Endeavor(EDR) - 2023 Q4 - Annual Report

PART I Business Endeavor is a global sports and entertainment company with four segments, recently forming TKO Group Holdings from UFC and WWE - The company operates across four segments: Owned Sports Properties, Events, Experiences & Rights, Representation, and Sports Data & Technology[29] - In September 2023, Endeavor combined its UFC business with WWE to form a new publicly listed company, TKO Group Holdings, Inc., in which Endeavor holds a 51% controlling interest[28][264] - The company's business model is built around the 'Endeavor flywheel,' which connects its various divisions to maximize value for clients and properties through network effects[26][31] - The company's growth strategies include leveraging the Endeavor flywheel for organic growth, expanding its experiential offerings, investing in high-growth adjacent segments, and pursuing strategic mergers and acquisitions[49][50][51][52] Key Owned Sports Properties & Fan Engagement (as of Dec 31, 2023) | Property | Fan Base | Social Media Followers | Global Reach | | :--- | :--- | :--- | :--- | | UFC | >700 million | ~260 million | Broadcasts to >900 million households in >170 countries | | WWE | >700 million | >360 million | Programming available in >1 billion households in ~160 countries | Risk Factors The company faces risks from strategic alternative uncertainty, consumer taste sensitivity, WWE/UFC integration, substantial debt, and concentrated control - The company's formal review of strategic alternatives, announced in October 2023, creates uncertainty that could adversely affect the business and stock price, though the company will not consider selling its interest in TKO[73] - Business success is highly sensitive to changing consumer preferences, and the company has committed approximately $3.0 billion in guaranteed payments for media, events, and other rights, regardless of their ultimate popularity[74][75] - The company faces risks related to the integration of WWE and UFC into TKO, including potential difficulties, higher-than-expected costs, and the possibility that anticipated benefits and synergies may not be fully realized[166][167] - As of December 31, 2023, the company had an aggregate of $5.0 billion in outstanding indebtedness under its Senior Credit Facilities, which could require a substantial portion of cash flow for debt service and limit financial flexibility[182] - Control is concentrated with Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders, who collectively hold approximately 91.5% of the combined voting power as of December 31, 2023, which may lead to conflicts of interest with holders of Class A common stock[174] - Zuffa (UFC) is a defendant in multiple class-action antitrust lawsuits filed by former fighters alleging monopsonization of the market for elite MMA athletes' services, with one case certified as a class action and a trial date of April 15, 2024[150][797] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[231] Cybersecurity Endeavor's cybersecurity program aligns with NIST CSF, overseen by the Audit Committee, and has identified no material incidents - The company's cybersecurity approach is aligned with the National Institute of Standards and Cybersecurity Framework (NIST CSF)[232] - The Audit Committee has oversight of cybersecurity risk and receives quarterly reports from management[239][240] - The cybersecurity program includes risk assessments, a written incident response plan, use of external service providers for testing, and regular employee awareness training and phishing simulations[236] - To date, the company has not identified any cybersecurity threats or incidents that have materially affected or are reasonably likely to materially affect its business, operations, or financial condition[238] Properties Endeavor owns corporate offices in Las Vegas and leases other significant facilities in Beverly Hills, New York, London, and Stamford Significant Corporate Facilities | Location | Character | Segments Utilizing Facility | | :--- | :--- | :--- | | Beverly Hills, CA | Corporate offices (Leased) | Representation; Corporate | | New York, NY | Corporate offices (Leased) | Events, Experiences & Rights; Representation; Owned Sports Properties; Corporate | | Las Vegas, NV | Corporate offices and studios (Owned) | Owned Sports Properties; Events, Experiences & Rights | | London, England | Corporate offices and studios (Leased) | Events, Experiences & Rights; Representation; Owned Sports Properties; Sports Data & Technology; Corporate | | Stamford, CT | Corporate offices and studios (Leased) | Owned Sports Properties | Legal Proceedings The company is involved in various legal proceedings, detailed in Note 20 of the consolidated financial statements - The company refers to Note 20, "Commitments and Contingencies," for a detailed description of its legal proceedings[246] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[247] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Endeavor's Class A common stock trades on the NYSE, with the company completing a $300 million share repurchase and initiating quarterly dividends - The company's Class A common stock is listed on the NYSE under the symbol "EDR"[249] - In 2023, the company completed a $300 million repurchase authorization, including a $200 million accelerated share repurchase agreement and a $93.6 million redemption of EOC common units[252][253] - The company declared and paid quarterly cash dividends in September and December 2023[199][405] Management's Discussion and Analysis of Financial Condition and Results of Operations For FY2023, Endeavor's revenue increased to $5.96 billion, net income rose to $557.5 million due to the IMG Academy sale, and Adjusted EBITDA reached $1.22 billion, with $5.0 billion in total debt Consolidated Financial Highlights (2023 vs. 2022) | Metric | 2023 (in millions) | 2022 (in millions) | Change (in millions) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $5,960.2 | $5,268.1 | +$692.1 | +13.1% | | Operating Income | $319.6 | $577.0 | -$257.4 | -44.6% | | Net Income | $557.5 | $321.7 | +$235.8 | +73.3% | | Adjusted EBITDA | $1,215.7 | $1,163.5 | +$52.2 | +4.5% | - The increase in 2023 revenue was primarily driven by the acquisition of WWE (contributing $383 million), growth at UFC, and the full-year impact of the OpenBet acquisition[288] - The significant increase in Net Income for 2023 was largely due to a $737.0 million gain from the sale of the IMG Academy business[305][308] - The Representation segment's performance was adversely impacted by the WGA and SAG-AFTRA writers' and actors' strikes in 2023[276][339] - As of December 31, 2023, the company had $5.0 billion in outstanding debt under its Senior Credit Facilities and a Tax Receivable Agreement (TRA) liability of $990.5 million[377][411] Segment Results of Operations 2023 Revenue and Adjusted EBITDA by Segment | Segment | Revenue (in millions) | % of Total | Adjusted EBITDA (in millions) | Margin (%) | | :--- | :--- | :--- | :--- | :--- | | Owned Sports Properties | $1,815.9 | 30.5% | $827.0 | 45.5% | | Events, Experiences & Rights | $2,173.4 | 36.5% | $228.1 | 10.5% | | Representation | $1,544.4 | 25.9% | $391.1 | 25.3% | | Sports Data & Technology | $469.8 | 7.9% | $62.7 | 13.3% | | Corporate | N/A | N/A | $(293.3) | N/A | - Owned Sports Properties: Revenue grew 36.3% YoY, primarily due to the WWE acquisition which contributed $383 million, with UFC revenue also increasing from higher media rights, more live events, and increased sponsorship[320] - Events, Experiences & Rights: Revenue decreased by 0.9% YoY, mainly due to the sale of the IMG Academy business in June 2023, partially offset by growth from tennis events and new media production contracts[330] - Representation: Revenue increased 2.1% YoY, driven by nonscripted content production, marketing, and licensing, though growth was tempered by the negative impact of the Hollywood writers' and actors' strikes[339] - Sports Data & Technology: Revenue saw significant growth of 80.3% YoY, primarily driven by the full-year contribution from the OpenBet acquisition (completed in September 2022) and growth at IMG ARENA[348] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate and foreign currency fluctuations, using derivatives for hedging - Interest Rate Risk: A 1% increase in effective interest rates on the company's floating-rate debt would increase annual interest expense by $27 million, holding debt levels constant as of December 31, 2023[459] - Foreign Currency Risk: A hypothetical 10% appreciation of the U.S. dollar against foreign currencies would have decreased 2023 revenues by approximately $124.7 million but improved operating income by approximately $5.8 million[461] - The company utilizes interest rate swaps to fix rates on $2.25 billion of its Senior Credit Facilities and uses foreign currency forward contracts to hedge exposures[459][462] Financial Statements and Supplementary Data This section incorporates audited consolidated financial statements, with the auditor's report highlighting WWE acquisition and revenue recognition as critical audit matters - The full consolidated financial statements and related notes are included starting on page F-1 of the Annual Report[464] - The Report of Independent Registered Public Accounting Firm identifies two critical audit matters: the accounting for the WWE acquisition, specifically the consolidation conclusion, and the revenue recognition for certain significant multi-year customer arrangements[524][528][532] 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[465] Controls and Procedures Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023, excluding the recently acquired WWE business - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[466] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework[469] - The assessment of internal control over financial reporting excluded the internal controls of WWE, which was acquired in September 2023, with WWE's financial results representing approximately 6% of total revenue for the year[470][476] Other Information The company amended President and COO Mark Shapiro's employment agreement, extending his term and providing a $10 million retention bonus, while other executives also received retention bonuses - The employment term for President and COO Mark Shapiro was extended to May 3, 2025, and he received a $10 million cash retention bonus while waiving eligibility for his 2023 and 2024 annual equity awards[483] - CFO Jason Lublin and CAO Seth Krauss received one-time cash retention bonuses of $4.05 million and $1.35 million, respectively, and waived their eligibility for 2023 annual equity awards[484] PART III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance will be incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2024 Proxy Statement[490] Executive Compensation Information regarding executive compensation will be incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding executive compensation is incorporated by reference from the forthcoming 2024 Proxy Statement[491] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership will be incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding security ownership is incorporated by reference from the forthcoming 2024 Proxy Statement[492] Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence will be incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the forthcoming 2024 Proxy Statement[493] Principal Accountant Fees and Services Information regarding principal accountant fees and services will be incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the forthcoming 2024 Proxy Statement[494] PART IV Exhibits and Financial Statement Schedules This section lists the documents filed as part of the Annual Report, including financial statements and a comprehensive list of exhibits - This section contains a list of all financial statements and exhibits filed with the Form 10-K[496][497] Form 10-K Summary The company indicates that there is no Form 10-K summary provided - None[508]