The coronavirus is not being at all kind to entertainment conglomerate Endeavor.
The Los Angeles-based company, which operates major Hollywood talent agency WME, along with sports and fashion management group IMG and a number of worldwide events including fashion weeks, has decided to lay off 20 percent of its WME agency workforce, including a number of executives and agents. There will be a small number of furloughs or workers going to part-time status, but the majority of the cuts are permanent and start to go into effect Monday.
The agency on its own is thought to employ around 1,500 people, meaning around 300 people at WME are being affected. The cuts come after reports that Endeavor had to lay off or furlough 250 people in March, not long after public lockdown measures to combat the coronavirus were put in place. But that was part of a broader company decision impacting one-third of Endeavor’s 7,500 person workforce overall, or roughly 2,500 people. IMG has been severely affected by the decision as well, with numerous members of that agency being furloughed, part-timed or, to a lesser extent, laid off.
A company spokeswoman said the cuts at WME is due to the impact on the business caused by coronavirus measures, which have brought entertainment production to a halt.
“We appreciate the contributions of our former colleagues, and out of respect for their privacy, we will not be commenting on the status of specific employees,” the spokeswoman said. “While we are making these difficult decisions now to safeguard our business, we believe in the resilience of our team and our industry.”
Other agencies, including WME rival CAA, have laid off and furloughed staff as well, but rumors have been flying about Endeavor.
The company is best know as the operator of talent agency WME and management group IMG, which collectively represents some of the highest-level talent in film, television, modeling and athletics. But it’s also in recent years made a major push into being an owner/operator of live events, mainly sports, festivals and some conferences. It owns a majority stake in UFC, a professional bull-riding league and the Frieze art fair, among many other event franchises. IMG also produces major fashion shows, including New York Fashion Week, the fate of which for the coming season is still unknown.
During a normal economic downturn, which is expected to continue even as coronavirus measures are lifted, Endeavor’s agency business would be positioned to carry on strong amid a dulled appetite for events. But extensive measures at the state and federal level to slow the spread of the coronavirus have brought most of Hollywood to a stop and dealmaking with it, as well as all gatherings of more than 10 people, leaving it with severely reduced cash flow. The company also has a pile of debt.
When it filed for its initial public offering almost exactly a year ago, it listed revenue for 2018 as $3.6 billion, although it only took $100 million in adjusted net income. Adjusted earnings before income, taxes, depreciation and amortization came in at $551 million. However, according to Endeavor’s IPO it had posted a net loss every year since 2014.
Endeavor’s debts totaled a little more than $7 billion as of spring 2019 with long-term debt standing at $4.6 billion, according to financial disclosures. The company’s first IPO filing listed plans to sell 19.4 million shares priced between $30 and $32 per share, leaving its valuation at around $7.6 billion. But by September, not long before the IPO was pulled, Endeavor dropped its sales goal of 15 million shares priced at $26 to $27 per share, leaving its valuation around $6 billion, less than its current debt load.
In a note early last Month, S&P Global downgraded Endeavor, setting its outlook to “negative” and predicting that its revenue would continue to take a substantial hit from the coronavirus, estimating it would fall for the year by a percentage in the midteens. At the end of April, Moody’s also downgraded its outlook on Endeavor to “negative” from “stable,” noting the company’s “liquidity position is projected to deteriorate until the impact of the coronavirus subsides.”
Certain measures around the coronavirus, like federal and local mandates in the U.S. and abroad on large gatherings and social distancing, are widely expected to remain in place for the foreseeable future. Political leaders in California have suggested large gatherings won’t be allowed again until next year, possibly not even until there is a vaccine, projected to be more than a year out.
But, as Endeavor noted in its IPO filing, “Our business depends on discretionary consumer and corporate spending…the risks associated with our businesses become more acute in periods of a slowing economy or recession, which may be accompanied by reductions in corporate sponsorship and advertising and decreases in attendance at live entertainment and sports events.”
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