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 prospectus datedApril 28, 2021 , filed with theSEC onApril 30, 2021 pursuant to Rule 424(b) of the Securities Act of 1933, as amended (the "Prospectus"). The historical financial data discussed below reflects our historical results of operations and financial position and relate to periods prior to the reorganization transactions. As a result, the following discussion does not reflect the significant impact that such events will have on us.
BUSINESS OVERVIEW
Endeavor Group Holdings, Inc. is a premium intellectual property, content, events, and experiences 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, PBR and Euroleague, 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. 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, 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. Euroleague is one of the most popular indoor sports leagues in the world, averaging attendance of over 8,500 per game in the 2019-2020 season.
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, and we have a strategic partnership with the PGA-sanctioned Asian Tour. We also operate other events on behalf of third parties, including the AIG Women'sBritish Open and FortniteWorld Cup . 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. 33
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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 ("IOC"), the NFL, andNational Hockey League ("NHL"), 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
Representation
Our Representation segment provides services to more than 7,000 talent and corporate clients and includes our content division, Endeavor Content. 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. Endeavor Content provides 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 a new franchise agreement and side letter (the "Franchise Agreements") directly with theWriter's Guild of America East and theWriter's Guild of America West (collectively, the "WGA"). These Franchise Agreements include terms that, among other things, prohibit 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, inAugust 2021 , the Company has begun marketing the restricted Endeavor Content business for sale.
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. 34
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Impact of the COVID-19 Pandemic
InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 a pandemic. The COVID-19 pandemic has 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. The COVID-19 pandemic resulted in various governmental restrictions and began to have a significant adverse impact on our business and operations beginning inMarch 2020 , including the lack of ticketed PBR and UFC events and the early cancellation of the 2019-2020 Euroleague season adversely impacting ourOwned Sports Properties segment; the postponement or cancellation of live sporting events and other in-person events adversely impacting our Events, Experiences & Rights segment; and stoppages of entertainment productions, including film, television shows and music events, as well as reduced corporate spending on marketing, experiential and activation, adversely impacting our Representation segment. Furthermore, following the merger of ourIMG College business with Learfield, the operating results of the merged business had been weaker than anticipated driven by lower than expected sales and have been further impacted by COVID-19 as a result of the delay, cancellation of or shortened college football season and the prohibition of fans by many teams, which resulted in impairment charges atLearfield IMG College in 2020 adversely impacting our equity earnings. In 2020, we also recognized goodwill and intangible asset impairment charges primarily at our Events, Experiences & Rights segment, driven by lower projections as a result of the impact of COVID-19 and restructuring in certain of our businesses. In the future, any further impact to our business as a result of COVID-19 could result in additional impairments of goodwill, intangibles, long-term investments and long-lived assets. While activity has resumed in certain of our businesses and restrictions have been lessened or lifted restrictions impacting certain of our businesses remain in effect in locations where we are operating and could in the future be reduced or increased, or removed or reinstated. As a result of this and numerous other uncertainties, including the duration of the pandemic, the effectiveness of mass vaccinations and the impact of variants of the virus, additional postponements or cancellations of live sporting events and other in-person events, and changes in consumer preferences towards our business and the industries in which we operate, we are unable to accurately predict the full impact of COVID-19, including recently emerged variants, on our business, results of operations, financial position and cash flows, but acknowledge that its impact on our business and results of operations may be material. We expect that recovery will continue to be gradual and that the wider impact on revenue and cash flows will vary, but will generally depend on the factors listed above and the general uncertainty surrounding COVID-19. After considering the impact of COVID-19, including recently emerged variants, the Company believes that existing cash, cash generated from operations and available capacity for borrowings under its credit facilities will satisfy working capital requirements, capital expenditures, and debt service requirements for at least the succeeding year.
UFC Buyout
Substantially simultaneous with the closing of the IPO, we consummated the UFC Buyout whereby we acquired equity interests in UFC Parent (including warrants of UFC Parent) from the Other UFC Holders (or their affiliates) resulting inEndeavor Operating Company directly or indirectly owning 100% of the equity interests of UFC Parent. 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. 35
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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 inEndeavor Manager andEndeavor 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 Agreement. In addition, we have begun implementing and will continue to implement additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to continue to incur expenses related to these steps and, among other things, additional directors' and officers' liability insurance, director fees, reporting requirements of theSEC , transfer agent fees, hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses. We have recognized and will continue to recognize certain non-recurring costs as part of our transition to a publicly traded company, consisting of professional fees and other expenses. 36
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RESULTS OF OPERATIONS
The following is a discussion of our consolidated results of operations for the three and six months endedJune 30, 2021 and 2020. 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) 2021 2020 2021 2020 Revenue$ 1,111,272 $ 462,914 $ 2,180,854 $ 1,653,311 Operating expenses: Direct operating costs 570,955 172,643 1,117,347 853,927 Selling, general and administrative expenses 785,101 302,047 1,166,214 691,018 Insurance recoveries (10,210 ) (16,841 ) (29,867 ) (33,960 ) Depreciation and amortization 69,161 84,751 136,397 165,198 Impairment charges 3,770 172,232 3,770 175,282 Total operating expenses 1,418,777 714,832
2,393,861 1,851,465
Operating loss (307,505 ) (251,918 ) (213,007 ) (198,154 ) Other (expense) income: Interest expense, net (83,836 ) (71,693 ) (152,187 ) (141,677 ) Loss on extinguishment of debt (28,628 ) - (28,628 ) - Other income, net 7,933 21,810 4,718 47,167 Loss before income taxes and equity losses of affiliates (412,036 ) (301,801 ) (389,104 ) (292,664 ) Provision for (benefit from) income taxes 60,918 (4,049 ) 66,003 44,555 Loss before equity losses of affiliates (472,954 ) (297,752 ) (455,107 ) (337,219 ) Equity losses of affiliates, net of tax (43,813 ) (198,013 ) (59,284 ) (209,807 ) Net loss (516,767 ) (495,765 ) (514,391 ) (547,026 ) Net loss attributable to non-controllinginterests (190,354 ) (29,211 ) (163,108 ) (25,516 ) Net loss attributable toEndeavor Operating Company, LLC prior to the reorganization transactions (6,816 ) (466,554 )
(31,686 ) (521,510 )
Net loss attributable to Endeavor Group Holdings, Inc.$ (319,597 ) $ -$ (319,597 ) $ - Revenue Revenue increased$648.4 million , or 140.1%, to$1,111.3 million for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . •Owned Sports Properties increased by$106.6 million , or 70.0%. The increase was primarily driven by an increase in media rights fees and event related revenue due to the increase in the number of events held at UFC and PBR.
• Events, Experiences & Rights increased by
increase was primarily attributable to the return of live events in 2021
and an increase in media rights fees primarily due to the return to a
full schedule of European soccer matches in 2021 and the impact of
COVID-19 on the 2019/2020 season, which resulted in matches for most
leagues rescheduled to the second half of 2020.
• Representation increased by
primarily driven by an increase in content deliveries at Endeavor Content
and the gradual recovery in client commissions and corporate spending on
marketing and experiential activations.
Revenue increased
• Owned Sports Properties increased by $157.9 million , or 41.1%. The
increase was primarily driven by an increase in media rights fees and
event related revenue due to the increase in the number of events held at
UFC.
• Events, Experiences & Rights increased by
increase was primarily attributable to an increase in media rights fees
primarily driven by the impact of COVID-19 on both the 2019/2020 and
2020/2021 soccer seasons in
most leagues in the first half of 2020, and an increased schedule of
matches in the second half of 2020 and first quarter of 2021, partially
offset by the cancellations, postponements and capacity restrictions of
live sport events and other in-person events in the first quarter 2021,
resulting from COVID-19.
• Representation increased by
primarily driven by the increase in content deliveries at Endeavor
Content and the gradual recovery in client commissions partially offset
by a decline in corporate spending on marketing and experiential
activations.
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Direct operating costs
Direct operating costs increased$398.3 million , or 230.7%, to$571.0 million for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . The increase was primarily attributable to an increase of approximately$218 million in media rights costs due to the increase in revenue described above, approximately$67 million of increased event costs related to the return of live events and approximately$60 million related to an increase in content deliveries at Endeavor Content. Direct operating costs increased$263.4 million , or 30.8%, to$1,117.3 million for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . The increase was primarily attributable to an increase of approximately$331 million in media rights costs due to the increase in revenue described above, and approximately$48 million related to an increase in content deliveries at Endeavor Content. These increases were partially offset by approximately$155 million of reduced event costs due to the reduction in revenue resulting from the postponement, cancellation and capacity restrictions of sports and live events due to COVID-19.
Selling, general and administrative expenses
Selling, general and administrative expenses increased$483.1 million , or 159.9%, to$785.1 million for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . The increase was principally due to increased equity-based compensation expense of$377.8 million , of which$251.9 million was due to modification of certain pre-IPO awards to remove certain forfeiture and discretionary call terms, higher cost of personnel and other operating expenses as the business recovers from the impact of COVID-19. Selling, general and administrative expenses increased$475.2 million , or 68.8%, to$1,166.2 million for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . The increase was principally due to increased equity-based compensation expense of$386.5 million , of which$251.9 million is due to modifications of certain pre-IPO awards to remove certain forfeiture and discretionary call terms, 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, 2021 and 2020, we recognized$10.2 million ,$29.9 million ,$16.8 million and$34.0 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.
Depreciation and amortization
Depreciation and amortization decreased$15.6 million , or 18.4%, to$69.2 million for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . Depreciation and amortization decreased$28.8 million , or 17.4%, to$136.4 million for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . The decreases were primarily driven by certain UFC intangible assets becoming fully amortized inAugust 2020 . Impairment charges Impairment charges decreased$168.5 million , or 97.8% to$3.8 million for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . Impairment charges decreased$171.5 million , or 97.8% to$3.8 million for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . For the three and six months endedJune 30, 2020 , the impairment charges were for goodwill and intangible assets primarily in our Events, Experiences & Rights and Representation segments, driven by lower projections as of result of the impact of COVID-19 and restructuring in certain of our businesses.
Interest expense, net
Interest expense, net increased$12.1 million to$83.8 million for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . Interest expense, net increased$10.5 million to$152.2 million for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . These increases were principally due to higher indebtedness during the periods offset by the repricing of the UFC Credit Facilities.
Loss on extinguishment of debt of
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Other income, net
Other income, net decreased$13.9 million , or 63.6% to$7.9 million for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . The income for the three months endedJune 30, 2021 primarily included a$6.1 million gain from a change in fair value of an equity investment. The income for the three months endedJune 30, 2020 primarily included an$11.0 million gain due to the change in the fair value of embedded foreign currency derivatives and$9.0 million related to foreign currency transaction gains. Other income, net decreased$42.5 million , or 90.0% to$4.7 million for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2020 . 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. The income for the six months endedJune 30, 2020 primarily included a$27.1 million gain recognized for the acquisition of the remaining 50% membership interests of FC Diez Media, a$8.1 million gain related to the deconsolidation of Asian Tour Media and a$13.2 million gain 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, 2021 , we recorded$60.9 million provision for income taxes compared to$4.0 million benefit from income taxes for the three months endedJune 30, 2020 . For the six months endedJune 30, 2021 , we recorded$66.0 million provision for income taxes compared to$44.6 million provision for income taxes for the six months endedJune 30, 2020 . The tax expense for the three and six months endedJune 30, 2021 differs from the same periods in 2020 primarily due to the impact of additional stock compensation expense on the annual effective tax rate, deferred tax liabilities associated with indefinite lived intangibles recorded as a result of the IPO, and a change in the tax rate in theUnited Kingdom .
Equity losses of affiliates, net of tax
Equity losses of affiliates decreased$154.2 million to$43.8 million and decreased$150.5 million to$59.3 million for the three and six months endedJune 30, 2021 , respectively, compared to the three and six months endedJune 30, 2020 . Equity losses for the three and six months endedJune 30, 2021 are primarily due to the losses related to our investment inLearfield IMG College . During the three and six months endedJune 30, 2020 we recorded$195.8 million and$207.5 million , respectively, in equity losses resulting from continued losses and the impact of COVID-19 onLearfield IMG College's operating results, resulting in goodwill and indefinite-lived intangible asset impairments.
Net loss attributable to non-controlling interests
Net loss attributable to non-controlling interests increased$161.1 million to$190.4 million for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . The increase was primarily driven by the effect of the reorganization transactions. Net loss attributable to non-controlling interests increased$137.6 million to$163.1 million for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . The increase was primarily driven by the effect of the reorganization transactions offset by net income attributable to the UFC prior to the UFC Buyout.
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. 39
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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) 2021 2020 2021 2020
Revenue:
Owned Sports Properties $ 258,865 $ 152,239 $ 542,346 $ 384,406
Events, Experiences & Rights 528,672 119,834 1,068,282 788,610
Representation 328,232 192,840 577,141 485,574
Eliminations (4,497 ) (1,999 ) (6,915 ) (5,279 )
Total Revenue $ 1,111,272 $ 462,914 Adjusted EBITDA: Owned Sports Properties$ 132,267 $ 65,502 $ 277,816 $ 167,796 Events, Experiences & Rights 36,800 (42,655 ) 75,850 26,468 Representation 61,685 52,036 123,168 120,649 Corporate (62,704 ) (29,046 )
(109,320 ) (83,538 )
The following table sets forth our
Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2021 2020 2021 2020
Revenue $ 258,865 $ 152,239 $ 542,346 $ 384,406
Direct operating costs $ 81,079 $ 48,558 $ 173,294 $ 139,017
Selling, general and administrative
expenses $ 44,389 $ 35,980 $ 92,102 $ 75,421
Adjusted EBITDA $ 132,267 $ 65,502 $ 277,816 $ 167,796
Adjusted EBITDA margin 51.1 % 43.0 % 51.2 % 43.7 %
Three months ended
Revenue for the three months endedJune 30, 2021 increased$106.6 million , or 70.0%, to$258.9 million , compared to the three months endedJune 30, 2020 . The increase was driven primarily by media rights fees and event related revenue due to the increase in the number of UFC and PBR events held and the increase in ticket sales due to the lifting of restrictions on fan attendance in the quarter. Direct operating costs for the three months endedJune 30, 2021 increased$32.5 million , or 67.0%, to$81.1 million , compared to the three months endedJune 30, 2020 . The increase was attributable to the increase in the number of UFC and PBR events held. Selling, general and administrative expenses for the three months endedJune 30, 2021 increased$8.4 million , or 23.4%, to$44.4 million , compared to the three months endedJune 30, 2020 . The increase was primarily attributable to cost of personnel, as well as travel expenses related to the increase in the number of UFC and PBR events held. Adjusted EBITDA for the three months endedJune 30, 2021 increased$66.8 million , or 101.9%, to$132.3 million , compared to the three months endedJune 30, 2020 . The increase in Adjusted EBITDA was primarily driven by increased revenue at UFC and PBR partially offset by the increase in direct operating costs and selling, general and administrative expenses.
Six months ended
Revenue for the six months endedJune 30, 2021 increased$157.9 million , or 41.1%, to$542.3 million , compared to the six months endedJune 30, 2020 . The increase was driven primarily by media rights fees and event related revenue due to an increase in the number of UFC events held. This increase was partially offset by the reduction of revenue at PBR primarily due to less events held and no ticket sales in the first quarter of 2021 due to COVID-19. Direct operating costs for the six months endedJune 30, 2021 increased$34.3 million , or 24.7%, to$173.3 million , compared to the six months endedJune 30, 2020 . The increase was attributable to the increase in the number of UFC events held partially offset by PBR cost savings initiatives and holding events at less expensive venues. Selling, general and administrative expenses for the six months endedJune 30, 2021 increased$16.7 million , or 22.1%, to$92.1 million , compared to the six months endedJune 30, 2020 . The increase was primarily attributable to cost of personnel as well as travel expenses related to the increase in the number of UFC events held, includingUFC's Fight Island 3.0. 40
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Adjusted EBITDA for the six months endedJune 30, 2021 increased$110.0 million , or 65.6%, to$277.8 million , compared to the six months endedJune 30, 2020 . The increase in Adjusted EBITDA was primarily driven by increased revenue at UFC partially offset by the increase 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,
(in thousands) 2021 2020 2021 2020
Revenue $ 528,672 $ 119,834 $ 1,068,282 $ 788,610
Direct operating costs $ 389,533 $ 93,254 $ 811,069 $ 606,998
Selling, general and administrative
expenses $ 112,803 $ 88,237 $ 213,074 $ 199,108
Adjusted EBITDA $ 36,800 $ (42,655 ) $ 75,850 $ 26,468
Adjusted EBITDA margin 7.0 % -35.6 % 7.1 % 3.4 %
Three months ended
Revenue for the three months endedJune 30, 2021 increased$408.8 million , or 341.2%, to$528.7 million , compared to the three months endedJune 30, 2020 . Media rights fees increased$265 million primarily due to the return to a full schedule of European soccer matches in 2021 and the impact of COVID-19 on the 2019/2020 season, which resulted in matches for most leagues rescheduled to the second half of 2020. Media production revenue increased$55 million due to the return to a full schedule of events in 2021 as compared to the impact of COVID-19 on event schedules in 2020, including coverage of theEnglish Premier League , which was partially rescheduled to the second half of 2020, and golf and tennis events which were cancelled. In addition, event and performance revenues increased$89 million attributable to events returning in 2021, including HSBC Women's World Championship, Honda LPGA, ANA Inspiration, Miami Open, Frieze NY and Miss Universe pageant that were cancelled in 2020 due to COVID-19, as well as the return ofIMG Academy summer camps at full capacity, which were cancelled or had attendance restrictions in 2020. Direct operating costs for the three months endedJune 30, 2021 increased$296.3 million , or 317.7%, to$389.5 million , compared to the three months endedJune 30, 2020 . Media rights expenses, media production expenses, live event and performance costs increased$218 million ,$38 million and$41 million , respectively, due to the increases in revenue as described above. Selling, general and administrative expenses for the three months endedJune 30, 2021 increased$24.6 million , or 27.8%, to$112.8 million , compared to the three months endedJune 30, 2020 . The increase was primarily driven by increased cost of personnel as the business recovers from the impact of COVID-19. Adjusted EBITDA for the three months endedJune 30, 2021 increased$79.5 million , or 186.3%, to$36.8 million , compared to the three months endedJune 30, 2020 . The increase in Adjusted EBITDA was primarily driven by the growth in revenue partially offset by the increase in related direct operating costs and selling, general and administrative expenses and a decrease in insurance recoveries related to cancelled events.
Six months ended
Revenue for the six months endedJune 30, 2021 increased$279.7 million , or 35.5%, to$1,068.3 million , compared to the six months endedJune 30, 2020 . Media rights fees increased$371 million primarily driven by the impact of COVID-19 on both the 2019/2020 and 2020/2021 soccer seasons inEurope , which resulted in reduced matches for most leagues in the first half of 2020, and an increased schedule of matches in the second half of 2020 and the first quarter of 2021. Media Production revenue increased$64 million due to the return to a largely full schedule of events in 2021 as compared to the impact of COVID-19 on event schedules in 2020, including coverage of theEnglish Premier League which was partially rescheduled to the second half of 2020, and golf and tennis events which were cancelled. Event and performance revenue decreased$155 million due primarily to attendance restrictions at the 2021Super Bowl , as well as the cancellation of certain events in 2021 due to COVID-19 that were held in the prior year, includingHyde Park Winter Wonderland, Frieze LA and Rio Open. This decrease was partially offset by certain events taking place in 2021 which were cancelled in 2020 due to COVID-19, including the Miami Open, HSBC Women's World Championship, Honda LPGA, ANA Inspiration, Frieze NY and Miss Universe pageant, as well as all summer camps taking place at theIMG Academy at full capacity in 2021 that were cancelled or had attendance restrictions in 2020. Direct operating costs for the six months endedJune 30, 2021 increased$204.1 million , or 33.6%, to$811.1 million , compared to the six months endedJune 30, 2020 . Media rights expenses and media production expenses increased$328 million and$47 million , respectively, partially offset by a reduction in live event and performance costs of$171 million due to the changes in revenue as described above. Selling, general and administrative expenses for the six months endedJune 30, 2021 increased$14.0 million , or 7.0%, to$213.1 million , compared to the six months endedJune 30, 2020 . The increase was primarily driven by increased cost of personnel as the business recovers from the impact of COVID-19. 41
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Adjusted EBITDA for the six months endedJune 30, 2021 increased$49.4 million , or 186.6%, to$75.9 million , compared to the six months endedJune 30, 2020 . The increase in Adjusted EBITDA was primarily driven by the increase in revenue partially offset by the increase in related direct operating costs and selling, general and administrative expenses and a decrease in insurance recoveries related to cancelled events.
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,
2021 2020 2021 2020
(in thousands)
Revenue $ 328,232 $ 192,840 $ 577,141 $ 485,574
Direct operating costs $ 104,842 $ 32,524 $ 139,901 $ 101,422
Selling, general and administrative
expenses $ 161,693 $ 108,603 $ 313,851 $ 263,829
Adjusted EBITDA $ 61,685 $ 52,036 $ 123,168 $ 120,649
Adjusted EBITDA margin 18.8 % 27.0 % 21.3 % 24.8 %
Three months ended
Revenue for the three months endedJune 30, 2021 increased$135.4 million , or 70.2%, to$328.2 million , compared to the three months endedJune 30, 2020 . The increase was primarily attributable to an increase in content deliveries at Endeavor Content and the gradual recovery in client commissions and corporate spending on marketing and experiential activations. Direct operating costs for the three months endedJune 30, 2021 increased$72.3 million , or 222.4%, to$104.8 million , compared to the three months endedJune 30, 2020 . The increase was primarily attributable to the above mentioned increase of content deliveries at Endeavor Content and marketing and experiential activations. Selling, general and administrative expenses for the three months endedJune 30, 2021 increased$53.1 million , or 48.9%, to$161.7 million , compared to the three months endedJune 30, 2020 . The increase was primarily driven by cost of personnel as the business recovers from the impact of COVID-19. Adjusted EBITDA for the three months endedJune 30, 2021 increased$9.6 million , or 18.5%, to$61.7 million , compared to the three months endedJune 30, 2020 . The increase in Adjusted EBITDA was driven by the growth in revenue partially offset by the increase in direct operating costs and selling, general and administrative expenses.
Six months ended
Revenue for the six months endedJune 30, 2021 increased$91.6 million , or 18.9%, to$577.1 million , compared to the six months endedJune 30, 2020 . The increase was primarily attributable to an increase in content deliveries at Endeavor Content and the gradual recovery in client commissions partially offset by a decline in corporate spending on marketing and experiential activations. Direct operating costs for the six months endedJune 30, 2021 increased$38.5 million , or 37.9%, to$139.9 million , compared to the six months endedJune 30, 2020 . The increase was primarily attributable to the above mentioned increase of content deliveries at Endeavor Content partially offset by the impact of COVID-19 on experiential activations. Selling, general and administrative expenses for the six months endedJune 30, 2021 increased$50.0 million , or 19.0%, to$313.9 million , compared to the six months endedJune 30, 2020 . The increase was primarily driven by growth cost of personnel as the business recovers from the impact of COVID-19. Adjusted EBITDA for the six months endedJune 30, 2021 increased$2.5 million , or 2.1%, to$123.2 million , compared to the six months endedJune 30, 2020 . The increase in Adjusted EBITDA was driven by the increase in revenue offset by the increase in direct operating costs and 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
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Three Months Ended June 30, Three Months Ended June 30,
2021 2020 2021 2020
(in thousands)
Adjusted EBITDA $ (62,704 ) $ (29,046 ) $ (109,320 ) $ (83,538 )
Adjusted EBITDA for the three months ended June 30, 2021 declined $33.7 million ,
or 115.9%, to $(62.7) million , compared to the three months ended June 30, 2020 .
The decline was driven by an increase in cost of personnel and other general and
administrative expenses.
Adjusted EBITDA for the six months ended June 30, 2021 declined $25.8 million ,
or 30.9%, to $(109.3) million , compared to the six months ended June 30, 2020 .
The decline was driven by an increase in cost of personnel and other general and
administrative expenses.
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, COVID-19 related expenses, and certain other items 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 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.
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Adjusted EBITDA
Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2021 2020 2021 2020
Net loss $ (516,767 ) $ (495,765 ) $ (514,391 ) $ (547,026 )
Provision for (benefit from) income
taxes 60,918 (4,049 ) 66,003 44,555
Interest expense, net 83,836 71,693 152,187 141,677
Depreciation and amortization 69,161 84,751 136,397 165,198
Equity-based compensation expense (l) 387,017 9,204 403,508 16,975
Merger, acquisition and earn-out costs
(2) 14,199 (859 ) 25,184 9,303
Certain legal costs (3) 574 3,357 4,526 6,159
Restructuring, severance and
impairment (4) 4,026 195,305 4,433 212,247
Fair value adjustment - Droga5 (5) - 473 - 473
Fair value adjustment - equity
investments (5) (5,905 ) 2,950 (13,704 ) 5,759
Equity method losses - Learfield IMG
College (6) 42,655 195,781 61,460 207,537
COVID-19 related costs (7) - 2,193 - 2,403
Other (8) 28,334 (19,610 ) 41,911 (43,595 )
Adjusted EBITDA $ 168,048 $ 45,424 $ 367,514 $ 221,665
Net loss margin (46.5 %) (107.1 %) (23.6 %) (33.1 %)
Adjusted EBITDA margin 15.1 % 9.8 % 16.9 % 13.4 %
Adjusted Net Income (Loss)
Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2021 2020 2021 2020
Net loss $ (516,767 ) $ (495,765 ) $ (514,391 ) $ (547,026 )
Net loss attributable to
non-controllinginterests 190,354 29,211 163,108 25,516
Net loss attributable to Endeavor
Operating Company, LLC prior to the
reorganization transactions 6,816 - 31,686 -
Net loss attributable to Endeavor Group
Holdings, Inc (319,597 ) - (319,597 ) -
Net loss attributable to Endeavor
Operating Company, LLC prior to the
reorganization transactions - (466,554 ) - (521,510 )
Amortization 46,649 63,494 92,377 123,458
Equity-based compensation expense (l) 387,017 9,204 403,508 16,975
Merger, acquisition and earn-out costs
(2) 14,199 (859 ) 25,184 9,303
Certain legal costs (3) 574 3,357 4,526 6,159
Restructuring, severance and impairment
(4) 4,026 195,305 4,433 212,247
Fair value adjustment - Droga5 - 473 - 473
Fair value adjustment - equity
investments (5) (5,905 ) 2,950 (13,704 ) 5,759
Equity method losses - Learfield IMG
College (6) 42,655 195,781 61,460 207,537
COVID-19 related costs (7) - 2,193 - 2,403
Other (8) 28,334 (19,610 ) 41,911 (43,595 )
Tax effects of adjustments (9) 77,550 (6,354 ) 71,231 (4,988 )
Valuation allowance and other tax items
(l0) 17,608 - 17,608 32,338
Adjustments allocated to non-controlling
interests (l1) (241,635 ) (16,328 ) (337,462 ) (39,693 )
Adjusted Net Income (Loss) $ 51,475 $ (36,948 ) $ 51,475 $ 6,866
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(1) Equity-based compensation represents primarily non-cash compensation expense
associated with our equity-based compensation plans.
The increase for the three and six months endedJune 30, 2021 as compared to the three and six months endedJune 30, 2020 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 the three and six months endedJune 30, 2021 and 2020.
(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 remain our employees.
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. Such costs for the three months endedJune 30, 2020 primarily related to acquisition earn-outadjustments of approximately$6 million , primarily related to our Events, Experiences & Rights and Representation segments. Professional advisor costs were approximately$5 million primarily related to our Events, Experiences & Rights segment. 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.
Such costs for the six months ended
(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 endedJune 30, 2021 primarily relates to the impairment of goodwill in our Representation and Events, Experiences & Rights segments. Such costs for the three months endedJune 30, 2020 included approximately$172 million related to the impairment of intangible assets and approximately$23 million for severance and restructuring expenses, in each case primarily related to COVID-19, and primarily related to our Representation and Events, Experiences & Rights segments. Such costs for the six months endedJune 30, 2020 included approximately$11 million related to the impairment of certain other assets and investments, approximately$175 million related to the impairment of intangible assets and approximately$26 million for severance and restructuring expenses, in each case primarily related to COVID-19, and primarily related to our Representation and Events, Experiences & Rights segments.
(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, including impairment charges, from our
investment in
business with Learfield in December 2018 .
(7) Includes COVID-19 related costs that are non-recurring and incremental costs
that would have otherwise not been incurred. Such adjustment for the three
months ended
deferred event costs, net of insurance recoveries, which is adjusted in our
Events, Experiences & Rights segment profitability measure. Such adjustment
for the six months ended June 30, 2020 does not include the write-off of
$10 million of deferred event costs, net of insurance recoveries, which isadjusted in our Events, Experiences & Rights segment profitability measure.
(8) For the three months ended
primarily of approximately
extinguishment, which related to Corporate, and a gain of approximately
currency derivatives, which related primarily to our Events, Experiences &
Rights segment.
For the three months endedJune 30, 2020 , other costs were comprised primarily of a gain of approximately$11 million related to non-cash fair value adjustments of embedded foreign currency derivatives, which related primarily to our Events, Experiences & Rights segment, and gains of approximately$9 million on foreign exchange transactions, which related to all of our segments and Corporate. 45
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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. For the six months endedJune 30, 2020 , other costs were comprised primarily of a gain of approximately$27 million related to the consolidation of a previously held equity interest in FC Diez Media, a gain of approximately$8 million associated with the deconsolidation ofAsian Tour Media Pte. Ltd. , a gain of approximately$13 million related to non-cash fair value adjustments of embedded foreign currency derivatives and an approximately$3 million increase related to purchase price adjustments to deferred revenue and ticket inventory at On Location, all of which related primarily to our Events, Experiences & Rights segment, and gains of approximately$1 million on foreign exchange transactions, which related to all of our segments and Corporate.
(9) Reflects the tax impacts with respect to each adjustment noted above by
applying the annual effective tax rate, as applicable.
(10) Such items for the three and six months ended
million of deferred tax liabilities associated with indefinite lived
intangibles recorded as a result of the IPO and tax expense of
related to a change in tax rate in the
six months ended
recorded as a result of acquisitions and subsequent tax restructurings.
(11) Reflects the share of the adjustments noted above that are allocated to our
non-controlling interests, net of tax.
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 been funded primarily through equity contributions from our pre-IPO institutional investors and the issuance of long-term debt.
Debt facilities
As ofJune 30, 2021 , we had an aggregate of$5.1 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 Credit Facilities, the "Senior Credit Facilities"). As ofJune 30, 2021 we had available borrowing capacity of approximately$370 million under the Senior Credit Facilities.
Credit Facilities
As ofJune 30, 2021 , 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 0.50%, (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 1.00%. 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 . OnMay 20, 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, 2021 , approximately 54% of our Term Loans is hedged. See Note 11, "Debt", to our unaudited consolidated financial statements included elsewhere in this Quarterly Report for further detail on the Credit Facilities. As ofJune 30, 2021 , 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
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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, 2021 , we had no borrowings outstanding under this revolving credit facility and outstanding letters of credit of$25.3 million . The revolving facility matures onMay 18, 2023 . 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, 2021 , as we had no borrowing outstanding under the revolving credit facility. InApril 2021 , we entered into an amendment to the credit agreement governing the Credit Facilities to, among other things, waive the financial covenant for the test periods endingJune 30, 2021 ,September 30, 2021 andDecember 31, 2021 . In addition, following the successful completion of our initial public offering inApril 2021 , the maturity date of the revolving facility was extended toMay 18, 2024 .
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, 2021 , we have borrowed an aggregate of$2.3 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 0.50%, (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% principal amortization payable in equal quarterly installments and mature onApril 29, 2026 . See Note 11, "Debt," to our unaudited consolidated financial statements included elsewhere in this Quarterly Report for further detail on the UFC Credit Facilities. As ofJune 30, 2021 , 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. The UFC Credit Facilities also include a revolving credit facility, which had$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 Leverage Ratio. 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, 2021 , 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, 2021 , as we had no borrowings outstanding under this revolving credit facility. 47
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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, 2021 , we had certain other revolving line of credit facilities and long-term debt liabilities, primarily related to Endeavor Content and On Location, with total committed amounts of$400.7 million , of which$239.1 million was outstanding and$33.9 million was available for borrowing based on the supporting asset base. Such facilities have maturity dates in 2023 and 2025, bearing interest at rates ranging from 1.75% to 2.75%. Other debt includes our Endeavor Content facility (the "Endeavor Content Facility," which is an asset-based facility ("ABL") used to fund television and film production). As ofJune 30, 2021 , our Endeavor Content Facility had total capacity of$325.0 million , and we had$209.6 million borrowed. Our ability to borrow under the facility depends on there being sufficient borrowing base capacity, which in turn depends on the number and size of productions we are engaged in and the value of future receipts for the productions. The amounts borrowed under the facility will increase if we enter into additional productions, or decrease if we reduce our production activity. The Endeavor Content Facility matures onMarch 31, 2025 . InJuly 2021 , the capacity under the Endeavor Content Facility was increased from$325.0 million to$430.0 million . Other debt also includes our On Location revolving credit agreement, which has$20.0 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, 2021 , we had no borrowings outstanding under the OL Credit Facility and no letters of credit outstanding. The OL Credit Facility matures onFebruary 27, 2025 . In August, On Location increased its borrowing capacity under its revolving credit agreement from$20.0 million to$42.9 million .
Both the Endeavor Content Facility and the OL Credit Facility contain 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) 2021 2020
Net loss, adjusted for non-cash items $ 275,246 $ 52,768
Changes in working capital 103,837 266,656
Changes in non-current assets and liabilities (501,282 )
(117,519 )
Net cash (used in) provided by operating activities
$ 201,905 Net cash used in investing activities$ (372,565 ) $ (290,681 ) Net cash provided by financing activities$ 397,498
Operating activities changed from$201.9 million of cash provided in the six months endedJune 30, 2020 to$122.2 million of cash used in the six months endedJune 30, 2021 . 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. Cash provided in the six months endedJune 30, 2020 primarily represents a decrease in accounts receivable and deferred costs of$247.1 million and$104.2 million due to the adverse impact from COVID-19 resulting in changes to the timing of collections and payments from modified event and media rights schedules.
Investing activities changed from
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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 . Cash used in the six months endedJune 30, 2020 primarily reflects payments for acquisitions of businesses, primarily On Location, of$309.8 million , capital expenditures of$40.8 million and investments in non-controlled affiliates of$21.1 million . Financing activities changed from$550.7 million of cash provided in the six months endedJune 30, 2020 to$397.5 million of cash provided in the six months endedJune 30, 2021 . Cash provided in the six months endedJune 30, 2021 primarily reflects proceeds from equity offering, net of underwriting discounts, primarily from the IPO and private placements, 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 . Cash provided in the six months endedJune 30, 2020 primarily reflects net proceeds from debt of$644.6 million partially offset by distributions of$69.6 million primarily made by UFC.
Future sources and uses of liquidity
Our sources of liquidity are (1) cash on hand, which includes proceeds received from our initial public offering and the private placements completed inMay 2021 , (2) cash flows from operations, and (3) available borrowings under our Senior Credit Facilities (which borrowings would be subject to certain restrictive covenants contained therein). 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. However, the ongoing COVID-19 pandemic has had and continues to have a significant impact on cash flows from operations. We expect that the impact of COVID-19 on revenue and cash flows will vary, but will generally depend on the duration of the pandemic, the extent and effectiveness of mass vaccinations, emerging variants of the virus, additional actions that may be taken by governmental authorities, changes in consumer preferences towards our business and the industries in which we operate and additional postponements or cancellation of live sporting events and other in person events. Our cash and cash equivalents consist primarily of cash on deposit with banks and liquid investments in money market funds. As ofJune 30, 2021 , cash and cash equivalents totaled$869.8 million , including cash held at non-wholly owned consolidated subsidiaries where cash distributions may be subject to restriction under applicable operating agreements or debt agreements and, due to such restrictions, may not be readily available to service obligations outside of those subsidiaries. These balances, which primarily consist of Endeavor China and On Location were$75 million as ofJune 30, 2021 . 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 and settle acquisition earn-outs 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 agreement, (7) pay income taxes, (8) repurchase employee equity (9) make distributions to members and stockholders and (10) reduce our outstanding indebtedness under our Senior Credit Facilities. 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, including as a result of COVID-19.
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 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 Profit Units. 49
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Tax Receivable Agreement
Generally, we are required under the tax receivable agreement to make payments to the TRA Holders that are generally equal to 85% of the applicable cash tax savings, if any, inU.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 agreement. We will generally be entitled to retain the remaining 15% of these cash tax savings. Payments will be due only after we have filed ourU.S. federal and state income tax returns. The first payment would be due after the filing of our tax return for the year endingDecember 31, 2021 , which is dueApril 15, 2022 , but the due date can be extended untilOctober 15, 2022 . Payments under the tax receivable agreement 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. Under the tax receivable agreement, 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 agreement, 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 agreement. If the payments under the tax receivable agreement 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 agreement 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 the Prospectus. During the six months endedJune 30, 2021 , 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.
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.
Off-Balance Sheet Arrangements
We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage in any activities that expose us to any liability that is not reflected in our unaudited consolidated financial statements except for those described under "Contractual Obligations, Commitments and Contingencies" below.
Contractual Obligations, Commitments and Contingencies
As described in Note 19 to our unaudited consolidated financial statements, during 2021, we entered into new arrangements increasing our purchase/guarantee agreements by$1.3 billion , which will be due in 2021 through 2028. There have been no other material changes to our contractual obligations disclosed in the Prospectus.
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