Endeavor’s financial problems seem to be getting worse.
On Monday, S&P Global Ratings reduced Endeavor’s credit rating over due to concerns stemming from the organization’s high-borrowing strategy and event cancelations as a result of a global pandemic.
“Based on data and news reported since, we now see the impact on U.S. GDP will be far more severe than we once thought, with the contraction showing up in the first-quarter figure and worsening substantially in the April-to-June period,” S&P said (h/t Forbes).
“Federal guidelines in the U.S. for social distancing will remain in place at least until April 30, extending the possibility for a prolonged downturn for event- and entertainment-based businesses.
Endeavor — a company that includes subsidiaries such talent agency WME IMG, On Location Experiences, Miss Universe Pageant, Professional Bull Riders, and the Ultimate Fighting Championship (UFC) — is saddled with a 4.6 billion debt burden owed to Silver Lake Partners and other private equity investors over the purchase of the UFC in 2016. Unable to proceed with their live events schedule due to the COVID-19 global pandemic, the organization is now struggling with its high debt load and limited revenue sources. As a result, Endeavor laid off 250 people across the company last month, including “support staff at businesses including talent agency WME.”
It should be noted that S&P Global’s latest report comes three days removed from the cancelation of UFC 249 and the indefinite suspension of UFC events for the foreseeable future. The UFC, which is one of the most profitable additions to the company’s portfolio, was viewed as Endeavor’s saving grace due it is high profit margin.
The UFC reaped a reported $900 million in revenue in 2019 (only 16% of which was paid out to fighters). However, given that the promotion is unable to proceed with live events for the foreseeable future, Endeavor has lost yet another important source of revenue at a crucial time.
“We believe the level of financial risk could motivate the company to seek a distressed debt restructuring if coronavirus containment does not occur by midyear so that revenue can begin to recover,” S&P Global added.