Description

Overview

We believe Endeavor Group Holdings, Inc. (“Endeavor”, “EDR” or the “Company”) is a collection of high quality sports and entertainment assets that the market is substantially undervaluing at current share prices. We believe the unique portfolio of assets provides downside protection, with significant upside as the market better understands the assets and ascribes a higher multiples with shares offering ~50% upside from current levels.

Sources used: Publicly available EDR investor presentations, earnings call transcripts, SEC filings, current market data, and consensus estimates.

Business Description

The Company is a portfolio of assets that are bucketed into three segments for reporting purposes:

1. Owned Sports Properties: a portfolio of sports properties, including Ultimate Fighting Championship (“UFC”) (the largest and the crown jewel), Professional Bull Riders, Euroleague basketball, and others. Like other sports franchises, these businesses generate revenue through rights deals, sponsorships, and live event ticket sales, and license fees.
2. Events, Experiences & Rights: a portfolio of more than 800 annual live events that EDR owns and manages. These include events such as the Miami Open (tennis) and New York Fashion Week. The segment also includes EDR’s third-party event management business, the media rights distribution business, IMG ARENA, and the IMG Sports Academy. Revenue is primarily generated from media rights sales, production services, and sponsorships. IMG ARENA and OpenBet (the sportsbook technology company that EDR acquired from Light & Wonder, Inc. in September 2022 for $847mm) will be split out into a new segment beginning in 2023.
3. Representation: the traditional WME and IMG talent agency businesses. Revenue is primarily generated from commissions.

Below is a summary of recent result and consensus estimates for each segment, including Sports Betting (OpenBet and IMG ARENA) beginning in 2023:

Thesis

The Company’s valuation does not reflect the quality of the asset portfolio – on an SOTP basis and looking at the implied valuation of EDR’s assets excluding UFC, the crown jewel, we believe that the current valuation does not make sense. EDR’s assets are unique and durable, which should provide downside protection in a difficult economic environment, with potential upside if 1) market participants understand the value of the portfolio or 2) the Company takes steps to improve valuation – this could include providing enhanced disclosure of individual assets like UFC or taking more explicit actions like asset separations or sales. The Company has a multi-share class structure and is largely controlled by Silver Lake and Ari Emanuel, who can work to create value for shareholders. To this effect, Silver Lake acquired a portfolio of minor league baseball clubs for $280mm in August 2022 after EDR acquired them in late-2021 after the assets were decided to be non-core. A position is also a cheap way to get exposure to increasing valuations in sports and significant demand for content and live event rights.

We believe the best way to assess EDR is by looking at an SOTP and the implied valuation excluding UFC. The first step is determining a reasonable value for UFC, which is financed separately but UFC’s equity is owned by EDR’s operating company. While the Company does not disclose UFC financials, Moody’s reports on the UFC credit disclose that 2021 revenue was >$1bn and we assume that the business grows 10% per year (below UFC’s 21% revenue CAGR since 2005) and a ~50% margin, slightly above the 48.5% EBITDA margin reported for the Owned Sports Properties segment in 2021. This gives us $605mm of EBITDA in 2023 and $666mm of EBITDA in 2024. We can then back out UFC projections out of current segment expectations to get segment financials for EDR excluding UFC:

This allows us to do a SOTP analysis on the UFC business and the remaining EDR assets separately:

• UFC: We assign an 18-22x multiple on 2023E EBITDA; peers include Liberty Media Formula One Group (FWONK) trading at 21.8x 2023E EBITDA and Manchester United PLC (MANU) at 24.2x
• Owned Sports Properties Ex-UFC: We assign a 16-20x multiple on 2023E EBITDA – a discount to the UFC valuation
• Events, Experiences & Rights: We assign a 12-16x multiple on 2023E EBITDA – we believe this is conservative and is a discount Madison Square Garden Entertainment Corp. (MSGE) at 25.6x and Live Nation Entertainment, Inc. (LIVN) at 17.0x
• Representation: We assign an 8-12x multiple on 2023E EBITDA given the commission-based revenue model
• Sports Betting: We assign a 12-16x multiple on 2023E EBITDA – we believe this is conservative and with Genius Sports Ltd. (GENI) at 17.7x and Sportradar Group AG (SRAD) at 15.7x

This methodology yields a total equity value of $10bn in the low case to $15.2bn in the high case. This equates to $21.14 to $32.17 per diluted share, or 2% downside and ~50% upside from current levels. 

Similarly, looking at a range of multiples on UFC’s 2023E EBITDA, we believe that the implied value being assigned to the rest of EDR’s assets is inadequate. For example, at 20x EBITDA, current valuation implies a 6.1x 2023E EBITDA multiple being applied to the rest of EDR’s business.

For these reasons, we believe EDR shares are a compelling opportunity, offering exposure to an undervalued and unique asset portfolio, that should be relatively recession resistant, with significant potential upside from current levels.

Risks

Macroeconomic: macro pressure could create headwinds to sponsorship revenue and live event attendance.

Dual class share structure: EDR is a controlled company, with a majority of voting control in the hands of Silver Lake, Ari Emanuel, and Patrick Whitesell.

Increasing talent costs: sports business could become less profitable if player or athlete compensation increases faster than revenue. Representation business could become more competitive and demand lower commissions.

Transparency: EDR has a lot of distinct assets in its portfolio which are aggregated into four segments, so it is difficult to determine performance of specific business lines.

Disclaimer

This document is for informational purposes only. All content in this report represents the author's opinion. The author obtained all information herein from sources believed to be accurate and reliable. However, such information is presented “as is,” without warranty of any kind — whether express or implied. All expressions of opinion are subject to change without notice, and the author does not undertake to update or supplement this report or any information contained herein. This report is not a recommendation to purchase the shares of any company, including Endeavor Group Holdings, Inc., and no fiduciary duty is owed due to this report. The information included in this document reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change and we are under no obligation to provide any update to our views if they do change. This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity. Any or all forward-looking statements, assumptions, expectations, projections, intentions or beliefs about future events included in this document may turn out to be wrong. Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. Investors should conduct independent due diligence, with assistance from professional financial, legal and tax experts, on all securities, companies, and commodities discussed in this document and develop a stand-alone, independent judgment prior to making any investment decision.

Catalyst

Market begins to understand and ascribe value to assets in the portfolio

Company takes actions to improve valuation