Credit ratings agency S&P Global this week downgraded Endeavor, owner of the IMG sports marketing agency and the Ultimate Fighting Championship, from “highly speculative” to “substantial risk”.
S&P said it made the change because of Endeavor’s reliance on events and live entertainment, the uncertain outlook in those sectors, and the company’s large debts.
S&P said: “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.”
Last month, Endeavor announced 250 layoffs as part of cost-cutting to address the Covid-19 crisis, and said more job losses were to come. Yahoo reported the company has also made company-wide pay reductions of up to 30 per cent.
Last year, the company pulled a planned IPO after facing headwinds regarding the offering and its company financials. Among the hurdles to the listing were $4.6bn in long-term debt, and overall liabilities of $7.2bn, revealed by the IPO documents.
The company took on large amounts of debt in order to acquire IMG, for $2.3bn, in 2013, and the UFC, paying $4bn, in 2016.
As well as IMG and the UFC, Endeavor’s assets include the WME talent agency, Professional Bull Riders, and the Miss Universe Organization.
Yahoo reported that, in their report on Endeavor’s downgrading, S&P analysts said: “A sizeable portion of Endeavor’s revenue is event- and live entertainment-based or otherwise sensitive to the health of the leisure and entertainment economy, which is currently disproportionately hurt by restrictions on public gatherings…
“The negative outlook on Endeavor reflects a high level of uncertainty surrounding event- and entertainment-based revenue streams due to the spread of the coronavirus, resulting in significantly heightened financial risk over at least the next several quarters…
“Even when production restarts, which we currently assume would be in the next few months, it might not be sufficient to offset the impact from cancelled or postponed events. In addition, the recessions currently underway in the U.S. and Europe are likely to put additional pressure on Endeavor’s revenue model, which partly relies on corporate sponsorships, advertising spending, and consumption.”