ENDEAVOR GROUP HOLDINGS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report and with our audited financial statements and related notes included in our 2021 Annual Report. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I, Item 1A. "Risk Factors" of our 2021 Annual Report, as updated by Part II, Item 1A. "Risk Factors" of this Quarterly Report, or in other sections of the 2021 Annual Report and this Quarterly Report.
BUSINESS OVERVIEW
Endeavor is a global sports and entertainment company. We own and operate premium sports properties, including the UFC, produce and distribute sports and entertainment content, own and manage exclusive live events and experiences, and represent top sports and entertainment talent, as well as blue chip corporate clients. Founded as a client representation business, we expanded organically and through strategic mergers and acquisitions, investing in new capabilities, including sports operations and advisory, events and experiences management, media production and distribution, brand licensing, and experiential marketing. The addition of these new capabilities and insights transformed our business into an integrated global platform anchored by owned and managed premium intellectual property.
Segments
We operate our business in three segments: (i)
OurOwned Sports Properties segment is comprised of a unique portfolio of scarce sports properties, including UFC,Professional Bull Riders ("PBR"),Euroleague and Diamond Baseball Holdings ("DBH"), that generate significant growth through innovative rights deals and exclusive live events. Through the UFC, the world's premier professional MMA organization, we produce more than 40 live events annually which are broadcast in over 160 countries and territories to approximately one billion TV households. UFC was founded in 1993 and has grown in popularity after hosting more than 500 events and reaching a global audience through an increasing array of broadcast license agreements and our owned FIGHT PASS streaming platform. The value of our content is demonstrated by our licensing arrangements withESPN and other international broadcasters and our increasing consumer engagement is reflected by the growth of FIGHT PASS subscribers and overall follower growth and engagement across our social channels - now reaching 188 million followers. PBR is the world's premier bull riding circuit with more than 500 bull riders fromthe United States ,Australia ,Brazil ,Canada , andMexico , competing in more than 200 bull riding events each year pre-pandemic. PBR is one of America's fastest growing sports with annual attendance for its premier series quadrupling since its inception in 1995. We have an up to 20-year partnership with Euroleague basketball, which could extend into 2036, to manage and capitalize on all of the commercial business of the league, including media rights, sponsorship, content production, licensing, digital distribution, events staging, and hospitality, for which we receive a management fee. At the end of 2021 and inJanuary 2022 , we acquired tenProfessional Development League clubs (the "PDL Clubs "), whose results are included inOwned Sports Properties and are being operated under the DBH umbrella. InAugust 2022 , we entered into a purchase agreement withSilver Lake , stockholders of the Company, to sell thePDL Clubs for an aggregate purchase price of approximately$280 million cash, subject to customary adjustments. The closing of this transaction is expected to be in the fourth quarter of 2022.
Events, Experiences & Rights
In our Events, Experiences & Rights segment, we own, operate, and provide services to a diverse portfolio of over 800 live events annually, including sporting events covering 20 sports across 25 countries, international fashion weeks, art fairs and music, culinary and lifestyle festivals. We own and operate many of these events, including the Miami Open, HSBC Champions, FriezeArt Fair , New York Fashion Week, andHyde Park Winter Wonderland. We also operate other events on behalf of third parties, including the AIG Women's Open and Honda Classic. Through On Location, we provide premium experiences, historically providing more than 900 per year for sporting and music events such as theSuper Bowl ,Ryder Cup ,NCAA Final Four and Coachella. We are one of the largest independent global distributors of sports video programming and data. We sell media rights globally on behalf of more than 150 clients such as theInternational Olympic Committee , theNational Football League , and theNational Hockey League , as well as for our owned assets and channels. We also provide league advisory services given the array of experience we have to offer. ThroughIMG ARENA , we work with more than 470 leading sportsbook brands worldwide to deliver live streaming video and data feeds for more than 45,000 sports events annually, as well as for on-demand virtual sports products including our ownUFC Event Centre . We also leverage the technology derived fromIMG ARENA to provide streaming video solutions to our clients and our owned assets via Endeavor Streaming.
Additionally, we own and operate
InSeptember 2021 , we signed an agreement to acquire the OpenBet business ("OpenBet") of Light & Wonder, Inc. (formerly known as Scientific Games Corporation) ("Light & Wonder"). OpenBet consists of companies that provide products and services to sports betting operators for the purposes of sports wagering. Based on the amended agreement entered into inJune 2022 (which was further amended inAugust 2022 ), we have agreed to pay consideration to Light & Wonder of$800.0 million , consisting of cash of$750.0 million , expected to be funded with cash on hand, and 2,305,794 newly-issued shares of our Class A common stock, a value of$50.0 million based on the volume-weighted average trading price of the Class A common stock for the twenty trading days ended onJune 29, 2022 . The closing of this transaction is subject to regulatory approvals and 30 -------------------------------------------------------------------------------- other customary closing conditions and is expected to close in the third quarter of 2022. Upon closing of the acquisition, we expect to create a new reportable segment that will includeIMG ARENA and the OpenBet business. InApril 2022 , we acquired the Mutua Madrid Open tennis tournament and additional assets, including the Acciona Open de España golf tournament, fromSuper Slam Ltd and its affiliates. We paid$386.1 million for consideration and transfer fees at closing, an additional$31.8 million of consideration is payable within two years of closing, and$0.6 million of contingent consideration payable within three years of closing. InAugust 2022 , we acquired 55% ofBarrett-Jackson Holdings, LLC ("Barrett-Jackson"), which is engaged in the business of collector car auctions and sales as well as other collector car related events and experiences, in exchange for consideration having an aggregate value of$261.2 million , subject to certain adjustments. The aggregate consideration consists of$248.7 million of cash and 563,935 newly-issued shares of the Company's Class A common stock with a value of$12.5 million based on the volume-weighted average trading price of the Class A common stock for the thirty trading days ending on the day immediately preceding the closing date of such transaction.
Representation
Our Representation segment provides services to more than 7,000 talent and corporate clients. Our Representation business deploys a subset of our integrated capabilities on behalf of our clients.
Through our client representation and management businesses, including the WME talent agency and IMG Models, we represent a diverse group of talent across entertainment, sports, and fashion, including actors, directors, writers, athletes, models, musicians, and other artists, in a variety of mediums, such as film, television, books, and live events. Through our 160over90 business, we provide brand strategy, marketing, advertising, public relations, analytics, digital, activation, and experiential services to many of the world's largest brands. ThroughIMG Licensing , we provide IP licensing services to a large portfolio of entertainment, sports, and consumer product brands, including representing these clients in the licensing of their logos, trade names and trademarks. Previously, our Representation segment included our restricted Endeavor Content business, which provided a premium alternative to traditional content studios, offering a range of services including content development, production, financing, sales, and advisory services for creators. InFebruary 2021 , the Company signed the Franchise Agreements directly with the WGA. These Franchise Agreements included terms that, among other things, prohibited the Company from (a) negotiating packaging deals afterJune 30, 2022 and (b) having more than a 20% non-controlling ownership or other financial interest in, or being owned or affiliated with any individual or entity that has more than a 20% non-controlling ownership or other financial interest in, any entity or individual engaged in the production or distribution of works written by WGA members under a WGA collective bargaining agreement. As a result, in the third quarter, the Company began marketing the restricted Endeavor Content business for sale and such assets and liabilities were reflected as held for sale in the consolidated balance sheet as ofDecember 31, 2021 . The sale of 80% of the restricted Endeavor Content business closed inJanuary 2022 . Our retained 20% interest is reflected as an equity method investment as ofJune 30, 2022 and is not part of the Representation segment.
Components of Our Operating Results
Revenue
In ourOwned Sports Properties segment, we primarily generate revenue via media rights fees, pay-per-view, sponsorships, ticket sales, subscriptions, and license fees. In our Events, Experiences & Rights segment, we primarily generate revenue from media rights sales, production service and studio fees, sponsorships, ticket and premium experience sales, subscriptions, streaming fees, tuition, profit sharing, and commissions. In our Representation segment, we generate revenue primarily through commissions, packaging fees, marketing and consulting fees, production fees, and content licensing fees.
Direct Operating Costs
Our direct operating costs primarily include third-party expenses associated with the production of events and experiences, content production costs, operation of our training and education facilities, and fees for media rights, including required payments related to sales agency contracts when minimum sales guarantees are not met.
Selling, General and Administrative
Our selling, general and administrative expenses primarily include personnel costs as well as rent, professional service costs and other overhead required to support our operations and corporate structure.
Provision for Income Taxes
EGH was incorporated as aDelaware corporation inJanuary 2019 . It was formed as a holding company for the purpose of completing an IPO and other related transactions. As the sole managing member of Endeavor Manager, which is the sole managing member of EOC, EGH operates and controls all the business and affairs of EOC, and through EOC and its subsidiaries, conducts the Company's business. EGH is subject to corporate income tax on its share of taxable income or loss of EOC, derived from Endeavor Manager. EOC is treated as a partnership forU.S. federal income tax purposes and is therefore not subject toU.S. corporate income tax. However, certain of EOC's subsidiaries are subject toU.S. or foreign corporate income tax.
Impact of the COVID-19 Pandemic
InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 a pandemic. The COVID-19 pandemic rapidly changed market and economic conditions globally, including significantly impacting the entertainment and sports industries as well as our business, results of operations, financial position and cash flows beginning inMarch 2020 . While activity has resumed in all of our businesses and restrictions have been lessened or lifted, restrictions could in the future be increased or reinstated. 31
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UFC Buyout
Substantially simultaneous with the closing of the IPO, we consummated
transactions whereby we acquired equity interests in UFC Parent (including
warrants of UFC Parent) from the Other UFC Holders (or their affiliates)
resulting in
As a result of the UFC Buyout, we no longer attribute income (loss) to non-controlling interests related to UFC in our consolidated statement of operations and recognized a reduction in nonredeemable non-controlling interests on our consolidated balance sheet. Furthermore, restrictions on dividends under theUFC LLC Agreement are no longer in place after the UFC Buyout, although restrictions from the UFC Credit Facilities remain in place.
Reorganization
Prior to the closing of the IPO onMay 3, 2021 , we undertook reorganization transactions, following whichEndeavor Group Holdings became a holding company, and its principal asset is an equity interest in a newly formed subsidiary ofEndeavor Group Holdings , Endeavor Manager, of whichEndeavor Group Holdings serves as the managing member. Endeavor Manager is in turn the managing member ofEndeavor Operating Company .Endeavor Group Holdings manages and operates the business and controls the strategic decisions and day-to-day operations of Endeavor Manager as its sole managing member, andEndeavor Operating Company as its indirect sole managing member, and also has a substantial financial interest in Endeavor Manager and, indirectly,Endeavor Operating Company . Accordingly,Endeavor Group Holdings consolidates the results of operations ofEndeavor Manager andEndeavor Operating Company , and a portion ofEndeavor Group Holding's net income (loss) is allocated to non-controlling interests to reflect the entitlements of certain former members ofEndeavor Operating Company who retain ownership interests inEndeavor Manager andEndeavor Operating Company . After consummation of the IPO and the reorganization transactions, we became subject toU.S. federal, state and local income taxes with respect to our allocable share of any taxable income ofEndeavor Manager andEndeavor Operating Company , and we are taxed at the prevailing corporate tax rates.Endeavor Operating Company makes distributions to us in an amount sufficient to allow us to pay our tax obligations and operating expenses, including distributions to fund any ordinary course payments due under the tax receivable agreements ("TRA"). The Company entered into the TRAs with certain persons that held direct or indirect interests in EOC and UFC Parent prior to the IPO. The TRAs generally provide for the payment by EGH of 85% of the amount of any tax benefits that EGH actually realizes as further described below under "Liquidity and Capital Resources-Future sources and uses of liquidity-Tax receivable agreements".
RESULTS OF OPERATIONS
The following is a discussion of our consolidated results of operations for the three and six months endedJune 30, 2022 and 2021. This information is derived from our accompanying consolidated financial statements prepared in accordance with GAAP. Three Months Ended June 30, Six months ended June 30, (in thousands) 2022 2021 2022 2021 Revenue$ 1,312,515 $ 1,111,272 $ 2,786,278 $ 2,180,854 Operating expenses: Direct operating costs 508,385 570,955 1,203,026 1,117,347 Selling, general and administrative expenses 587,499 785,101 1,127,705 1,166,214 Insurance recoveries - (10,210 ) (993 ) (29,867 ) Depreciation and amortization 65,612 69,161 131,606 136,397 Impairment charges - 3,770 - 3,770 Total operating expenses 1,161,496 1,418,777 2,461,344 2,393,861 Operating income (loss) 151,019 (307,505 ) 324,934 (213,007 ) Other (expense) income: Interest expense, net (62,505 ) (83,836 ) (121,777 ) (152,187 ) Loss on extinguishment of debt - (28,628 ) - (28,628 ) Tax receivable agreements liability adjustment 2,405 - (51,092 ) - Other (expense) income, net (6,133 ) 7,933 453,808 4,718 Income (loss) before income taxes and equity losses of affiliates 84,786 (412,036 ) 605,873 (389,104 ) Provision for (benefit from) income taxes 2,699 60,918 (14,535 ) 66,003 Income (loss) before equity losses of affiliates 82,087 (472,954 ) 620,408 (455,107 ) Equity losses of affiliates, net of tax (39,867 ) (43,813 ) (60,522 ) (59,284 ) Net income (loss) 42,220 (516,767 ) 559,886 (514,391 ) Less: Net income (loss) attributable to non-controlling interests 16,414 (190,354 ) 214,534 (163,108 ) Less: Net loss attributable toEndeavor Operating Company, LLC prior to the reorganization transactions - (6,816 ) - (31,686 ) Net income (loss) attributable to$ 345,352 $ (319,597 ) Endeavor Group Holdings, Inc.$ 25,806 $ (319,597 ) Revenue Revenue increased$201.2 million , or 18.1%, to$1,312.5 million for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 as the Company rebounds from the impact of COVID-19.
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Owned Sports Properties increased by$73.1 million , or 28.2%. The increase was driven primarily by growth at UFC due to increased media rights fees, greater sponsorship, licensing, commercial PPV and event related revenue, and an increase at PBR primarily due to 32 -------------------------------------------------------------------------------- the change in timing of the Unleash The Beast finals due to the new team series format scheduled for the second half of the year. In addition, the acquisition of tenPDL Clubs inDecember 2021 andJanuary 2022 that operate under the DBH umbrella contributed$30 million .
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Events, Experiences & Rights increased by$99.2 million , or 18.8%. The increase was primarily driven by an increase of$250 million attributable to the return of live events in 2022 without restrictions including music festivals, the Masters,NCAA Men'sMarch Madness and the Madrid Open acquired inApril 2022 , as well as an increase at the Academy and NCSA, which was acquired inJune 2021 . These increases were partially offset by a decrease of$151 million in media rights fees, primarily due to the expiration of two European soccer contracts in the second quarter of 2021, and media production revenue.
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Representation increased by$29.7 million , or 9.1%. The increase was primarily driven by a$99 million increase in client commissions, primarily from continued strong demand for our talent and the recovery of live entertainment, and corporate spending on marketing and experiential activations as the prior year was significantly impacted by COVID-19. These increases were partially offset by the loss of$78 million of revenue related to the restricted Endeavor Content business, which was sold inJanuary 2022 .
Revenue increased
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Owned Sports Properties increased by$86.3 million , or 15.9%. The increase was driven by an increase at PBR from the change in timing of the Unleash The Beast finals due to the new team series format scheduled for the second half of the year, an increase in the number of events and the elimination of fan attendance restrictions. The increase was also due to an increase at UFC driven by greater sponsorship, licensing, commercial PPV and event related revenue partially offset by lower media rights fees and Residential PPV revenue due to one less PPV event held in 2022. In addition, the acquisition of tenPDL Clubs inDecember 2021 andJanuary 2022 that operate under the DBH umbrella contributed$31 million .
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Events, Experiences & Rights increased by$385.4 million , or 36.1%. The increase was primarily driven by an increase of$696 million attributable to the return of live events in 2022 without restrictions, including Super Bowl LVI, the Masters,NCAA Men'sMarch Madness and the Madrid Open acquired inApril 2022 , as well as an increase at the Academy and NCSA, which was acquired inJune 2021 . These increases were partially offset by a decrease of$310 million in media rights fees, primarily due to the expiration of two European soccer contracts in the second quarter of 2021, and media production revenue.
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Representation increased by$138.1 million , or 23.9%. The increase was primarily driven by a$193 million increase in client commissions, primarily from the continued strong demand for our talent and the recovery of live entertainment, and corporate spending on marketing and experiential activations as the prior year was significantly impacted by COVID-19. These increases were partially offset by the loss of$73 million of revenue related to the restricted Endeavor Content business, which was sold inJanuary 2022 .
Direct operating costs
Direct operating costs decreased$62.6 million , or 11.0%, to$508.4 million for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . The decrease was primarily attributable to a decrease of$184 million in media rights and media production costs due to the decrease in media revenue described above, including the expiration of certain contracts in the second quarter of 2021 whose costs were in excess of revenue. Other production and content costs decreased$69 million due to the sale of the restricted Endeavor Content business inJanuary 2022 . These decreases were partially offset by an increase of$191 million for costs related to the return of live events and the increase in marketing and experiential activations as described above. Direct operating costs increased$85.7 million , or 7.7%, to$1,203.0 million for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The increase was primarily attributable to an increase of$524 million for costs related to the return of live events and the increase in marketing and experiential activations as described above. This increase was partially offset by a decrease of$375 million in media rights and media production costs due to the decrease in media revenue described above, including the expiration of certain contracts in the second quarter of 2021 whose costs were in excess of revenue, and a decrease in other production and content costs of$60 million due to the sale of the restricted Endeavor Content business inJanuary 2022 .
Selling, general and administrative expenses
Selling, general and administrative expenses decreased$197.6 million , or 25.2%, to$587.5 million for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . The decrease was principally due to lower equity-based compensation expense of$326.4 million as the prior period included charges for modifications of certain pre-IPO awards to remove certain forfeiture and discretionary call terms. This decrease was offset by higher cost of personnel and other operating expenses as the business recovers from the impact of COVID-19. Selling, general and administrative expenses decreased$38.5 million , or 3.3%, to$1,127.7 million for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The decrease was principally due to lower equity-based compensation expense of$292.0 million as the prior period included charges for modifications of certain pre-IPO awards to remove certain forfeiture and discretionary call terms. This decrease was offset by higher cost of personnel and other operating expenses as the business recovers from the impact of COVID-19. Insurance recoveries We maintain events cancellation insurance policies for a significant number of our events. For the three and six months endedJune 30, 2022 and 2021, we recognized none,$1.0 million ,$10.2 million and$29.9 million of insurance recoveries, respectively, which primarily related to cancelled events in our Events, Experiences &Rights and Owned Sports Properties segments due to COVID-19. 33
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Depreciation and amortization
Depreciation and amortization decreased$3.5 million , or 5.1%, to$65.6 million for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . Depreciation and amortization decreased$4.8 million , or 3.5%, to$131.6 million for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The decreases were primarily driven by certain intangible assets becoming fully amortized partially offset by intangibles acquired through acquisitions. Impairment charges
Impairment charges were
Interest expense, net
Interest expense, net decreased$21.3 million , or 25.4% to$62.5 million for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . Interest expense, net decreased$30.4 million , or 20.0% to$121.8 million for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The decrease was primarily driven by lower indebtedness and lower interest rates associated with our outstanding debt during the three and six months endedJune 30, 2022 as compared to the three and six months endedJune 30, 2021 .
Loss on extinguishment of debt of
Tax receivable agreements liability adjustment
The Company recorded$2.4 million and$(51.1) million of adjustments in the three and six months endedJune 30, 2022 , respectively, for the tax receivable agreements liability related to the expected realization of certain tax benefits after concluding that such TRA payments would be probable based on estimates of future taxable income over the terms of the TRAs.
Other (expense) income, net
Other (expense) income, net for the three months endedJune 30, 2022 was expense of$6.1 million compared to income of$7.9 million for the three months endedJune 30, 2021 . The expense for the three months endedJune 30, 2022 primarily included$16.1 million for foreign currency transaction losses offset by$11.7 million of gains from changes in fair value of equity investments. The income for the three months endedJune 30, 2021 primarily included a$6.1 million gain from a change in the fair value of an equity investment. Other income for the six months endedJune 30, 2022 included a gain of$463.6 million for the sale of the restricted Endeavor Content business and$13.3 million of gains from changes in fair value of equity investments partially offset by$20.8 million for foreign currency transaction losses. The income for the six months endedJune 30, 2021 included$13.8 million of gains from sales and changes in fair value of equity investments offset by a$9.2 million loss due to the change in the fair value of embedded foreign currency derivatives.
Provision for (benefit from) income taxes
For the three months endedJune 30, 2022 , we recorded a provision for income taxes of$2.7 million compared to a provision for income taxes of$60.9 million for the three months endedJune 30, 2021 . For the six months endedJune 30, 2022 , we recorded a benefit for income taxes of$14.5 million compared to a provision for income taxes of$66.0 million for the six months endedJune 30, 2021 . The tax expense for the three and six months endedJune 30, 2022 differs from the same period in 2021 primarily due to the release of a$53.7 million valuation allowance on deferred tax assets during the six months endedJune 30, 2022 . The release of the valuation allowance was due to the expected realization of certain tax benefits in connection with the recording of a TRA liability. In addition, in three and six months endedJune 30, 2021 ,$7.4 million of deferred tax liabilities associated with indefinite lived intangibles were recorded as a result of the IPO and tax expense of$10.2 million was recorded related to a change in tax rate in theUnited Kingdom .
Equity losses of affiliates, net of tax
Equity losses of affiliates decreased$3.9 million to$39.9 million and increased$1.2 million to$60.5 million for the three and six months endedJune 30, 2022 compared to the three and six months endedJune 30, 2021 . Our equity losses primarily related to our investment inLearfield IMG College and the 20% interest we retained in the restricted Endeavor Content business, which we sold inJanuary 2022 . If the operating results ofLearfield IMG College continue to be weaker than anticipated or if they record impairment charges in the future, our operating results may be adversely impacted and it may also result in an other-than-temporary impairment to our carrying value for this equity method investment.
Net income (loss) attributable to non-controlling interests
Subsequent to the IPO and associated reorganization transactions, non-controlling interests primarily relate to interests held by certain former members ofEndeavor Operating Company who retained their ownership interests inEndeavor Manager andEndeavor Operating Company . Net income attributable to non-controlling interests was$16.4 million for the three months endedJune 30, 2022 compared to net loss attributable to non-controlling interests of$190.4 million for the three months endedJune 30, 2021 . The change was primarily due to the significant change in the amount of reported net income for the three months endedJune 30, 2022 versus the reported net loss for the three months endedJune 30, 2021 . Net income attributable to non-controlling interests was$214.5 million for the six months endedJune 30, 2022 compared to net loss attributable to non-controlling interests of$163.1 million for the six months endedJune 30, 2021 . The change was primarily due to the change in the amount of reported net income for the six months endedJune 30, 2022 versus the reported net loss for the six months endedJune 30, 2021 as well as the effect of the reorganization transactions. 34
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SEGMENT RESULTS OF OPERATIONS
We classify our business into three reporting segments:Owned Sports Properties ; Events, Experiences & Rights; and Representation. Our chief operating decision maker evaluates the performance of our segments based on segment Revenue and segment Adjusted EBITDA. Management believes segment Adjusted EBITDA is indicative of operational performance and ongoing profitability and is used to evaluate the operating performance of our segments and for planning and forecasting purposes, including the allocation of resources and capital. Segment operating results reflect earnings before corporate and unallocated shared expenses. Segment operating results include allocations of certain costs, including facilities, technology, and other shared services costs, which are allocated based on metrics designed to correlate with consumption. These allocations are agreed-upon amounts between the businesses and may differ from amounts that would be negotiated in arm's length transactions. The following tables display Revenue and Adjusted EBITDA for each of our segments: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Revenue: Owned Sports Properties$ 331,930 $ 258,865 $ 628,619 $ 542,346 Events, Experiences & Rights 627,872 528,672 1,453,685 1,068,282 Representation 357,955 328,232 715,276 577,141 Eliminations (5,242 ) (4,497 ) (11,302 ) (6,915 ) Total Revenue$ 1,312,515 $ 1,111,272 $ 2,786,278 $ 2,180,854 Adjusted EBITDA: Owned Sports Properties$ 161,270 $ 132,267 $ 310,011 $ 277,816 Events, Experiences & Rights 108,117 36,800 240,600 75,850 Representation 111,221 61,685 212,926 123,168 Corporate (74,253 ) (62,704 ) (142,733 ) (109,320 )Owned Sports Properties
The following table sets forth our
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands)
Revenue $ 331,930 $ 258,865 $ 628,619 $ 542,346
Direct operating costs $ 102,849 $ 81,078 $ 197,565 $ 173,294
Selling, general and
administrative expenses $ 67,492 $ 44,390 $ 120,364 $ 92,102
Adjusted EBITDA $ 161,270 $ 132,267 $ 310,011 $ 277,816
Adjusted EBITDA margin 48.6 % 51.1 % 49.3 % 51.2 %
Three months ended
Revenue for the three months endedJune 30, 2022 increased$73.1 million , or 28.2%, to$331.9 million , compared to the three months endedJune 30, 2021 . The increase was driven primarily by growth at UFC due to increased media rights fees, greater sponsorship, licensing, commercial PPV and event related revenue and an increase at PBR primarily due to the change in timing of the Unleash The Beast finals due to the new team series format scheduled for the second half of the year. In addition, the acquisition of tenPDL Clubs inDecember 2021 andJanuary 2022 that operate under the DBH umbrella contributed$30 million . Direct operating costs for the three months endedJune 30, 2022 increased$21.8 million , or 26.9%, to$102.8 million , compared to the three months endedJune 30, 2021 . The increase was attributable to the change in timing of the Unleash the Beast finals at PBR and the acquisition of DBH. Selling, general and administrative expenses for the three months endedJune 30, 2022 increased$23.1 million , or 52.0%, to$67.5 million , compared to the three months endedJune 30, 2021 . The increase was primarily attributable to$14 million of expenses incurred by DBH, as well as an increase in travel expenses related to UFC due to an international event held in 2022 and an increase in cost of personnel. Adjusted EBITDA for the three months endedJune 30, 2022 increased$29.0 million , or 21.9%, to$161.3 million , compared to the three months endedJune 30, 2021 . The increase in Adjusted EBITDA was primarily driven by increases in revenue partially offset by increases in direct operating costs and selling, general and administrative expenses.
Six months ended
Revenue for the six months endedJune 30, 2022 increased$86.3 million , or 15.9%, to$628.6 million , compared to the six months endedJune 30, 2021 . The increase was driven by an increase at PBR from the change in timing of the Unleash The Beast finals due to the new team series format scheduled for the second half of the year, an increase in the number of events and the elimination of fan attendance restrictions. The increase was also due to an increase at UFC driven by greater sponsorship, licensing, commercial PPV and event related revenue partially offset by lower media rights fees and Residential PPV revenue due to one less PPV event held in 2022. In addition, the acquisition of tenPDL Clubs inDecember 2021 andJanuary 2022 that operate under the DBH umbrella contributed$31 million . Direct operating costs for the six months endedJune 30, 2022 increased$24.3 million , or 14.0%, to$197.6 million , compared to the six months endedJune 30, 2021 . The increase was attributable to the acquisition of DBH, the change in timing of the Unleash The Beast finals and an increase in the number of PBR events held, partially offset by lower event expenses for UFC from having one less PPV event. 35 -------------------------------------------------------------------------------- Selling, general and administrative expenses for the six months endedJune 30, 2022 increased$28.3 million , or 30.7%, to$120.4 million , compared to the six months endedJune 30, 2021 . The increase was primarily attributable to$22 million of expenses incurred by DBH and an increase in cost of personnel. Adjusted EBITDA for the six months endedJune 30, 2022 increased$32.2 million , or 11.6%, to$310.0 million , compared to the six months endedJune 30, 2021 . The increase in Adjusted EBITDA was primarily driven by increases in revenue partially offset by increases in direct operating costs and selling, general and administrative expenses.
Events, Experiences & Rights
The following table sets forth our Events, Experiences & Rights segment results
for three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands)
Revenue $ 627,872 $ 528,672 $ 1,453,685 $ 1,068,282
Direct operating costs $ 359,044 $ 389,533 $ 895,257 $ 811,069
Selling, general and
administrative expenses $ 162,790 $ 112,803 $ 324,962 $ 213,074
Adjusted EBITDA $ 108,117 $ 36,800 $ 240,600 $ 75,850
Adjusted EBITDA margin 17.2 % 7.0 % 16.6 % 7.1 %
Three months ended
Revenue for the three months endedJune 30, 2022 increased$99.2 million , or 18.8%, to$627.9 million , compared to the three months endedJune 30, 2021 . Event and performance revenue increased$250 million primarily due to events returning in 2022 that were cancelled in 2021 or experienced fan restrictions due to COVID-19, including the Masters,NCAA Men'sMarch Madness and various music events, as well as the Madrid Open and NCSA, which were acquired inApril 2022 andJune 2021 , respectively, and increased enrollment at the Academy. Media rights fees and media production revenue decreased$151 million primarily due to the expiration of two European soccer contracts in the second quarter of 2021 that were not renewed. Direct operating costs for the three months endedJune 30, 2022 decreased$30.5 million , or 7.8%, to$359.0 million , compared to the three months endedJune 30, 2021 . Media rights and media productions costs decreased$184 million due to the decrease in revenue described above, primarily due to the expiration of certain contracts in the second quarter of 2021 whose costs were in excess of revenue. These decreases were partially offset by an increase in live event and performance costs of$154 million due to the increases in related revenue. Selling, general and administrative expenses for the three months endedJune 30, 2022 increased$50.0 million , or 44.3%, to$162.8 million , compared to the three months endedJune 30, 2021 . The increase was primarily driven by increased cost of personnel as the business recovers from the impact of COVID-19 and expenses incurred by NCSA. Adjusted EBITDA for the three months endedJune 30, 2022 increased$71.3 million , or 193.8%, to$108.1 million , compared to the three months endedJune 30, 2021 . The increase in Adjusted EBITDA was primarily driven by the growth in revenue and decreases in direct operating costs offset by increases in selling, general and administrative expenses as well as a decrease in insurance recoveries related to cancelled events.
Six months ended
Revenue for the six months endedJune 30, 2022 increased$385.4 million , or 36.1%, to$1,453.7 million , compared to the six months endedJune 30, 2021 . Event and performance revenue increased$696 million primarily due to events returning in 2022 that were cancelled in 2021 or experienced fan restrictions due to COVID-19, including Super Bowl LVI, Miami Open,NCAA Men'sMarch Madness , Frieze LA and various music events, as well as the Madrid Open and NCSA, which were acquired inApril 2022 andJune 2021 , respectively, and increased enrollment at the Academy. Media rights fees and media production revenue decreased$310 million primarily due to the expiration of two European soccer contracts in the second quarter of 2021 that were not renewed. Direct operating costs for the six months endedJune 30, 2022 increased$84.2 million , or 10.4%, to$895.3 million , compared to the six months endedJune 30, 2021 . Live event and performance costs increased$458 million due to the increases in related revenue. This increase was partially offset by a decrease in media rights and media production costs of$376 million due to the decrease in revenue described above, primarily due to the expiration of certain contracts in the second quarter of 2021 whose costs were in excess of revenue. Selling, general and administrative expenses for the six months endedJune 30, 2022 increased$111.9 million , or 52.5%, to$325.0 million , compared to the six months endedJune 30, 2021 . The increase was primarily driven by increased cost of personnel as the business recovers from the impact of COVID-19 and expenses incurred by NCSA. Adjusted EBITDA for the six months endedJune 30, 2022 increased$164.8 million , or 217.2%, to$240.6 million , compared to the six months endedJune 30, 2021 . The increase in Adjusted EBITDA was primarily driven by the growth in revenue partially offset by increases in related direct operating costs and selling, general and administrative expenses as well as a decrease in insurance recoveries related to cancelled events. 36 --------------------------------------------------------------------------------
Representation
The following table sets forth our Representation segment results for three and
six months ended
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(in thousands)
Revenue $ 357,955 $ 328,232 $ 715,276 $ 577,141
Direct operating costs $ 51,678 $ 104,843 $ 121,451 $ 139,901
Selling, general and
administrative expenses $ 194,953 $ 161,692 $ 380,835 $ 313,851
Adjusted EBITDA $ 111,221 $ 61,685 $ 212,926 $ 123,168
Adjusted EBITDA margin 31.1 % 18.8 % 29.8 % 21.3 %
Three months ended
Revenue for the three months endedJune 30, 2022 increased$29.7 million , or 9.1%, to$358.0 million , compared to the three months endedJune 30, 2021 . The increase was primarily attributable to an increase of$99 million related to client commissions, due primarily to the continued strong demand for our talent and the recovery of live entertainment, predominantly music, and corporate spending on marketing and experiential activations as the prior year was significantly impacted by COVID-19. These increases were partially offset by the loss of$78 million of revenue related to the restricted Endeavor Content business, which was sold inJanuary 2022 . Direct operating costs for the three months endedJune 30, 2022 decreased$53.2 million , or 50.7%, to$51.7 million , compared to the three months endedJune 30, 2021 . The decrease attributable to the above mentioned sale of the restricted Endeavor Content business of$69 million was partially offset by an increase in marketing and experiential activations due to the increase in revenue described above. Selling, general and administrative expenses for the three months endedJune 30, 2022 increased$33.3 million , or 20.6%, to$195.0 million , compared to the three months endedJune 30, 2021 . The increase was primarily driven by cost of personnel and travel expenses as the business recovers from the impact of COVID-19 partially offset by the sale of the restricted Endeavor Content business inJanuary 2022 . Adjusted EBITDA for the three months endedJune 30, 2022 increased$49.5 million , or 80.3%, to$111.2 million , compared to the three months endedJune 30, 2021 . The increase in Adjusted EBITDA was driven by the growth in revenue and decrease in direct operating costs partially offset by the increase in selling, general and administrative expenses.
Six months ended
Revenue for the six months endedJune 30, 2022 increased$138.1 million , or 23.9%, to$715.3 million , compared to the six months endedJune 30, 2021 . The increase was primarily attributable to an increase of$193 million related to client commissions, due primarily to the continued strong demand for our talent and the recovery of live entertainment, predominantly music, and corporate spending on marketing and experiential activations as the prior year was significantly impacted by COVID-19. These increases were partially offset by the loss of$73 million of revenue related to the restricted Endeavor Content business, which was sold inJanuary 2022 . Direct operating costs for the six months endedJune 30, 2022 decreased$18.5 million , or 13.2%, to$121.5 million , compared to the six months endedJune 30, 2021 . The decrease attributable to the above mentioned sale of the restricted Endeavor Content business of$60 million was partially offset by an increase in marketing and experiential activations due to the increase in revenue described above. Selling, general and administrative expenses for the six months endedJune 30, 2022 increased$67.0 million , or 21.3%, to$380.8 million , compared to the six months endedJune 30, 2021 . The increase was primarily driven by cost of personnel and travel expenses as the business recovers from the impact of COVID-19 partially offset by the sale of the restricted Endeavor Content business inJanuary 2022 . Adjusted EBITDA for the six months endedJune 30, 2022 increased$89.8 million , or 72.9%, to$212.9 million , compared to the six months endedJune 30, 2021 . The increase in Adjusted EBITDA was driven by the growth in revenue and decrease in direct operating costs partially offset by the increase in selling, general and administrative expenses. Corporate Corporate primarily consists of overhead, personnel costs, and costs associated with corporate initiatives that are not fully allocated to the operating divisions. Such expenses include compensation and other benefits for corporate office employees, rent, professional fees related to internal control compliance and monitoring, financial statement audits and legal, information technology and insurance that is managed through our corporate office.
The following table sets forth our results for Corporate for the three and six
months ended
Three Months Ended June 30 , Six Months
Ended
2022 2021 2022 2021
(in thousands) Adjusted EBITDA$ (74,253 ) $ (62,704 ) $ (142,733 )
Adjusted EBITDA for the three months ended
Adjusted EBITDA for the six months endedJune 30, 2022 decreased$33.4 million , or 30.6%, to$142.7 million , compared to the six months endedJune 30, 2021 . The decline was driven by an increase in cost of personnel and other general and administrative expenses. 37
--------------------------------------------------------------------------------
NON-GAAP FINANCIAL MEASURES Adjusted EBITDA is a non-GAAP financial measure and is defined as net income (loss), excluding income taxes, net interest expense, depreciation and amortization, equity-based compensation, merger, acquisition and earn-out costs, certain legal costs, restructuring, severance and impairment charges, certain non-cash fair value adjustments, certain equity earnings, tax receivable agreements liability adjustment, and certain other items, including gains/losses on business divestitures, when applicable. Adjusted EBITDA margin is a non-GAAP financial measure defined as Adjusted EBITDA divided by Revenue. Management believes that Adjusted EBITDA is useful to investors as it eliminates the significant level of non-cash depreciation and amortization expense that results from our capital investments and intangible assets recognized in business combinations, and improves comparability by eliminating the significant level of interest expense associated with our debt facilities, as well as income taxes, which may not be comparable with other companies based on our tax structure.
Adjusted EBITDA and Adjusted EBITDA margin are used as the primary bases to evaluate our consolidated operating performance.
Adjusted Net Income is a non-GAAP financial measure and is defined as net income (loss) attributable toEndeavor Group Holdings adjusted to exclude our share (excluding those relating to certain non-controlling interests) of the adjustments used to calculate Adjusted EBITDA, other than income taxes, net interest expense and depreciation, on an after-tax basis, the release of tax valuation allowances and other tax items. Adjusted Net Income adjusts income or loss attributable to the Company for items that are not considered to be reflective of our operating performance. Management believes that such non-GAAP information is useful to investors and analysts as it provides a better understanding of the performance of our operations for the periods presented and, accordingly, facilitates the development of future projections and earnings growth prospects. Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net Income have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: •
they do not reflect every cash expenditure, future requirements for capital expenditures, or contractual commitments;
•
Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;
•
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net Income do not reflect any cash requirement for such replacements or improvements; and
•
they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows.
We compensate for these limitations by using Adjusted EBITDA, Adjusted EBITDA
margin and Adjusted Net Income along with other comparative tools, together with
GAAP measurements, to assist in the evaluation of operating performance.
Adjusted EBITDA, Adjusted EBITDA margin and Adjusted Net Income should not be
considered substitutes for the reported results prepared in accordance with GAAP
and should not be considered in isolation or as alternatives to net (loss)
income as indicators of our financial performance, as measures of discretionary
cash available to us to invest in the growth of our business or as measures of
cash that will be available to us to meet our obligations. Although we use
Adjusted EBITDA, Adjusted EBITDA margin and Adjusted Net Income as financial
measures to assess the performance of our business, such use is limited because
it does not include certain material costs necessary to operate our business.
Our presentation of Adjusted EBITDA, Adjusted EBITDA margin and Adjusted Net
Income should not be construed as indications that our future results will be
unaffected by unusual or nonrecurring items. These non-GAAP financial measures,
as determined and presented by us, may not be comparable to related or similarly
titled measures reported by other companies. Set forth below are reconciliations
of our most directly comparable financial measures calculated in accordance with
GAAP to these non-GAAP financial measures on a consolidated basis.
38
--------------------------------------------------------------------------------
Adjusted EBITDA
Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2022 2021 2022 2021
Net income (loss) $ 42,220 $ (516,767 ) $ 559,886 $ (514,391 )
Provision for (benefit from)
income taxes 2,699 60,918 (14,535 ) 66,003
Interest expense, net 62,505 83,836 121,777 152,187
Depreciation and amortization 65,612 69,161 131,606 136,397
Equity-based compensation
expense (1) 60,607 387,017 111,463 403,508
Merger, acquisition and
earn-out costs (2) 14,568 14,199 27,362 25,184
Certain legal costs (3) 8,598 574 9,600 4,526
Restructuring, severance and
impairment (4) 1,442 4,026 1,960 4,433
Fair value adjustment - equity
investments (5) (11,691 ) (5,905 ) (13,344 ) (13,704 )
Equity method losses -
Learfield IMG College and
Endeavor Content (6) 41,511 42,655 65,915 61,460
Gain on sale of the restricted
Endeavor Content business(7) - - (463,641 ) -
Tax receivable agreements
liability adjustment (8) (2,405 ) - 51,092 -
Other (9) 20,689 28,334 31,663 41,911
Adjusted EBITDA $ 306,355 $ 168,048 $ 620,804 $ 367,514
Net income (loss) margin 3.2 % (46.5 %) 20.1 % (23.6 %)
Adjusted EBITDA margin 23.3 % 15.1 % 22.3 % 16.9 %
Adjusted Net Income
Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2022 2021 2022 2021
Net income (loss) $ 42,220 $ (516,767 ) $ 559,886 $ (514,391 )
Net (income) loss attributable
to non-controlling interests (16,414 ) 190,354 (214,534 ) 163,108
Net loss attributable to
Endeavor Operating Company ,
LLC prior to the
reorganization transactions - 6,816 - 31,686
Net income (loss) attributable
to Endeavor Group Holdings ,
Inc. 25,806 (319,597 ) 345,352 (319,597 )
Amortization 41,380 46,649 84,296 92,377
Equity-based compensation
expense (1) 60,607 387,017 111,463 403,508
Merger, acquisition and
earn-out costs (2) 14,568 14,199 27,362 25,184
Certain legal costs (3) 8,598 574 9,600 4,526
Restructuring, severance and
impairment (4) 1,442 4,026 1,960 4,433
Fair value adjustment - equity
investments (5) (11,691 ) (5,905 ) (13,344 ) (13,704 )
Equity method losses -
Learfield IMG College and
Endeavor Content (6) 41,511 42,655 65,915 61,460
Gain on sale of the restricted
Endeavor Content business(7) - - (463,641 ) -
Tax receivable agreements
liability adjustment (8) (2,405 ) - 51,092 -
Other (9) 20,689 28,334 31,663 41,911
Tax effects of adjustments
(10) (10,829 ) 77,550 10,275 71,231
Other tax items (11) 2,830 17,608 (53,683 ) 17,608
Adjustments allocated to
non-controlling interests (12) (62,036 ) (241,635 ) 51,372 (337,462 )
Adjusted Net Income $ 130,470 $ 51,475 $ 259,682 $ 51,475
(1)Equity-based compensation represents primarily non-cash compensation expense associated with our equity-based compensation plans.
The decrease for the three and six months endedJune 30, 2022 as compared to the three and six months endedJune 30, 2021 was primarily due to modification of certain pre-IPO equity-based awards primarily to remove certain forfeiture and discretionary call terms as well as grants under the 2021 Incentive Award Plan that were issued in connection with the IPO. Equity-based compensation was recognized in all segments and Corporate for three and six months endedJune 30, 2022 and 2021.
(2)
Includes (i) certain costs of professional advisors related to mergers, acquisitions, dispositions or joint ventures and (ii) fair value adjustments for contingent consideration liabilities related to acquired businesses and compensation expense for deferred consideration associated with selling shareholders that are required to retain our employees.
Such costs for the three months endedJune 30, 2022 primarily related to fair value adjustments for contingent consideration liabilities related to acquired businesses and acquisition earn-out adjustments of approximately$8 million , which primarily related to our Representation segment. Professional advisor costs were approximately$7 million and related to all of our segments. Such costs for the three months endedJune 30, 2021 primarily related to fair value adjustments for contingent consideration liabilities related to acquired businesses and acquisition earn-out adjustments of approximately$13 million , which primarily related to our Events, Experiences & Rights segment. Professional advisor costs were approximately$1 million and primarily related to our Events, Experiences & Rights segment. 39 -------------------------------------------------------------------------------- Such costs for the six months endedJune 30, 2022 primarily related to fair value adjustments for contingent consideration liabilities related to acquired businesses and acquisition earn-out adjustments of approximately$16 million , which primarily related to our Representation segment. Professional advisor costs were approximately$12 million and related to all of our segments. Such costs for the six months endedJune 30, 2021 primarily related to fair value adjustments for contingent consideration liabilities related to acquired businesses and acquisition earn-out adjustments of approximately$20 million , which primarily related to our Events, Experiences & Rights and Representation segments. Professional advisor costs were approximately$5 million and primarily related to our Events, Experiences & Rights segment.
(3)
Includes costs related to certain litigation or regulatory matters in each of our segments and Corporate.
(4)
Includes certain costs related to our restructuring activities and non-cash impairment charges.
Such costs for the three and six months ended
Such costs for the three and six months ended
(5)
Includes the net change in fair value for certain equity investments with and without readily determinable fair values, based on observable price changes.
(6)
Relates to equity method losses from our investment in
(7)
Relates to the gain recorded for the sale of the restricted Endeavor Content
business, net of transactions costs of
(8)
Includes the adjustment for the tax receivable agreements liability related to the expected realization of certain tax benefits after concluding that such TRA payments would be probable based on estimates of future taxable income over the terms of the TRAs.
(9)
For the three months endedJune 30, 2022 , other costs were comprised primarily of losses of approximately$17 million on foreign exchange transactions, which related to all of our segments and Corporate and approximately$2 million related to non-cash fair value adjustments of embedded foreign currency derivatives, which related primarily to our Events, Experiences & Rights segment. For the three months endedJune 30, 2021 , other costs were comprised primarily of approximately$29 million related to a loss on debt extinguishment, which related to Corporate, and a gain of approximately$2 million related to non-cash fair value adjustments of embedded foreign currency derivatives, which related primarily to our Events, Experiences & Rights segment. For the six months endedJune 30, 2022 , other costs were comprised primarily of losses of approximately$22 million on foreign exchange transactions, which related to all of our segments and Corporate, approximately$3 million of transaction bonuses related to the sale of the restricted Endeavor Content business in our Representation segment, approximately$1 million related to non-cash fair value adjustments of embedded foreign currency derivatives, which related primarily to our Events, Experiences & Rights segment and an approximately$1 million loss on disposal of an asset related to our Events, Experiences & Rights segment. For the six months endedJune 30, 2021 , other costs were comprised primarily of approximately$29 million related to a loss on debt extinguishment, which related primarily to Corporate, and a loss of approximately$9 million related to non-cash fair value adjustments of embedded foreign currency derivatives, which related primarily to our Events, Experiences & Rights segment and approximately$2 million related to transaction costs associated with the repricing of the UFC Credit Facilities in ourOwned Sports Properties segment.
(10)
Reflects the tax effect of the adjustments noted above.
(11)
Such items for the three and six months endedJune 30, 2022 reflects the adjustment to or release of, respectively, a valuation allowance on deferred tax assets due to the expected realization of certain tax benefits related to the TRA liability. Such items for the three and six months endedJune 30, 2021 includes$7.4 million of deferred tax liabilities associated with indefinite lived intangibles recorded as a result of the IPO and tax expense of$10.2 million , related to a change in tax rate in theUnited Kingdom .
(12)
Prior to the IPO and associated reorganization transactions, reflects the share of adjustments attributable to the non-controlling interests in UFC. Subsequent to the IPO and associated reorganization transactions, reflects the share of adjustments attributable to the non-controlling interests of certain former members ofEndeavor Operating Company who retain ownership interests inEndeavor Manager andEndeavor Operating Company .
LIQUIDITY AND CAPITAL RESOURCES
Historical liquidity and capital resources
Sources and uses of cash
Cash flows from operations have historically funded our day-to-day operations, revenue-generating activities, and routine capital expenditures, as well as serviced our long-term debt. Our other principal use of cash has been the acquisition of businesses, which have historically been funded primarily through equity contributions from our pre-IPO institutional investors, the issuance of long-term debt and proceeds received from our initial public offering and private placement.
Debt facilities
As ofJune 30, 2022 , we had an aggregate of$5.6 billion outstanding indebtedness under our first lien credit agreement entered into by certain of our subsidiaries inMay 2014 in connection with the acquisition of IMG (as amended, restated, modified and/or supplemented from time to time, the "Credit Facilities") andUFC Holdings, LLC's term loan and revolving credit facilities (the "UFC Credit Facilities" and, collectively with the 40 -------------------------------------------------------------------------------- Credit Facilities, the "Senior Credit Facilities"). As ofJune 30, 2022 , we had total borrowing capacity of$405 million under the Senior Credit Facilities, of which approximately$376 million was available to borrow.
Credit Facilities
As ofJune 30, 2022 , we have borrowed an aggregate of$2.8 billion of term loans under the Credit Facilities. The loans bear interest at a variable interest rate equal to either, at our option, adjusted LIBOR or the Alternate Base Rate (the "ABR") plus, in each case, an applicable margin. LIBOR term loans accrue interest at a rate equal to adjusted LIBOR plus 2.75%, with a LIBOR floor of 0.00%. ABR term loans accrue interest at a rate equal to (i) the highest of (a) the Federal Funds Effective Rate plus 0.5%, (b) the prime rate, (c) adjusted LIBOR for a one-month interest period plus 1.00% and (d) 1.00%, plus (ii) 1.75%. The term loans under the Credit Facilities include 1% principal amortization payable in equal quarterly installments and mature onMay 18, 2025 . InMay 2020 , we issued$260.0 million as a separate tranche of term loans, which accrued interest at a rate equal to adjusted LIBOR plus 8.50%, with a LIBOR floor of 1%. OnJune 29, 2021 , we repaid the outstanding principal of$256.7 million as well as associated fees and expenses incurred due to early redemption of$28.6 million . InMay 2019 , we executed$1.5 billion in interest rate hedges to swap a portion of our debt from floating interest expense to fixed. The LIBOR portion of the facility has been fixed at a coupon of 2.12% for five years commencing fromJune 2019 untilJune 2024 . As ofJune 30, 2022 , approximately 54% of our term loans is hedged. See Note 10, "Debt" to our unaudited consolidated financial statements included elsewhere in this Quarterly Report for further detail on the Credit Facilities. InAugust 2022 , the Company entered into additional interest rate hedges to swap$750 million of its 2014 Credit Facilities from floating interest expense to fixed. The 2014 Credit Facilities pay interest based on LIBOR +2.75%. The LIBOR portion of the facility has been fixed at a coupon of 3.162% untilAugust 31, 2024 . Hedge accounting will be applied to these additional interest rate swaps. As ofJune 30, 2022 , we have the option to borrow incremental term loans in an aggregate amount equal to at least$550.0 million , subject to market demand, and may be able to borrow additional funds depending on our First Lien LeverageRatio (as defined under the Credit Facilities). The credit agreement governing our Credit Facilities includes certain mandatory prepayment provisions relating to, among other things, the incurrence of additional debt. The Credit Facilities also include a revolving credit facility which has$200.0 million of capacity with letter of credit and swingline loan sub-limits of up to$75.0 million and$20.0 million , respectively. Revolving credit facility borrowings under the Credit Facilities bear interest at a variable interest rate equal to either, at our option, adjusted LIBOR or the ABR plus, in each case, an applicable margin. LIBOR revolving loans accrue interest at a rate equal to adjusted LIBOR plus 2.00-2.50%, depending on the First Lien Leverage Ratio, with a LIBOR floor of 0.00%. ABR revolving loans accrue interest at a rate equal to (i) the highest of (a) the Federal Funds Effective Rate plus 0.50%, (b) the prime rate, (c) adjusted LIBOR for a one-month interest period plus 1.00% and (d) 1.00%, plus (ii) 1.00-1.50%, depending on the First Lien Leverage Ratio. We pay Letter of Credit fees of 0.125% and a commitment fee of 0.25-0.50%, based on our First Lien Leverage Ratio. OnJune 29, 2021 , we repaid$163.1 million under the revolving credit facility. As ofJune 30, 2022 , we had no borrowings outstanding under this revolving credit facility and outstanding letters of credit of$19.4 million . The revolving facility matures onMay 18, 2024 . The revolving facility under the Credit Facilities is subject to a financial covenant if greater than 35% of the borrowing capacity of the revolving credit facility is utilized (excluding cash collateralized letters of credit and non-cash collateralized letters of credit of up to$50.0 million ) at the end of each quarter. This covenant was not applicable onJune 30, 2022 , as we had no borrowings outstanding under the revolving credit facility.
The Credit Facilities contain certain restrictive covenants around indebtedness, liens, fundamental changes, guarantees, investments, asset sales, and transactions with affiliates.
The borrower's obligations under the Credit Facilities are guaranteed by certain of our indirect wholly-owned domestic restricted subsidiaries, subject to certain exceptions. All obligations under the Credit Facilities and the related guarantees are secured by a perfected first priority lien on substantially all of the borrower's and the guarantors' tangible and intangible assets, in each case, subject to permitted liens and certain exceptions.
UFC Credit Facilities
As ofJune 30, 2022 , we have borrowed an aggregate of$2.8 billion of first lien term loans under the UFC Credit Facilities. Following a repricing under the UFC Credit Facilities inJanuary 2021 , borrowings under the UFC Credit Facilities bear interest at a variable interest rate equal to either, at our option, adjusted LIBOR or the ABR plus, in each case, an applicable margin. LIBOR term loans accrue interest at a rate equal to an adjusted LIBOR plus 2.75%-3.00%, depending on the First Lien Leverage Ratio, in each case with a LIBOR floor of 0.75%. ABR term loans accrue interest at a rate equal to (i) the highest of (a) the Federal Funds Effective Rate plus 0.5%, (b) the prime rate, (c) adjusted LIBOR for a one-month interest period plus 1.00% and (d) 1.75%, plus (ii) 1.75%-2.00%. The term loans under the UFC Credit Facilities include 1.00% principal amortization payable in equal quarterly installments and mature onApril 29, 2026 . See Note 10, "Debt" to our unaudited consolidated financial statements included elsewhere in this Quarterly Report for further detail on the UFC Credit Facilities. As ofJune 30, 2022 , we have the option to borrow incremental loans in an aggregate amount equal to at least$455.0 million , subject to market demand, and may be able to borrow additional funds depending on our First Lien LeverageRatio (as defined under the UFC Credit Facilities). The credit agreement governing the UFC Credit Facilities includes certain mandatory prepayment provisions relating to, among other things, the incurrence of additional debt. OnJune 29, 2021 , we repaid$180.2 million of first lien term loans under the UFC Credit Facilities. OnOctober 27, 2021 , we amended the facility to provide for a$600 million term loan, which we borrowed in full. The UFC Credit Facilities also include a revolving credit facility, which has$205.0 million of total borrowing capacity and letter of credit and swingline loan sub-limits of up to$40.0 million and$15.0 million , respectively. Revolving credit facility borrowings under the UFC Credit Facilities bear interest at a variable interest rate equal to either, at our option, adjusted LIBOR or ABR plus, in each case, an applicable margin. LIBOR revolving loans accrue interest at a rate equal to an adjusted LIBOR plus 3.50-4.00%, depending on the First Lien Leverage Ratio, in each case with a LIBOR floor of 0.00%. ABR revolving loans accrue interest at a rate equal to (i) the highest of (a) the Federal Funds Effective Rate plus 0.50%, (b) the prime rate, (c) adjusted LIBOR for a one-month interest period plus 1.00% and (d) 1.00%, plus (ii) 2.50-3.00%, depending on the First Lien 41 -------------------------------------------------------------------------------- LeverageRatio . We pay a commitment fee on the revolving credit facility under the UFC Credit Facilities of 0.25-0.50%, based on the First Lien Leverage Ratio and Letter of Credit fees of 0.125%. As ofJune 30, 2022 , we had no borrowings outstanding under this revolving credit facility and outstanding letters of credit of$10.0 million . The revolving facility under the UFC Credit Facilities matures onApril 29, 2024 . The revolving facility under the UFC Credit Facilities is subject to a financial covenant if greater than 35% of the borrowing capacity of the revolving credit facility (excluding cash collateralized letters of credit and non-cash collateralized letters of credit of up to$10.0 million ) is utilized at the end of any fiscal quarter. This covenant was not applicable onJune 30, 2022 , as we had no borrowings outstanding under this revolving credit facility.
The UFC Credit Facilities contain certain restrictive covenants around indebtedness, liens, fundamental changes, guarantees, investments, asset sales and transactions with affiliates.
The borrower's obligations under the UFC Credit Facilities are guaranteed by certain of UFC Parent's indirect wholly-owned domestic restricted subsidiaries, subject to certain exceptions. All obligations under the UFC Credit Facilities and the related guarantees are secured by a perfected first priority lien on substantially all of the borrower's and the guarantors' tangible and intangible assets, in each case, subject to permitted liens and certain exceptions.
Restrictions on dividends
Both the Credit Facilities and the UFC Credit Facilities contain restrictions on our ability to make distributions and other payments from the respective credit groups and which therefore limit our ability to receive cash from our operating units to make dividends to the holders of Class A common stock. These restrictions on dividends include exceptions for, among other things, (1) amounts necessary to make tax payments, (2) a limited annual amount for employee equity repurchases, (3) distributions required to fund certain parent entities, (4) other specific allowable situations and (5) a general restricted payment basket, as defined in each of the Credit Facilities and the UFC Credit Facilities.
Other debt
As ofJune 30, 2022 , we had certain other revolving line of credit facilities and long-term debt liabilities, primarily related to On Location, with total committed amounts of$62.9 million , of which$13.0 million was outstanding and$46.4 million was available for borrowing based on the supporting asset base. Such facilities have maturity dates in 2023 and 2025, bearing interest at rates of 2.75%. Our On Location revolving credit agreement has$42.9 million of total borrowing capacity and letter of credit and swingline loan sub-limits of up to$3.0 million each (the "OL Credit Facility"). As ofJune 30, 2022 , we had no borrowings outstanding under the OL Credit Facility and no letters of credit outstanding. The OL Credit Facility matures on the earlier ofAugust 2026 or the date that is 91 days prior to the maturity date of the term loans under the Credit Facilities. The OL Credit Facility contains restrictions that are substantially similar to those in the Credit Facilities and the UFC Credit Facilities.
Cash Flows Overview
Six months ended
Six Months Ended June 30 ,
(in thousands) 2022 2021
Net income, adjusted for non-cash items$ 462,318 $
275,246
Changes in working capital (320,675 )
103,837
Changes in non-current assets and liabilities 71,403 (501,282 ) Net cash provided by (used in) operating activities$ 213,046 $ (122,199 ) Net cash provided by (used in) investing activities$ 123,154 $ (372,565 ) Net cash provided by financing activities$ 7,196 $
397,498
Cash provided in operating activities improved$335.2 million from$122.2 million of cash used in the six months endedJune 30, 2021 to$213.0 million of cash provided in the six months endedJune 30, 2022 . Cash provided in the six months endedJune 30, 2022 was primarily due to net income, adjusted for non-cash items, of$462.3 million offset by the increase in accounts receivable of$242.3 million due to timing of events and the decrease in deferred revenue of$95.5 million due to events taking place in 2022, such as Super Bowl LVI and various music events. Cash used in the six months endedJune 30, 2021 primarily represents an increase in other assets of$490.7 million from additional investments in Endeavor Content film assets and an increase in accounts receivable of$141.8 million from the gradual recovery from COVID-19. Investing activities improved from$372.6 million of cash used in the six months endedJune 30, 2021 to$123.2 million of cash provided in the six months endedJune 30, 2022 . Cash provided in the six months endedJune 30, 2022 primarily reflects net cash proceeds received from the sale of the restricted Endeavor Content business of$649.7 million offset by payments for acquisitions of businesses, capital expenditures and investments in non-controlled affiliates totaling$528.1 million . Cash used in the six months endedJune 30, 2021 primarily reflects payments for acquisitions of businesses, primarily for NCSA and FlightScope, of$255.6 million and investments in non-controlled affiliates, primarilyLearfield IMG College , of$114.0 million . Financing activities decreased from$397.5 million of cash provided in the six months endedJune 30, 2021 to$7.2 million of cash provided in the six months endedJune 30, 2022 . Cash provided in the six months endedJune 30, 2022 primarily reflects net cash proceeds received in connection with the acquisition of non-controlling interests of$92.5 million offset by net payments on debt of$39.9 million , as well as distributions, payments of contingent consideration related to acquisitions and redemption of certain of our equity interests totaling$44.7 million . Cash provided in the six months endedJune 30, 2021 primarily reflects proceeds from our IPO and private placements, net of underwriting discounts, of$1,886.6 million partially offset by$835.7 million used for the UFC Buyout and net payments on debt of$631.5 million . 42 --------------------------------------------------------------------------------
Future sources and uses of liquidity
Our sources of liquidity are (1) cash on hand, (2) cash flows from operations (3) available borrowings under our Senior Credit Facilities (which borrowings would be subject to certain restrictive covenants contained therein) and (4) proceeds from potential divestitures. Based on our current expectations, we believe that these sources of liquidity will be sufficient to fund our working capital requirements and to meet our commitments, including long-term debt service for at least the next 12 months. We expect that our primary liquidity needs will be cash to (1) provide capital to facilitate organic growth of our business, (2) fund future investments, acquisitions (including Barrett-Jackson, which closed in August, and OpenBet), and earn-outs and deferred purchase price payments from prior acquisitions, (3) pay operating expenses, including cash compensation to our employees, (4) fund capital expenditures, (5) pay interest and principal when due on our Senior Credit Facilities, (6) make payments under the tax receivable agreements, (7) pay income taxes, (8) make distributions to members and (9) an expected$250 million reduction of debt by the end of 2022. We expect to refinance the Senior Credit Facilities prior to the maturity of the outstanding loans, with the first maturity for outstanding term loans under the Senior Credit Facilities occurring in 2025. We currently anticipate being able to secure funding for such refinancing at favorable terms, however our ability to do so may be impacted by many factors, including our growth and other factors specific to our business as well as macro- economic factors beyond our control.
Tax distributions by
Other than as described below, we expect to retain all our future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends for the foreseeable future. Subject to funds being legally available, we expect thatEndeavor Operating Company will make distributions to each of its members, including the Endeavor Profits Units holders and Endeavor Manager, in amounts sufficient to pay applicable taxes attributable to each member's allocable share of taxable income ofEndeavor Operating Company . Tax distributions made in respect of Endeavor Operating Company Units (but not Endeavor Profits Units) will generally be made pro rata in respect of such Units, as described in the Endeavor Operating Company LLC Agreement. However, in certain situations, tax distributions made to Endeavor Manager may be reduced (relative to those tax distributions made to the other members ofEndeavor Operating Company ) to reflect the income tax rates to whichEndeavor Manager andEndeavor Group Holdings are subject and certain other factors. Non pro-rata tax distributions may be paid to holders of Endeavor Profits Units.
Tax Receivable Agreements
Generally, we are required under the tax receivable agreements to make payments
to certain persons that held direct or indirect interest in EOC and UFC Parent
prior to the IPO ("TRA Holders") that are generally equal to 85% of the
applicable cash tax savings, if any, in U.S. federal, state and local income tax
or franchise tax that we realize or are deemed to realize (determined by using
certain assumptions) as a result of favorable tax attributes that will be
available to us as a result of certain transactions contemplated in connection
with our IPO, exchanges of Endeavor Operating Company Units for Class A common
stock or cash and payments made under the tax receivable agreements. We will
generally be entitled to retain the remaining 15% of these cash tax savings.
Payments will be due only after we have filed our U.S. federal and state income
tax returns. Payments under the tax receivable agreements will bear interest
from the due date of the tax return reflecting the applicable tax benefits. We
currently expect to fund these payments from cash flows from operations
generated by our subsidiaries as well as from excess tax distributions that we
receive from our subsidiaries. The amounts payable under the tax receivable
agreements will vary depending upon a number of factors, including the amount,
character and timing of the taxable income of EGH in the future. If the existing
valuation allowance recorded against deferred tax assets is released in a future
period as a result of having sufficient taxable income, among other criteria, or
other tax attributes subject to the tax receivable agreements are determined to
be payable, additional tax receivable agreements liabilities may be recorded. We
believe that during 2022, the relevant criteria may be met, and at that time, we
would release a valuation allowance, which such benefit may exceed $700 million .
In addition, we would record the associated tax receivable agreements liability,
which if based on all exchanges that have occurred as of June 30, 2022 would
exceed $900 million .
Under the tax receivable agreements, as a result of certain types of
transactions or occurrences, including a transaction resulting in a change of
control or a material breach of our obligations under the tax receivable
agreements, we may also be required to make payments to the TRA Holders in
amounts equal to the present value of future payments we are obligated to make
under the tax receivable agreements. If the payments under the tax receivable
agreements are accelerated, we may be required to raise additional debt or
equity to fund such payments. To the extent that we are unable to make payments
under the tax receivable agreements as a result of having insufficient funds
(including because our credit agreements restrict the ability of our
subsidiaries to make distributions to us) such payments will generally be
deferred and will accrue interest until paid.
Critical Accounting Estimates
For a description of our policies regarding our critical accounting estimates, see "Critical Accounting Policies and Estimates" in our 2021 Annual Report. During the six months endedJune 30, 2022 , there were no significant changes in our critical accounting policies and estimates or the application or the results of the application of those policies to our unaudited consolidated financial statements from those previously disclosed in the 2021 Annual Report.
Recent Accounting Standards
See Note 3 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report for further information on certain accounting standards that have been recently adopted or that have not yet been required to be implemented and may be applicable to our future operations.
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