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Endeavor Postpones Its IPO

In an ominous sign for Wall Street's appetite for investing in talent agencies and even diversified media holdings, Endeavor Group has postponed its initial public offering. "Endeavor will continue to evaluate the timing for the proposed offering as market conditions develop," the company stated on Thursday. 

Endeavor was supposed to have priced its IPO, possibly within hours, at about $27 per share, after saying last week it would be as high as $32, though, in the end, the IPO was shelved, at least temporarily. 

The per-share price, coupled with a lower-than-expected number of shares available, would have had the parent of talent agency WME and the Ultimate Fighting Championship raising about $360 million while it had previously forecast raising up to $600 million.

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Endeavor’s stock would have begun trading as early as Friday on the New York Stock Exchange under the symbol, "EDR," with an initial market capitalization short of the previous estimates, which were north of $8 billion.

The tabling of the IPO is likely a huge disappointment for top executives and many of the other 7,000 employees who were expected to benefit to the tune of a combined $1 billion in equity bonuses. On the other hand, the IPO would have been a huge victory considering the timing, as WME is still engaged in a high-profile legal battle with writers, many of whom severed ties with their agents, and many observers predicted that the feud would need to be settled prior to an IPO.

The battle with the WGA involves packaging fees, whereby agencies bundle elements of a TV show to boost its profits while writers say they do not profit from the practice. Some Wall Street observers privately opined that Endeavor had been forging ahead with its IPO despite less-than-bullish sentiment in part to prove that WME’s business is not dependent on packaging fees and hasn’t been harmed much by the defection of most of its writing clients.

In fact, the WGA had tried to damage Endeavor’s IPO, on one occasion telling the SEC that WME inflated its number of clients while on another occasion calling it “impossible to reconcile the fundamental purpose of an agency — to serve the best interests of its clients — with the business of maximizing returns for Wall Street." Whether these efforts paid off, is difficult to say.

Endeavor has also been contending with five unresolved lawsuits filed by some UFC fighters years ago who make antitrust claims and accuse the firm of shortchanging them. Some fighters also are trying to unionize, an effort the UFC is vigorously resisting.

In an SEC filing, Endeavor acknowledges that, between lawsuits filed by the WGA and UFC fighters, that plaintiffs may seek recovery of “very large or indeterminate amounts” of money and the outcome “may remain unknown for substantial periods of time.”

The IPO would have been significant in numerous ways, as it should have required WME to disclose financial details that historically tight-lipped agencies would normally keep secret. Plus, Endeavor’s IPO could have encouraged others, like CAA and United Talent Agency, to someday follow suit, though those companies aren’t yet as diversified as is Endeavor, whose assets include Professional Bull Riders, the Frieze Art Fair, streaming delivery company NeuLion and the 160over90 marketing agency.

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In Endeavor’s pre-IPO filing, it reported $2.05 billion in revenue for the first six months of 2019 with operating income of $10.3 million and a net loss of $223 million. Ari Emanuel and Patrick Whitesell, the co-CEOs, along with CFO Jason Lublin, Endeavor president Mark Shapiro, chief marketing officer Bozoma Saint John, human resources topper Kerry Chandler are likely out millions of dollars, for the time being, as is Silver Lake, which became the first private equity firm to buy into Endeavor in 2012 and has amassed a significant, though still minority stake in it since then.

In a pre-IPO roadshow video, Lublin says: “We’re going public to be more nimble and responsive for our clients and … to give us a capital and currency for M&A, which has and will continue to be central to our strategy.”

In the same video, Emanuel adds “I don’t believe there’s another platform like ours. I have competition in the advertising business, talent agency business and sports business, but they’re all individual companies … I’m way out in front of you by miles and miles.”

Apparently, Wall Street wasn't buying what the executives were selling, at least not to the degree they hoped. Yanking the IPO is a sign bankers, executives and all else involved were not confident the stock would have been well received and likely would have traded below even the lowered expectations.

The Writers Guild of America West issued the following statement: 

"Reports that the Endeavor IPO has been withdrawn show that investors didn’t buy the company’s conflicted business practices."

Sept 26, 9:35 p.m. EST: Updated with statement from WGA. 

 

This article was originally published by The Hollywood Reporter.