Endeavor Group Holdings: The World's Most Talented Company

Endeavor Group Holdings Inc. (EGH), has many investors hotly anticipating its expected fall IPO. Founded in 1898 as the William Morris Agency, the company has gone on to dominate the world of entertainment, sports, modeling and more from its Los Angeles base.

In 2009, WMA merged with Endeavor Talent Agency, a boutique firm, and went on a shopping spree in the years that followed that included the purchase of sports and modeling agency IMG and the lucrative Ultimate Fighting Championship (UFC).

As well as managing UFC champions such as Conor McGregor and Ronda Rousey, the company boasts to have represented more Oscar and Grammy winners than any other agency, more than 60% of major U.S. festival headliners, and 7 of the top 10 best-paid models in the world. The company and its agents represent more than 6,000 clients, including major film and TV stars, writers, musicians, and athletes.

Beyond being a talent agency, the firm is now a major producer of content for streaming and cable channels, distributing sports and selling media rights in over 160 countries to clients which include the NFL and the Olympic Committee. Added to this is its lucrative direct-to-consumer advertising where they represent brands such as Budweiser and Visa.

It seems as though Endeavor controls a significant chunk of the world's entertainment, but is it too much?

Going public...

At this point, you must be asking yourself: "After 121 years, why has Endeavor never gone public before?" Well, there are actually 5 reasons for this:

1. Profit

Believe it or not, but for all the power Endeavor seems to have, its financials are not as stable as one might think. According to its prospectus, they have $4.6 billion in debt as well as total liabilities amounting to $7 billion, while net income for 2018 was just $231 million after reporting losses in the previous 4 years. Needless to say, the company does not sound like a risk-free investment, considering its size and influence.

2. Upfront costs

Similar to some of the issues experienced by Spotify, the risk factor involved with acquiring rights to content is quite high. In December 2018, the company committed to spending roughly $4 billion on media payments for events over 5 years. Any interruption to these events, such as weather forcing a concert cancellation, could have an adverse effect on the business. Bearing the brunt of the cost of any event is a risky endeavor in itself.

3. Disputes

Endeavor is actually locked in the midst of a major fees dispute with the Writers Guild of America, with the WGA advising its 15,000 members to fire their agents. "The outcome of the dispute, including the commercial landscape that will exist in the future between writers and agents, could have an adverse effect on our business," claimed EGH in its prospectus. A hit on its agency business would be a dangerous blow for the company.

4. Shareholder influence

Shareholders can expect to have little say in the company when it goes public, with four classes of stock being listed and the most valuable ones being withheld for executives in the company only. With the company withholding the majority of the vote, shareholders with different opinions of the company's direction may have little to no chance to voice their opinions.

5. Diversity

The company has come into some scrutiny due to its lack of gender diversity at an executive level. With only one woman named in its current prospectus, there is still a long way to go for a company that promises to embrace diversity.

The outcome...

With EGH planning to go live in September at the earliest, there will indeed be concerns surrounding the company's current practices and debts. In an open letter to investors, CEO Ari Emanuel wrote:

"As the entertainment industry moves toward a closed ecosystem model with less transparency, our clients and businesses need more insight, resources, and solutions than ever before."

There have been few IPOs in the past that run a similar business format as EGH, who seem to just be dipping its hands in as many pots as they can before going public. One cannot help but draw similarities between EGH's business strategy, and that of Disney, who in recent years purchased established and popular franchises such as Marvel and Lucasfilm, incorporating these subsidiaries into its own larger brand identity.

There may be several issues clouding the much anticipated IPO, but how Endeavor proceeds in the months following its initial offering will lend some insight into how successful the business may be as a public entity.