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spk10: First quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. With that, I will now turn the call over to Samantha Stewart.
spk02: Good afternoon and welcome to Endeavor's first quarter 2021 earnings call. A short while ago, we issued a press release, which you can view on our investor relations site, investor.endeavorco.com. A recording of this call will also be available via this site. Today, you'll hear from Endeavor CEO, Ari Emanuel, our president, Mark Shapiro, and our CFO, Jason Lublin, before we open up for questions. The purpose of the call is to provide you with information regarding our first quarter 2021 performance, in addition to our financial outlook for the balance of the year. I do want to remind everyone that the information discussed will include forward-looking statements and or projections that involve risks, uncertainties, and assumptions, as described in the risk factor section of our Filings with Securities and Exchange Commission. including our IPO perspectives, as updated by our first quarter 10Q. If these risks or uncertainties ever materialize or any assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements and projections. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them publicly in light of new information or future events, except as legally required. Our commentary today will also include non-GAAP financial measures, which we believe provide an additional tool for investors to use in evaluating ongoing operating results and trends. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our press release issued today, as well as on our IR site. With that, I'll hand it over to Ari.
spk05: Thanks, Sam. The past year has been by far one of the most challenging, but also one of the most rewarding for our company. We were tested at every possible way, and our teams rose to meet every challenge, demonstrating resilience and ingenuity at every turn. Despite the setbacks COVID-19 provided, we weathered the storm and laid a strong foundation for the remainder of 2021 and beyond. Shortly, Mark Shapiro will walk you through some more specific examples of this, and Jason will share more details around our financial results and guidance for the year. First, I want to spend a few minutes on the encouraging recovery signs emerging across our portfolio and how the convergence of technology, sports, entertainment, media, and gaming play to our strength as an integrated company that both owns and represents IP and content. As more states and countries loosen travel and gathering restrictions and vaccination rates increase, we are beginning to experience accelerated demand across our 800-plus global events portfolio. As you might recall, the UFC and PBR were two of the first sports organizations to resume live events last year and two of the first to bring full crowds back. This provides a blueprint for other events across our portfolio, from Frieze Art Fair to EuroLeague basketball. Every on-sale brings new perspective and insight into the pent-up demand globally from consumers. Much of the demand is coming via our events and experience business, which includes On Location, acquired in January 2020, just before the pandemic took hold. We are thrilled to be able to share on this call that the International Olympic Committee, IOC, today named on location the official global hospitality provider for the Olympic and Paralympic Games, covering three Olympics, beginning with Paris 2024. The significant relationship marked the first time the IOC has appointed a company as a global hospitality provider for multiple editions of the Games. Other distinguished partners to on location include NFL, NCAA, and PGA championships, as well as more than 500 music tours and festivals like Coachella. Just as we're seeing the demand for live events and experience of all kinds, we are witnessing strong demand for all forms of premium content across all distribution platforms. The ever-consolidating media landscape around us is a testament to the enduring value of premium IP and the desire for streaming leaders to gain scale through investment in differentiated content. We view the combination of WarnerMedia and Discovery, along with Amazon's acquisition of MGM, as proof point that content is in high demand and short supply, and that our positioning in this ecosystem favors long-term growth as investment continues. Technology leaders and incumbent media companies have to power their SVOD and AVOD services while still programming their linear channels. And as demand increases, there is a finite number of IP creators to meet that demand, thereby increasing the value of talent we represent and the content we own or represent. one thing I'll continue to underscore in these earnings calls is that we are agnostic to all forms of distribution and have creators for all distribution platforms. To give you a snapshot just within television, we pair talent from writers to actors to showrunners with IP. We then sell these series more than 350 in 2020 to broadcasters, cable, channels, streamers, social, and gaming platforms. Within streaming alone, we remain one of the largest suppliers of content to the biggest platforms like Netflix and Amazon, and increasingly to the newer platforms like HBO Max and Parallel Plus. As we look to sports rights, the same concept around supply and demand applies. There is a scarcity in rights and more competition than ever across both traditional networks and to secure those rights. As a result, record deals are being negotiated. Beyond our seven-year domestic deal for the UFC with ESPN and ESPN+, we also are seeing increased demand for rights internationally, as evidenced by our recent UFC rights deal in China. And as a reminder, We're selling media rights globally on behalf of more than 150 clients, such as the NFL and NHL, in addition to our own properties in over 160 territories. We're also often packaging these rights with original programming, and our Endeavor streaming platform provides streaming services for organizations like the NFL, NBA, and UEFA. Sports betting is another growing industry, particularly in the United States. Through IMG Arena, we work with more than 470 leading sports book brands worldwide to deliver live streaming video and data feeds for more than 45,000 sports events annually. The point I'm making is that we benefit from all trends in media, content, sports, events, and gaming, and remain well positioned to continue capitalizing on and growing alongside the high-growth industries in which we operate. With that, I'll turn it over to Mark Shapiro to walk you through our business in greater detail.
spk07: Thanks, Ari. Across our own sports portfolio, we are indeed benefiting from some of the tailwinds that Ari mentioned. Those wins existed before the pandemic. But at the same time, the pent-up demand of the experienced economy is really lighting a fuse across the entire range of our businesses. As he noted, UFC and PBR were two of the first sports organizations to resume live events in the spring of 2020. For PBR, since coming back online and as attendance continues to increase, we're actually seeing a double-digit uptick in spending from advertisers who are eager to reach live audiences. And ratings on CBS are up 29% this quarter compared to Q1 2020. EuroLeague, meanwhile, resumed live events in the fall of 2020 and held their Final Four event in Germany just last week. which we streamed across Facebook, Twitch, and TikTok for the first time. Even though we didn't have crowds in Cologne due to pandemic-related restrictions, we anticipate being back to full capacity when the next season commences in the fall of 2021. Similar to the pacing we're seeing at PBR and UFC, which we'll discuss in a moment, I'm happy to say we're seeing strong demand on the advertising and sponsorship side of the business in Europe. Now, turning to the UFC. In spite of the pandemic, UFC had a phenomenal 2020, and that momentum continued into the first quarter this year. We believe that the pandemic actually helped accelerate UFC's move into the mainstream. On the event side, in 2020, we delivered 41 of 42 planned events. And in the first quarter of 2021, we held 11 events, including a few pay-per-view events with ticketed fans in attendance. Now, on the media side of the business, while many sports, I'm sure you've all seen, are still struggling to return to 2019 ratings and viewership levels, the UFC on ESPN this year is up 7% among average total viewers versus 2019. On the streaming side, the same success. We continue to be the anchor tenant of the entire ESPN Plus platform. The original guidance provided by Disney in April 2019 was for ESPN Plus to have 8 to 12 million subs by 2024. Disney is now saying they will be at 20 to 30 million subs by 2024, and they are already at 14 million subs according to their most recent earnings report. There's no question UFC is the biggest driver of the ESPN Plus platform. Disney and ESPN continue to be exceptional partners, leveraging vast components of their massive global platform to drive UFC awareness. In fact, in January of this year, we held our first UFC event on ABC, harking back to the glory days of Muhammad Ali and boxing on ABC Sports. This was the first ever live MMA event on the network. The event became the second most viewed UFC fight night since February 2019. Beyond media and beyond streaming, the UFC is hitting on all growth levers at the moment. One of the key differentiators for the UFC versus other major sports organizations is that we control it top to bottom. Along with Dana White, we are the single decision maker. We control all aspects, allowing us to efficiently unlock extraordinary value for UFC across the entire Endeavor platform. On the partnerships front in January, we closed a multi-year licensing partnership with Zappos, in which the company will manufacture and distribute officially licensed UFC merchandise. We also closed a multi-year deal with Panini America, making them UFC's official and exclusive collectible trading card partner. In that same vein, we now have a partnership with Dapper Labs, a company we were an early investor in, that will usher in UFC as the second sports organization to launch an NFT platform akin to NBA Top Shot later this year. The speed and action of UFC lends itself well to creating these digital moments, which will feature current as well as historical highlights. In February, we closed a first-of-its-kind content deal for a sports organization with TikTok. This multi-year relationship provides for TikTok-dedicated resources at UFC headquarters and seeks to bring fans up close and personal to their favorite fighters with exclusive behind-the-scenes content. Also in February, we secured a multi-year content deal with China's Migu, as UFC's exclusive distributor in China for all live events. Magoo will also distribute a new Asia edition of Dana White's Contender Series and partner with our UFC Performance Institute in Shanghai. And in March, we announced the significant multi-year deal with DraftKings. making them UFC's first official sportsbook and daily fantasy partner in the U.S. and Canada. DraftKings also hired our creative and experiential marketing agency, 160 Over 90, to handle all their partnership and sponsorship management, their experiential and their social media. Now, hiring 160 Over 90 is just one example of Endeavor leveraging one asset of the platform to drive another. At Endeavor, we call this architecture. And you'll hear Ari and I speak about our architecture process and success stories frequently on these calls. Our architecture strategy and structure was actually developed and initiated with the help of Harvard Business School professors back in 2019. It's now become the backbone of the way we operate internally. And finally, on the gaming front, our IMG Arena business continues to power UFC's first official product in this space, providing the data and video streams that allow for live betting opportunities for every UFC event. The pandemic created a surge in at-home betting during the shutdown, and given that UFC was the only game in town for quite some time, the stay-at-home environment helped attract more fans to the UFC, particularly among the 18-34 demographic. Pivoting to our IMG Arena business more broadly, which sits within our events, experiences, and rights segment, we are ramping up our data and video stream efforts in the U.S., where sports betting is now legal in more than two dozen states. We also continue to bring new sports, including more niche properties like volleyball, onto our platform. At the same time, given our extraordinary partnerships with the PGA Tour, the PGA of America, which has the PGA Championship and the Ryder Cup, and the ACP, we are further investing in sports like golf and tennis, two of the more popular betting sports from a global perspective. At the end of the quarter, we finalized a deal to acquire FlightScope, a European-based leading data collection, AV production, and tracking technology specialist whose best-in-class technology in tennis and golf will look to now pivot into major U.S. sports like football and basketball. This will be a big boon to our IMG Arena platform. Moving on to our events and experiences businesses, social distancing mandates and government restrictions on travel and mass gatherings continue to, of course, limit most of our activity in the first quarter. Reopening rates and mass gatherings are increasing at various and varying paces around the world. We're fortunate that our global footprint enables us to nimbly respond to those changing circumstances. I'll give you some examples. In May, We resumed our Great Ocean Road Running Festival in Australia, where 9,000 runners participated, making it the largest showing in the event's history. Also last month, we hosted Freeze New York, the first major art fair to return in the U.S. since the onset of the pandemic. The event featured more than 60 physical galleries and posted strong ticket sales for its five-day run at The Shed in New York City. Additionally, I should mention this summer we'll be launching our own NFT proprietary platform in partnership with Otoy to feature digital works of art under the Freeze umbrella. On Monday, we launched our Australian Fashion Week in Sydney. We have a new title sponsor. We have a full slate of consumer shows. We have the biggest slate of designers participating since 2015 and the event's largest media valuation ever, before the shows have even been staged. And for those events in the near term, those coming up, the outlook is truly no different. Increased demand for our Taste of London event in July quickly led to the addition of a second weekend for the first time in event history. Weekend and camping passes to August's The Big Feastival, also in the UK, it's one of our most popular culinary events in the UK, sold out within hours of going on sale. Similarly, we're seeing brisk ticket sales for upcoming concerts. The pre-sale for the first event of On Location's Mexico-based beach concert series featuring WME client Dead & Company sold out both its January 2022 weekend dates. And the next event featuring WME client Luke Bryant had its fastest sellout in its seven-year history. Following this year's Super Bowl, On Location offered a pre-sale for experiences to next year's event, and the most exclusive packages sold out immediately. Another area we're seeing brisk sales. In fact, even before we begin our general On Sales this spring, sales are up significantly over our previously best-selling Super Bowl in Miami. I mentioned earlier the strong response from advertisers we're seeing across our own sports properties. We're actually seeing this elevated level of sponsor interest across the entire event portfolio, from blue-chip events like the Rugby World Cup 2023, where MasterCard is just signed on, to niche events like the Melbourne Marathon, with Nike coming on as their fall return. When you look at our events portfolio in its entirety, The pandemic was a catalyst for new digital products and solutions that have become what we believe will be enduring top-line revenue-generating enhancements going forward. For instance, we created virtual art fairs to complement the iconic on-site experience Freeze is known for in cities like London, New York, and Los Angeles, and soon-to-be Seoul, South Korea, debuting in September 2022. Extensions like this will live on and serve to diversify our product offerings and connect our fans in more customized and on-demand ways. We believe this will drive memberships, subscription offerings, loyalty programs, and enhance CRM capabilities. In short, these extensions can convert quickly to new revenue drivers for our events and help capture digital ad dollars. Finally, within our events, experiences, and rights segment, I wanted to touch on IMG Academy, our leading sports training institution, which we continue to invest in from both a physical campus standpoint and via digital products. While social distancing mandates and global travel restrictions limited our camp and event business last year, Severely, and even into this last quarter, boarding school enrollment this year has now exceeded 2018-19 enrollment, a pre-pandemic year. And our camp sales, especially for July, are pacing strong. When you layer on college recruiting leader NCSA, Next College Student Athlete, which we've just acquired, we're bullish on the opportunity to add new recruiting and college prep digital products to the academy's slate of offerings, not to mention leveraging the NCSA database of clients to drive further camp sales year-round at the academy. And now I want to transition to our representation segment. Similar to our events-based businesses, fewer television and film productions and live concerts continue to impact the first quarter. But what I can't underscore enough, and as we look to the remainder of the year and beyond, is what Ari mentioned near the top of the call, and that's the correlation between a seemingly infinite demand for content and a finite number of IP creators, which directly benefits our industry-leading talent agency, WME. We are fortunate to have a significant base of multi-hyphenate clients at WME who move effortlessly across lanes from linear television, streaming and films, to music, audio, and social media. We have countless film and television clients who are booked solid for the next year plus. Musical agents are landing multi-year television and streaming deals. We're seeing an uptick in signings. of digitally native talent and gamers. And we have more and more clients tapping into Endeavor's talent ventures arm to form brand partnerships that go beyond traditional endorsement deals, giving WME talent equity in the brand and therefore a vested interest in its promotion. Turning to Endeavor content, last week we began production on Roar for Apple. It's an eight-episode anthology series that explores issues women face through unexpected and heightened lenses. We are producing Roar in partnership with Made Up Stories. and we have a half-dozen other series in various stages of production for Apple, Hulu, Netflix, Peacock, and Amazon Prime. Our partnership with Made Up Stories and the slate we have across the sea of streaming platforms is a perfect illustration of the insatiable demand for content and the pricing power we're able to leverage in a crowded buyer's marketplace. Additionally, we're not only servicing U.S. growth here, but I should point out it's a prime example of capitalizing on local language content demand, as two of these series are Australian network orders. As it relates to the music side of the representation business, we typically book at WME more than 30,000 concert dates annually. Well, we're heavily back at work with tours, festivals, residencies. As much as this corner of the representation business was the bullseye for the pandemic, completely shutting down our music and concert business, it's not about an exact 180. We have high demand coupled with favorable pricing and yield, and artists of all kinds are desperate to get back out and tour, to see, to greet their fans. We're locking down major arena tours for 2022. And to make up for a year away from performing live, many of these tours are multi-year, spanning broad territories across North and South America, Europe, and Asia. Now transitioning to the brand client side of our business. Although the first quarter bears the lingering effects of 2020, we're seeing brands begin to ramp spending back up after a year of pressing pause on many fronts. The pandemic brought out both a comfort and nostalgic side of consumers as we were all forced to stay at home. As such, brand licensing is increasingly becoming a core part of companies' marketing playbooks, and we saw that. As a result, in the first quarter, IMG Licensing saw an increase in games and collectibles, home and comfort products, and health and wellness offerings. From a new deal between Hasbro and Fortnite to create collectibles, to client Cosmopolitan expanding its Cosmo Living Home Collection to include new bedding products. And just last week, Walmart announced it will carry a new Gap Home line in a deal brokered by IMG and in a terrific story picked up by the Wall Street Journal. Turning to the marketing side of our business, our leading experiential marketing agency, 160 over 90, has been focused on developing and executing strategies to meet the needs of brands as they shift more ad dollars towards digital and live events and experiences. We are capitalizing on that spending shift with clients like Marriott, AB InBev, Visa, Invesco, and Audi. who are aggressively turning up their efforts to activate across the resurgence of expanding in-person audiences. On the health and wellness front, we're working with companies like Greenleaf Foods and their Lightlight plant-based food brand. What started as a one-campaign project for 160 over 90 has evolved into another architecture success story for us. We renamed their agency of record last quarter, partnering them with more than a half-dozen WME clients for campaigns and event activations, and then Endeavor Content's non-scripted team got the assignment to work with them on the production side to bring their campaigns to life. Today, we also announced that 160 Over 90 formed a partnership with Obsidian Works, the marketing agency founded by longtime WME client Michael B. Jordan and his business partner, Chad Easterling. This alignment is designed to help brands more authentically reach millennial, Gen Z, and underrepresented communities. Huge open road here for us to make an impact as a multicultural agency. Well, that covers what we're seeing across our businesses, a lot of bright lights. And with that, I'll hand it over to Jason to walk you through our first quarter results in greater detail. Jason?
spk04: Thank you, Mark, and good afternoon, everyone. As Ari and Mark discussed, we are encouraged by the early recovery signs and trends we are seeing emerge across our businesses and believe we are very well positioned to drive continued long-term growth. Let me start by walking you through our first quarter results, and then I'll briefly discuss guidance for the year. For the quarter, We generated approximately $1.1 billion in revenue, a 10% decline from the same period last year as COVID-19 continued to have a negative impact across our business and geographies. However, adjusted EBITDA for the quarter was up 13% over the same period last year, increasing to $199.5 million, which I will discuss in more detail shortly. As a reminder, we operate our business in three segments, own sports properties, events experience and rights, and representation. With that in mind, I'll walk you through our performance by segment. Our own sports property segment is comprised of a unique portfolio of sports properties, UFC, PBR, and EuroLeague. This segment performed very well in this quarter, with revenues of $283.5 million, up 22.1% or $51.3 million, despite the impact of COVID-19 on live events. The quarter benefited from increased event output, contractual increases in media rights agreements, and higher sponsorship fees, as well as outperformance in other variable revenue streams like international commercial pay-per-view. Adjusted EBITDA for the quarter increased 43.3 million, or 42.3%, to 145.5 million, compared to the same period of 2020. This growth was driven primarily from the higher revenues I just described, slightly offset by an increase in operating expenses, which is mostly attributable to travel related to UFC's third Fight Island series in Abu Dhabi in January. Our second segment is Events, Experience, and Rights, or EENR. This segment includes our Events and Experience business, Media Rights and Distribution, IMG Arena, and IMG Academy. Given the effect that COVID-19 has had on live events, this segment has been highly impacted. As a result, segment revenue for the first quarter decreased 129.2 million, or 19.3%, to 539.6 million compared to the same period in 2020. Event cancellations and attendance restrictions around events like Super Bowl led to event-based revenue declines. However, this was partially offset by media rights fees associated with events that were postponed in 2020 and moved to 2021, mainly from the 2020 European Soccer season moving a number of matches to the first quarter of 2021. Meanwhile, adjusted events offered for the quarter decreased 30.1 million or 43.5% to 39.1 million compared to the same period in 2020. This decrease is primarily driven by the revenue decline I just discussed, partially offset by decline in operating expenses. The impact that COVID-19 has had across this segment is clear, but as Ari and Mark mentioned, we are optimistic about the recovery and reopening rates we are seeing globally. Moving on to our representation segment, which includes all of our client representation business, such as WME, our experiential marketing agency, 162 over 90, IMG licensing, and Endeavor content. Revenue declined by 43.8 million, or 15% in the quarter. This was driven primarily by the impact of COVID-19 on advertiser spending, negatively impacting our marketing and experiential activation businesses, and Endeavor content's ability to deliver projects in the quarter due to COVID-19-related delays. Adjusted EBITDA for the quarter decreased $7.1 million, or 10.4%, to $61.5 million, driven by the revenue declines I just mentioned, partially offset by reduced operating expenses. Similar to our outlook for events, we remain encouraged by signs of production and concerts ramping up, along with increased marketing and experiential spending. Finally, corporate adjusted EBITDA for the quarter improved $7.9 million, or 14.5%. The decrease in expenses was due primarily to reduced cost of personnel, travel, and professional fees. With Q1 as a backdrop, I want to take a few minutes now to address our guidance for the full year 2021 predicated on the momentum you heard from both Ari and Mark. As we've discussed, the ongoing pandemic has had a significant impact on our business. Even though activity has resumed across a number of our businesses and some restrictions have eased or been lifted, there still remain restrictions impacting some of our businesses in certain geographies. There is also a lack from when restrictions are lifted to when we're able to generate revenue and resume our normalized business cadence. That said, while we were always expecting a recovery, we are witnessing that recovery happening slightly faster than we had anticipated. With that, I do want to remind you that our financial results will vary from quarter to quarter, depending on the timing of events across our portfolio, timing of business transaction on behalf of our clients, and timing of content delivery. As a result, we evaluate our financial performance on an annual basis, and therefore we'll be giving you annual guidance today. For 2021, we expect to generate revenue between $4.76 and $4.83 billion. and adjusted EBITDA in the range of $735 to $745 million. And we intend to repay $600 million of our outstanding debt in Q3 2021. With that, I turn it back over to Ari.
spk05: Thanks, Jason. Before we open up for questions, I want to briefly frame how we're thinking about our future. When it comes down to it, there isn't a trend positively impacting the sports and entertainment landscape that we aren't currently benefiting from. To that end, we'll continue leveraging the entire Endeavor portfolio to capitalize on each of the trends and extract maximum value out of every deal for our clients, partners, and owned properties. We also remain committed to strengthening our balance sheet and deleveraging. and we'll continue to look across a changing global landscape to unlock opportunities that drive long-term growth and value for our shareholders. With that, I'll hand it over to the operator.
spk10: Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by. We compile the Q&A roster. Your first question comes from the line of Ben Swinburne from Morgan Stanley. Your line is open.
spk01: Hi, good afternoon. Two questions. I'm wondering if you could talk a little bit about the growth drivers that you see and are most excited about at the UFC specifically. Everyone's very focused on that business. Obviously, the ESPN deal is up several years out, but between now and then, what do you think are the areas we should be focused on that can drive that business from a top-line point of view? And then I just had a clarification question, probably for Jason, on the guidance We're seeing reopening happening, as you said, quicker, but it certainly varies geographically and by event. Anything you can tell us in terms of what the assumptions are around returning to live events in their full form that's baked in the guidance just so we have a sense for sort of what the underlying assumption is there? Thanks, everybody.
spk05: Thanks, Ben. So in the next 24 months, I'll hit all the – I'll hit all the points that you asked. So first one is international rights. In the next 24 months, we have several international deals coming up. About 20% to 30% of our deals come up every year on the international side. I can go into more detail on this, but Brazil, Australia, Canada, U.K., Philippines, South Korea, Germany, and Russia. China, you just heard from Mark, we made last year, but I'll come back to China. Also, new territories that just got sanctioned are France, and whether there's possibilities in Africa. Sponsorship is another big area. And remember, in our sponsorship number, we've added more products to put sponsorship on. Pay-per-view, Fight Nights, Contender Series, Ultimate Fighter, which we just sold to ESPN, Fight Pass, and also in China, there's a local Contender Series also. I'll come back to China. I just also want to remind you, our fan base is 90% international and 10% domestic. International pay-per-views are outside our ESPN deal. They go to the UFC endeavor directly. We've extended our EA deal, which we did in the middle of the year. We have better splits, also microtransactions. Also, the China portion of that deal, whether it be on PC or mobile, is outside that deal. Again, I'll come back to China as a whole entity. Gambling, IMDurian is handling. a big aspect of our growth. NFTs, Mark talked about our Dappler Labs deal. We will be the second sport up. And if our deal with our playing cards, our Panini deal, we've outperformed that situation in a significant way, which is a good indicator that our NFT business will be significant. Mark talked about a little bit on location and our pay-per-view events. That will be a very big driver and has been a big driver. In China, I just want to say the following. We have our performance institute in China. We have 50 new fighters. Our Megu deal is a very big deal, a big increase from where we were. And we now, as I said to you, we have our mobile businesses available. We're out into the marketplace with that sponsorship on the contender series with Megu wants us to do. So China, as we look at it, is going to be one of our significant drivers inside this business. Those are the key drivers. We can go into more detail on anything. I'll turn it over to Mark to maybe fill in some more stuff if you want, and then we'll turn it over to Jason to clarify the opening.
spk07: Yeah. So, Ben, just for everybody else on the call, at the risk of being repetitive, I do want to underscore some of those buckets that Ari talked about, obviously because OSP is such an important not only growth driver, but just overall segment to the business. I think first it's important to just take a step back, if you will, and Look at what we've done with the UFC since we purchased it in 2016. To your point, we did the seven-year deal with ESPN. We've grown Fight Pass, which is our over-the-top platform, subscription, obviously a lot of live events that extend beyond the UFC, MMA, and that's a big growth driver going forward, as Ari mentioned. We've grown sponsorship significantly, and this has been a banner year for us, shockingly, with COVID. Our monster deal got renewed as we talked about DraftKings, which we mentioned, Modelo. But we also did a multi-year deal with Bet365, and we did a terrific deal with Guaranteed Rate Mortgage, and we're actually in negotiations on a renewal for that. We've been introduced in new markets, as Ari mentioned, and we're just chomping at the bit to get started. introduced in France, which is soon, we've increased our international rights fees, really leveraging the Endeavor platform. All of the IMG media work that Adam Kelly and Sam Zussman, their teams do, gives us huge leverage, and it's allowed us to get some good ups, as Ari mentioned, on the international rights fee side. We've begun to introduce site fees, and it's something we've been asked about a lot, given that competitors or other leagues like F1 get site fees. This is really gravy to our model going forward. We don't see it as significant or material, but frankly, we saw some site fees in Abu Dhabi during COVID, and we expect to see more in bunches as time goes on. We've gotten big time into licensing products. Ari mentioned betting. That's the way of the world. I mean, half the states right now in the U.S. are licensed, and that's only going to grow. And then on the ancillary side, we opened a performance institute in China. That's important because we're going to be getting behind, as Ari mentioned, China's a huge priority. We need more Chinese fighters coming out of that. We closed our first kit deal. We did a sizable EA deal that Ari mentioned, a renewal there, and NFTs. is something that, you know, we're going to follow the NBA top shot. Although we did our deal before the NBA with Dapper Labs, we're going to follow their lead and really score in that area. And then all of this gets replicated, China, China, China. I mean, that's kind of where we're going. But if you look at it at the end, and we're not going to talk about specific numbers, we've doubled the EBITDA since we took over the UFC. And when you put all of this into context, all this in perspective, we are simply in the early stages. We have a young demo. We have a strong female fan base. We are global. On location is going to be a big driver here. In fact, we're 75% sold out for experiences for the Glendale, Arizona matchup that's coming up this month and then the Conor McGregor huge fight, which is going to be July 10th, back in Vegas to a sold-out show at T-Mobile. WME is driving all kinds of content opportunities, digital opportunities here. influencer opportunities, podcast opportunities, all in the same equation of making more stars out of our great fighters once they win in the octagon, because you do have to win in the octagon first. And then you've got the Walt Disney Company behind all of this. I mean, we are the big driver on ESPN+. They recognize that. They're turning on all of their assets to get behind the UFC, and the partnership, you know, couldn't be better. And I would just say, in closing on the UFC, a lot of this is done... notwithstanding COVID, which, by the way, we're still in the middle of. So that just shows you that Dana White and that truck, that locomotive, it just keeps powering through, and it's really been accelerated. It's accelerated the sport into the mainstream. My son is 20 years old, comes home from college. All he did during COVID on Saturday nights was line up with seven friends outside, watching the fights, fight after fight, card after card, and I would add betting, Small amounts, of course, because you don't allow them to do big amounts. But betting, nonetheless, on fight after fight, which, of course, goes to IMG Arena. So, you know, that's a lot on the UFC side, but I think you can tell we're pretty bullish. On your second question, and Jason will give you the financial, you know, we would just remind you that we're still in a COVID state of mind here, right? I mean, we are a global company. And the U.S., although we're seeing a lot of doors opening and we're seeing a lot of bright lights, as I mentioned, you know, it's not indicative of the rest of the planet. And music is probably the best example, right? We're going to get a few things in the third quarter. Festivals, things popping up, some bookings. And fourth quarter, that'll heat up a lot more in the U.S. But you're not talking until 2022, until it normalizes for Europe, for Pac Rim, for South America. I mean, way, way behind here. And of course, the The variant that's now traipsing through U.K. right now, the Indian variant, that also is going to, you know, slow us up. So I would just say our guidance today is based on the visibility of the business, and it contemplates a fourth quarter where we assume a high degree of delivery, both in endeavor content, and some of those projects could get pushed to Q1, and international events.
spk04: Yeah, the only thing I would add to what Mark said is from a guidance perspective for the UFC, we have forecasted for the pay-per-view events having live audiences throughout Q3 into Q4, not for the fight night events. And on the client side, you know, having music really and a Q3 going into Q4.
spk01: Thank you, everybody.
spk04: Thank you.
spk10: Your next question comes from the line of Megan Durkin from Credit Swiss. Your line is open.
spk08: Hi, guys. Thanks for taking the question. I think this is for Ari, but maybe Mark has comments too. You touched on it in your prepared remarks, but I wanted to see if you could give us a little more detail on the media consolidation that's happening and how it might impact Endeavor. Maybe some examples on how past deals like Disney buying Fox impacted the business and the ways which Warner and Discovery might be different from that or similar. And how aggressive do you expect Amazon to become with MGM in the portfolio? And then a follow-up, film windowing has changed so dramatically in the past year. Can you talk about the protections you're getting in place for your clients if the studio changes distribution strategies on their films, you know, last minute in some cases?
spk05: Well, I think, sorry, thanks for the question. I think the Warner discovery in the Amazon MGM is just further proof point that content is high demand and short supply. both on the scripted, non-scripted side, movie side, and also on the sports side, because I think Warner's discovery is also going to be in the sports side, as Paramount Plus has been on a bunch of sports rights, too. And our position in the ecosystem favors long-term growth, and investments will continue. The tech leaders and the incumbents, in my opinion, who have powered SVOD and AVOD services still will also have to protect their linear channels. So demand is increasing. It's one of the early premises that we started the company out with. There's a finite number of creators and intellectual properties and IP to meet that demand, therefore increasing the value of talent we represent and the content we own. So all in all, prices are going up. in every situation. And that's what I think. And as it relates to the release schedule and the windowing and the issues surrounding that, I think that was your second question, if I'm correct. Listen, we saw this happen with Warner Brothers. We've seen this happen with Disney. We're going to find the floor as they figure out. And if we just look at this past weekend, Disney had a dual window. both on Disney Plus and a theatrical release. Paramount had just a theatrical release. They're going to have some that go on the Paramount site just directly to streaming. We have navigated that whole situation. There's no clear answer right now with how this is going to happen, but we are one of the big players in that ecosystem, and we are negotiating on behalf of our clients and our own properties to make sure that we get the proper economics as we go forward. And that's the way we're going to operate until we find the proper floor, which is going to take a little bit of time as COVID kind of moves on.
spk07: You know, Megan, just Working backwards from there, I think your second question, to Ari's point, we're flexible with the studios. We're having these conversations up front, and they are paying for that flexibility. So that moves right to the benefit of all of our clients. That's all I'll say on the second question. On the first question I would just add, Ari talked about just further proof points that, believe it or not, content is in short supply if you think about it. It's just growing. But that content has a different definition these days. It's all forms. It's audio. It's betting. It's video gaming, right? It's live sports. It's TV. It's films. It's book to films. It's audio, not just podcasts. So this isn't just about representation. And you can bet. that Amazon didn't buy MGM just to leverage the library. There's going to be a lot of buying, there's going to be a lot of original programming, and there's going to be a lot of spending. And I think what underscores the entire consolidation question and equation is that, truthfully, it powers all of our secular tailwinds, if you think about it. Reopening, content, OST segment, Own Sports Properties, I mean, Zaslav's already said, and everybody knows with Eurosport, he's a major fan of sports, and he's going to be a big buyer there. The reliance on influence these days to move product, to sell tickets, to sell movie tickets, to sell books, sports rights overall, and betting. So all the wins, all the trends that power the Endeavor enterprise, if you will, are really going to be fueled by this consolidation.
spk08: Okay, thanks, guys.
spk10: Your next question comes from line of Benjamin Black from Evercore. Your line is open.
spk06: Great, great. Thanks for taking my questions. I have two. The first question is on live events. I know it's been over a year since the acquisition, but it'd be great to hear how you thought about integrating on location and how that could potentially kickstart the live events business when the economy is fully reopened. And also relatedly, how should we be thinking about the contribution of the Olympics longer term? The second question is on capital allocation and M&A. And I'd really just be curious to hear if the pandemic has potentially locked any new M&A opportunities that were previously sort of not available in And looking ahead towards the next 12 to 18 months, how will you weigh paying down debt versus potential acquisition? Thank you.
spk07: All right, Ben. I love four questions at once. So, Ben. By my count here, we've got on-location integration, we've got Olympics and kind of a financial impact, and we will have some expenses we're going to incur in the first two years. So Jason will get into that. M&A, which Ari will cover, and debt, which obviously Jason and Ari can both cover. you know Ari's commitment to that reduction. First of all, on our location, look, I would just say it's already fully integrated. We've got a tremendous leadership team and Paul Kane and John Lavallee there, and the Olympics deal right out of the gate, winning these first three Olympics. huge ones too i mean you can't get a better lineup paris milan los angeles very very excited about it but it's not just the olympics and that opportunity i mean we're a provider for a lot of major sports owned events ones we own like ufc like new york fashion week like the sydney fashion week which is playing today sold out in sydney australia uh despite some shutdowns by the way miami open Professional bull riding. But beyond that, we do work with the Masters. We do work with the PGA Championship, which was huge for us two weeks ago with Bill Nickerson and that upset win. And then, of course, concerts. And if they come back fourth quarter, first quarter, it's going to play right into – the fastball of on-location. So it's fully integrated, a lot more opportunity to take our events and blow it out, to build more experiences around the events with our clients and partners. That's the differentiator for Endeavor, and that architecture is working. Super Bowl advanced sales, you heard in my comments at the top, really tremendous. The fact that we're beating Miami, which is the best place to have a Super Bowl, is a home run. And, you know, we feel good. I'll let Jason kind of talk about the financial, where it is, because revenue recognition will be later. But you should know in the first couple years here, we'll be ramping up, adding on. We're integrated, but we now need more firepower to do the Olympics, and we'll incur some of those expenses in the next couple years. Jason?
spk04: Yeah, as Mark said, you know, we're really excited about the revenue potential over the life of the deal, reaching Paris 24, Milan 26. and L.A. And, you know, Mark mentioned, you know, from a revenue perspective, we'll be starting to recognize our revenue, the majority of it in 2024. And we will certainly have some operating expenses leading up to the 2024 games. And that is inclusive of the guidance that we put out today.
spk05: As it relates to M&A, listen, we continue to look for strategic M&A and organic growth. There's been a lot of organic growth, whether it be Sport 24 and the company, gaming, there was IMG Arena, Endeavor content, and we're opportunistic. M&A has two buckets for us. One is that it bolt-ons to our existing portfolio, which kind of increases our moat around our businesses. It was called Raining Champs. It's really called NCSA, which is for the IMG Academy business. It's like the LinkedIn of that business, which fits perfectly into our IMG Academy business And then Mark mentioned also in his comments FlightScope, which is a data capturing technology that fits into our IMG arena business. In addition to that, you know, we're constantly looking for our next acquisition that is not a bolt onto our existing portfolio, that we think we can utilize the platform to take out costs, drive international, use the whole platform. to increase the value. We think there's a lot of opportunity out there, but we're also very diligent and have to go through a rigorous process as we look at them. So that's how we look at it. We're positively inclined, as you know. We built the company on a lot of M&A, and we look at the marketplace, and we're feeling very good about it.
spk04: What I was saying to do leveraging, sorry, you know, we're committed to do leveraging, you know, that could come in the form of, you know, cash flow paydown, using cash flow to pay down debt as well as we'll leverage M&A. You know, now we're a public company. We also have a public currency to, you know, execute on M&A. But in my remarks, we also, you know, highlighted that, you know, we expect a $600 million reduction of our outstanding debt in Q3. So we are very committed to our do leveraging profile as well and balancing that with M&A.
spk10: Your next question comes from the line of Alexa Quadrani from JP Morgan. Your line is open.
spk09: Thank you. My question really is on the content side and the comments you made earlier about, you know, the robust demand for content, which we read about, obviously, all the time. I'm curious if you can give us some color about how much is sort of catch-up given COVID and And how much is just really the sustainable growth and demand given the proliferation of streaming outlets and distribution outlets in general? And I guess secondly, just sort of staying on that topic, if you can elaborate how you think your share is trending versus others or your peers, or is that really irrelevant right now because there's just so much growth and demand for content right now for everybody?
spk05: So I'm assuming you're really mainly talking about, even though Mark mentioned there's a lot of different content, When you think about it, there's podcasts, there's audio, there's gaming, there's a lot of different forms of content. There's gamers that are going into the services. But I think you're thinking about mainly movie television.
spk09: Yeah, yeah, exactly, on the entertainment content.
spk05: You know, when we started this process last time, everybody said it's got to stop at one point in time. It's only increased. You now have seven big players that have committed financially to to huge economics. You now have Netflix, I think it was in their last running call, $17 billion. They're going to do 60 movies because a lot of their libraries are going to the other services, and they've got to build that library. Disney's committed. You now have Paramount Plus coming into the marketplace, committed to their services. As you just saw, a little bit of a consolidation in Amazon buying. This is not smooth. And the linear players that also had S-LOD services have got to actually still service their linear channels. They have huge investments. I would tell you there's players that you don't even know. All these companies are making large overall deals for writer, director, actors throughout the system. This is not slowing down. I said it before. I do not believe this is slowing down for five years because they've all committed strategically to this, plus the linear players have to defend their old services also in this mix. So I don't believe it's slowing down in any capacity.
spk10: Thank you. Your next question comes from the line of David Joyce from Barclays. Your line is open.
spk03: Thank you very much. Could you help us think about the cadence of margins? Granted, you gave us some guidance for the year, but based on the expenses being a little lighter than we thought in the first quarter, what are some normalized margins for these businesses and, again, how we think that will play out through the course of the year? And then, secondly, kind of related to the margins, what are the normalized business activities versus – How should we think about the organic versus inorganic contributions here, and how would the Endeavor content be changing once the WGA settlement is factored in? Thanks.
spk04: Yeah, so I'll take that first question on the margin profile. So, look, I think if you look at the midpoint of our range where, you know, projecting, I think it's roughly a 15.4% margin for the year. Obviously, Q1 was higher than that, and, you know, Obviously, this is a COVID-impacted year, so this is transition year, and that is not indicative of the margin we see for this business long-term. So that's just what we're projecting for the business to be this year.
spk07: As it relates to Endeavor content, which is in full swing right now, as I mentioned, has big deliverables in the fourth quarter. Our 2021 guidance assumes Endeavor content is status quo for the balance of the year. That's our plan. We will have this in its entirety in its current form through the end of the year.
spk03: And then just anything on the inorganic contributions of the quarter or for the year?
spk05: I don't know. Specifically, David, I'm sorry?
spk03: Just what your acquisition activity is doing and contributing to the revenue in EBITDA for the year. If we could get a sense of, you know, what that strategy is doing for your growth.
spk04: Yeah, all I would say is that we've, you know, we're closing out a couple of transactions, which, you know, which is flight scoped. And, you know, and a CA, but we're not going to break out the split between organic and organic risk. Same goes for Endeavor Content.
spk03: All right.
spk05: Thank you very much. On an ending note, here's what I would say to you. As Mark said in his statement and as I stated, when you think about content, when you think about gaming, when you think about sports, we're in every sector of music, whether it be WME or On Location. We're in every growth sector. When you look at Ticketmaster, we're a huge supplier of them. We also, On Location, have our own. Gaming, we're one of the big players. Sports ownership, sports representation, we're in that space. You have to come through our doors as it relates to how you want to do content throughout the ecosystem, whether that be podcasts or whether that be movies and television. We're in every growth sector in the media space. So when you're thinking about your media analysis, you have to factor us in. Thanks, everybody. Thanks for joining us.
spk10: This concludes today's conference call. Thank you for participating. You may now disconnect.
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