primarily reflects proceeds received from sale of assets of $16.5 million offset by capital expenditures of $9.3 million. Cash used in the three months ended March 31, 2020 primarily reflects payments for acquisitions of businesses, primarily On Location, of $306.7 million, capital expenditures of $25.6 million and investments in non-controlled affiliates of $16.7 million.

Financing activities changed from $313.9 million of cash provided in the three months ended March 31, 2020 to $77.8 million of cash used in the three months ended March 31, 2021. Cash used in the three months ended March 31, 2021 primarily reflects net payments on debt of $60.7 million, redemption of certain of our equity interests of $7.2 million and distributions of $5.2 million. Cash provided in the three months ended March 31, 2020 primarily reflects net proceeds from debt of $389.0 million offset by distributions of $62.8 million primarily made by UFC and redemption of certain of our equity interests of $5.1 million.

December 31, 2020 compared to December 31, 2019

Cash provided by operating activities from continuing operations decreased $236.7 million primarily due to the impact of COVID-19 on our results of operations. Operating cash flow was adversely impacted as television

 

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and film productions were put on hiatus, while concerts and live event marketing programs were cancelled, reducing the commissions and fees earned in 2020, the cancellation of live events, restrictions on live attendance, and reduced enrollment in our full-time and camp programs. This was partially offset by event cancellation insurance proceeds and cost reduction initiatives, implemented in March 2020 that reduced cash compensation, travel & entertainment, and other operating expenses.

Investing activities from continuing operations changed from $46.1 million of cash provided in the year ended December 31, 2019 to $315.8 million of cash used in the year ended December 31, 2020. The change in cash used for investing is primarily due to higher payments for acquisitions of businesses, primarily On Location, of $317.9 million for the year ended December 31, 2020 as compared to $5.4 million for the year ended December 31, 2019 and lower amounts of proceeds received for the sale of our investments.

Financing activities from continuing operations changed from $428.1 million of cash used in the year ended December 31, 2019 to $454.0 million of cash provided in the year ended December 31, 2020. Cash provided in the year ended December 31, 2020 primarily reflects net proceeds from debt of $649.5 million offset by distributions of $123.2 million primarily made by UFC. Cash used in the year ended December 31, 2019 primarily reflects $537.7 million for the redemption of all Zuffa’s Class P Units, $512.7 million for the redemption of certain of our equity interests, and $165.0 million related to payments under our equity buyback plan and tax distributions to equity investors, partially offset by contributions of $470.6 million from our equity investors and net proceeds from debt of $391.3 million.

December 31, 2019 compared to December 31, 2018

Cash provided by operating activities from continuing operations increased $276.8 million primarily due to higher operating cash flow in our Owned Sports Properties segment from growth in media rights revenue as well as collection of receipts in 2019 from 2018 pay-per view revenue. Additionally, our Representation segment drove an increase in operating cash flow from growth in TV and film productions. These were offset by lower receipts of advance payments in connection with media rights fees primarily related to major soccer events in our Events, Experiences & Rights segment.

Investing activities from continuing operations changed from $164.8 million of cash used in 2018 to $46.1 million of cash provided in 2019. Cash provided in 2019 reflects $206.8 million of proceeds from the sale of our investment of Droga5 in April 2019 offset by capital expenditures of $135.4 million and investments in non-controlled affiliates of $27.1 million. Cash used in 2018 reflects payments for the acquisition of businesses, primarily NeuLion and 160over90, of $440.3 million, capital expenditures of $187.9 million and investments in non-controlled affiliates of $68.8 million offset by $399.2 million of proceeds from the disposal of IMG College and $120.0 million of proceeds from the maturity of short-term investments.

Financing activities from continuing operations changed from $11.6 million of cash provided in 2018 to $428.1 million of cash used in 2019. Cash used in 2019 reflects the acquisition of non-controlling interests, the redemption of certain of our equity interests, tax distributions to equity investors, payments for contingent liabilities for business acquisitions and payments under our equity buyback plan offset by $470.6 million of contributions from our equity investors and net proceeds from debt of $391.3 million. Cash provided in 2018 reflects the redemption of certain of our equity interests, payments under our equity buyback plan and tax distributions to equity investors, offset by $425.0 million of contributions from our equity investors and net proceeds from debt of $33.2 million.

Future sources and uses of liquidity

Our sources of liquidity are (1) cash on hand, which includes proceeds received from our IPO and the Private Placements completed in May 2021, (2) cash flows from operations, and (3) available borrowings under our Senior Credit Facilities (which borrowings would be subject to certain restrictive covenants contained

 

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therein). Based on our current expectations, we believe that these sources of liquidity will be sufficient to fund our working capital requirements and to meet our commitments, including long-term debt service for at least the next 12 months. However, the ongoing COVID-19 pandemic has had and continues to have a significant impact on cash flows from operations. We expect that the impact of COVID-19 on revenue and cash flows will vary, but will generally depend on the duration of the pandemic, the extent and effectiveness of mass vaccinations, additional actions that may be taken by governmental authorities, changes in consumer preferences towards our business and the industries in which we operate and additional postponements or cancellation of live sporting events and other in person events.

Our cash and cash equivalents consist primarily of cash on deposit with banks and liquid investments in money market funds. As of March 31, 2021, cash and cash equivalents totaled $880.9 million (or $1.3 billion on a pro forma basis as described under “Unaudited Pro Forma Financial Information”), including cash held at non-wholly owned consolidated subsidiaries where cash distributions may be subject to restriction under applicable operating agreements or debt agreements and, due to such restrictions, may not be readily available to service obligations outside of those subsidiaries. These balances primarily consist of UFC ($346 million), Endeavor China ($93 million) and On Location ($29 million) as of March 31, 2021. Subsequent to March 31, 2021, the UFC LLC Agreement was amended to remove certain covenants restricting distributions and other payments.

We expect that our primary liquidity needs will be cash to (1) provide capital to facilitate organic growth of our business, (2) fund future investments, acquisitions and settle acquisition earn-outs from prior acquisitions, (3) pay operating expenses, including cash compensation to our employees, (4) fund capital expenditures, (5) pay interest and principal due on our Senior Credit Facilities, (6) make payments under the tax receivable agreement, (7) pay income taxes, (8) repurchase employee equity, (9) make distributions to members and stockholders and (10) reduce our outstanding indebtedness under our Senior Credit Facilities by $600 million, along with associated fees and expenses of approximately $28 million, which was paid on June 29, 2021.

We expect to refinance the Senior Credit Facilities prior to the maturity of the outstanding loans, with the first maturity for outstanding term loans under the Senior Credit Facilities occurring in 2025. We curr