Endeavor(EDR) - 2021 Q4 - Annual Report

Part I Business Overview Endeavor Group Holdings, Inc. is a global sports and entertainment company operating across three segments: Owned Sports Properties, Events, Experiences & Rights, and Representation - The company operates through three primary business segments: Owned Sports Properties, Events, Experiences & Rights, and Representation[16] - The Owned Sports Properties segment includes premier assets like the Ultimate Fighting Championship (UFC), Professional Bull Riders (PBR), a strategic partnership with Euroleague, and several Professional Development League (PDL) baseball clubs[18][123] - The Events, Experiences & Rights segment owns, operates, or represents over 800 events annually, manages the IMG Academy, and is a major global distributor of sports media rights, also including IMG ARENA sports betting and Endeavor Streaming businesses[19][124] - The Representation segment includes the WME talent agency, 160over90 marketing services, and IMG Licensing, which was ranked No. 1 by License Global magazine in 2021 based on nearly $15 billion in total retail sales[19][125] - Growth strategies include leveraging its integrated platform for global expansion, expanding experiential offerings, investing in high-growth adjacent industries, and pursuing strategic mergers and acquisitions[26][30][31] - As of December 31, 2021, Endeavor had approximately 7,700 employees across 29 countries[34] Risk Factors The company faces substantial risks from changing consumer preferences, reliance on discretionary spending, significant indebtedness, and concentrated voting control - The business is highly sensitive to changes in consumer tastes, discretionary spending, and the ongoing impact of the COVID-19 pandemic, which could reduce demand for its services and content[45][46][48] - Success depends on relationships of agents and key personnel with clients, and the ability to identify, sign, and retain talent, with loss of key personnel or clients adversely affecting the business[51][52][53] - Potential conflicts of interest arise from the breadth of its platform, such as representing talent while owning sports properties, exemplified by a dispute with the MLB Players' Association regarding PDL Clubs[53] - As of December 31, 2021, the company had $5.6 billion in outstanding indebtedness under its Senior Credit Facilities, potentially limiting financial flexibility and requiring substantial cash flow for debt service[80][81] - The company is controlled by Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders, who collectively control approximately 89.1% of the combined voting power as of December 31, 2021, potentially leading to actions differing from public stockholders' interests[79] - The company is required to pay certain pre-IPO investors 85% of cash tax savings from favorable tax attributes acquired in connection with the IPO, with these payments under tax receivable agreements potentially being significant[85][87] - UFC is named in five related class-action lawsuits alleging monopolization of the market for elite professional MMA fighters' services, which could result in material liability[76] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[111] Properties The company's significant properties include leased corporate offices in major cities and owned facilities like a multi-sport academy and studios Significant Corporate and Other Facilities (as of Dec 31, 2021) | Location | General Character | Segments Utilizing Facility | | :--- | :--- | :--- | | Beverly Hills, CA | Corporate offices | Representation; Corporate | | New York, NY | Corporate offices | Events, Experiences & Rights; Representation; Owned Sports Properties; Corporate | | Las Vegas, NV | Corporate offices and studios (Owned) | Owned Sports Properties | | London, England | Corporate offices and studios | Events, Experiences & Rights; Representation; Owned Sports Properties; Corporate | | Bradenton, FL | Multi-sports academy (Owned) | Events, Experiences & Rights | Legal Proceedings The company is involved in various claims and legal proceedings in the ordinary course of business, with details provided in Note 22 of its financial statements - The company directs readers to Note 22, "Commitments and Contingencies," in the financial statements for a description of its legal proceedings[114] Mine Safety Disclosures This item is not applicable to the company - Not applicable[114] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock trades on the NYSE under "EDR", with no anticipated cash dividends as earnings are retained for growth - The company's Class A common stock is listed on the NYSE under the symbol "EDR"[114] - The company does not anticipate declaring or paying cash dividends in the foreseeable future, intending to retain earnings to finance business growth[115] - Endeavor Operating Company is expected to make tax distributions to its members to cover their allocable share of taxable income[115] - The company did not repurchase any shares of its Class A common stock during the three months ended December 31, 2021[117] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, Endeavor's revenue increased by 46.0% to $5.1 billion, driven by a strong rebound and strategic acquisitions, despite reporting a net loss of $467.5 million Consolidated Results of Operations (in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenue | $5,077,713 | $3,478,743 | $4,570,970 | | Operating (loss) income | ($22,240) | ($153,218) | $210,536 | | Net loss | ($467,479) | ($625,318) | ($530,661) | | Net loss attributable to EGH | ($296,625) | N/A | N/A | Revenue by Segment (in thousands) | Segment | 2021 Revenue | 2020 Revenue | % Change | | :--- | :--- | :--- | :--- | | Owned Sports Properties | $1,108,207 | $952,624 | 16.3% | | Events, Experiences & Rights | $2,031,283 | $1,593,509 | 27.5% | | Representation | $1,959,757 | $943,873 | 107.6% | | Total Revenue | $5,077,713 | $3,478,743 | 46.0% | Adjusted EBITDA by Segment (in thousands) | Segment | 2021 Adj. EBITDA | 2020 Adj. EBITDA | % Change | | :--- | :--- | :--- | :--- | | Owned Sports Properties | $537,627 | $457,589 | 17.5% | | Events, Experiences & Rights | $215,578 | $59,224 | 264.0% | | Representation | $383,388 | $211,977 | 80.9% | | Total Adjusted EBITDA | $880,316 | $572,547 | 53.7% | - In 2021, the company completed the full buyout of UFC Parent, making it a wholly-owned entity and eliminating non-controlling interest related to UFC from its financial statements[129] - As of December 31, 2021, the company had $5.6 billion in outstanding debt under its Senior Credit Facilities and approximately $381 million in available borrowing capacity[157] - The company has signed agreements to acquire the OpenBet business for $1.2 billion ($1.0B cash, $200M stock) and the Mutua Madrid Open tennis tournament for approximately €360 million, both expected to close in 2022[124][125][166] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on its $5.6 billion variable-rate debt and foreign currency risk from international operations, mitigated by derivatives - The company is exposed to interest rate risk on its floating-rate debt; a 1% increase in effective interest rates would increase annual interest expense by $41 million, holding debt levels constant from December 31, 2021[180] - Significant international operations, primarily in British Pound and Euro, expose the company to foreign currency risk; a hypothetical 10% appreciation of the U.S. dollar in 2021 would have decreased revenues by approximately $121.2 million[180] - The company uses derivative financial instruments, including interest rate swaps and foreign currency forward contracts, to hedge against potential adverse fluctuations in interest rates and foreign exchange rates[180] Financial Statements and Supplementary Data This section incorporates by reference the company's audited consolidated financial statements and supplementary data, beginning on page F-1 - The required financial statements for this item are located starting on page F-1 of the report[181] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[182] Controls and Procedures Management concluded disclosure controls were effective as of December 31, 2021, with no material changes to internal controls reported for Q4 2021 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[183] - The report does not include a management assessment or auditor attestation on internal control over financial reporting, as permitted for newly public companies under an SEC transition period[183] - There were no material changes in internal control over financial reporting during the fourth quarter of 2021[184] Other Information Director Elon Musk notified the company of his resignation from the board, effective June 30, 2022, not due to any disagreement - Elon Musk resigned from the board of directors, effective June 30, 2022, with his resignation not due to any disagreement with the company's operations, policies, or practices[185] Part III Directors, Executive Officers and Corporate Governance This section provides biographical information for executive officers and directors, including CEO Ariel Emanuel and Executive Chairman Patrick Whitesell, and details the audit committee composition Key Executive Officers and Directors (as of March 16, 2022) | Name | Age | Position | | :--- | :--- | :--- | | Ariel Emanuel | 60 | Chief Executive Officer and Director | | Patrick Whitesell | 57 | Executive Chairman and Director | | Jason Lublin | 50 | Chief Financial Officer | | Mark Shapiro | 52 | President | | Egon Durban | 48 | Chairman of the Board of Directors | | Elon Musk | 50 | Director (Resigning June 30, 2022) | - The audit committee consists of Ursula Burns, Fawn Weaver, and Jacqueline Reses, with Jacqueline Reses serving as the chair, and Ms. Reses and Ms. Burns qualifying as "audit committee financial experts"[193] - The company has a Code of Conduct available on its investor relations website[194] Executive Compensation Executive compensation for 2021 was significantly impacted by the IPO, with a substantial portion of CEO and Executive Chairman pay tied to long-term stock price performance - A substantial portion of compensation for the CEO and Executive Chairman is at-risk and tied to long-term stock price performance through special performance stock unit (PSU) awards granted at the IPO[197][219] - CEO Ariel Emanuel's PSU award grants shares valued at $26.5 million for each $4.50 increase in the stock price over the $24 IPO price, with the first milestone at $28.50 achieved in 2021[197][221] - Executive Chairman Patrick Whitesell's PSU award grants shares valued at $100 million for each $25.00 increase in the stock price over the $24 IPO price, with the first milestone at $49.00[197][222] 2021 Summary Compensation Table (Select NEOs) | Name | Position | Salary ($) | Bonus ($) | Equity Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Ariel Emanuel | Chief Executive Officer | 4,000,000 | 10,000,000 | 293,746,113 | 308,177,233 | | Patrick Whitesell | Executive Chairman | 4,000,000 | 5,000,000 | 113,958,091 | 123,101,284 | | Jason Lublin | Chief Financial Officer | 2,000,000 | 3,500,000 | 12,520,433 | 18,036,201 | | Mark Shapiro | President | 3,000,000 | 7,768,797 | 31,166,143 | 41,995,100 | - Employment agreements for all named executive officers provide for severance payments and benefits upon certain qualifying terminations of employment[225][248] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters A small group of insiders, including Silver Lake affiliates and key executives, collectively control 89.3% of the combined voting power, making Endeavor a "controlled company" Beneficial Ownership and Voting Power (as of March 4, 2022) | Beneficial Owner | Class A Common Stock Owned (fully exchanged basis) (%) | Combined Voting Power (%) | | :--- | :--- | :--- | | Silver Lake Equityholders | 38.5% | 68.6% | | Ariel Emanuel | 9.8% | 17.1% | | Patrick Whitesell | 9.1% | 16.6% | | All directors and executive officers as a group | 50.3% | 89.3% | - The ownership structure includes multiple classes of stock, with Class Y common stock carrying 20 votes per share and Class A and Class X common stock each carrying one vote per share, concentrating control among Class Y holders[268] Certain Relationships and Related Transactions, and Director Independence The company has a formal policy for reviewing related party transactions and is a "controlled company" due to concentrated voting power, exempting it from certain independence requirements - The company has a written policy for the review and approval of related person transactions by the Audit Committee[271] - A Stockholders Agreement with Messrs. Emanuel, Whitesell, and Silver Lake Equityholders governs board nominations and voting agreements, solidifying their control[277] - The company entered into Tax Receivable Agreements (TRAs) requiring it to pay 85% of realized cash tax savings from certain tax attributes to pre-IPO investors[280] - The UFC Buyout involved acquiring the remaining interests in UFC Parent from other holders, including affiliates of Silver Lake and company executives, in exchange for cash, stock, and rights under the TRAs[282][284] - The company is a "controlled company" under NYSE rules, exempting it from requirements to have a majority-independent board and fully independent compensation and nominating committees[293] - The board has determined that directors Ursula Burns, Elon Musk, Jacqueline Reses, and Fawn Weaver are independent[293] Principal Accounting Fees and Services Deloitte & Touche LLP served as the independent auditor, with total fees of $15.7 million in 2021, primarily driven by $7.3 million in audit-related fees for the IPO Fees Paid to Independent Registered Public Accounting Firm (in thousands) | Fee Category | 2021 | 2020 | | :--- | :--- | :--- | | Audit Fees | $8,230,959 | $8,006,777 | | Audit-Related Fees | $7,293,279 | $1,736,890 | | Tax Fees | $197,736 | $304,562 | | All Other Fees | - | - | | Total Fees | $15,721,974 | $10,048,229 | - Audit-Related Fees in 2021 were primarily for professional services related to the company's IPO, including work on its S-1 registration statements and due diligence[295] - The audit committee has a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor[296] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K, including corporate documents and material contracts - This section contains a comprehensive list of all exhibits filed with the 10-K report, including foundational corporate documents, debt agreements, and material contracts[298][300] Form 10-K Summary The company has not provided a summary for this item - None[309]