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Wanda: Coronavirus may cause ‘material adverse impact’ on sports unit

Wanda Sports Group, the sports unit of Chinese conglomerate Dalian Wanda, has warned of the potential for a “material adverse impact” on its business because of the ongoing spread of the coronavirus.

The coronavirus epidemic, which originated in China and has now infected 100,000 people globally, threatens to have a particularly damaging impact on WSG’s mass participation events, given there are public bans of large gatherings of people in some countries.

Wanda’s sports arm has cancelled or postponed mass participation events in China, Taiwan and the Philippines and, “based on the current trajectory of the spread of the coronavirus”, has warned that it expects to have to cancel more races.

In a filing lodged today with the Securities and Exchange Commission, the US stock exchange regulator, WSG said: “We note that the spread of the coronavirus is a rapidly evolving public health emergency with global implications and at present we, as is common across industries and geographies, recognise that we could be adversely affected by a range of factors and developments, largely beyond our control, and we are unable to predict outcomes even on a short-term basis.”

The filing added: “The novel coronavirus could have a material adverse impact on our business, results of operations, financial condition, cash flows or liquidity.”

WSG referenced Switzerland’s ban on gatherings of over 1,000 people until at least March 15 and France’s suspension of indoor public gatherings of over 5,000 people. Italy’s behind closed doors policy for all sports events (until April 3), the delay to the football season in China and doubts over the Tokyo 2020 Olympics were also cited.

WSG noted: “We expect that the foregoing developments could adversely affect our Mass Participation as well as our Spectator Sports and DPSS segments, and that adverse effect could be material.”

WSG, which houses the Infront agency and the Ironman business, divides revenues into three core segments, namely Mass Participation, Spectator Sports and Digital, Production and Sports Solutions (DPSS).

Reporting a third-quarter loss of €31.2m ($34.7m) in November, largely due to costs related to its initial public offering (IPO) on the Nasdaq stock exchange, WSG highlights year-on-year revenue uplifts in its Mass Participation and Spectator Sports segments.

In the three months ending September 30, the Mass Participation sector delivered €113.4m in revenues, or 46 per cent of overall revenues. This represented a 14-per-cent rise on the segment revenue reported 12 months ago thanks to the increased number of events and race participants. Third-quarter gross profit at the Mass Participation segment was €43.6m, a 15-per-cent year-on-year increase attributed chiefly to the larger number of events.

However, WSG today outlined the raft of challenges facing its mass participation business because of the global scale of the coronavirus crisis.

The filing read: “Our mass participation sports events that are not cancelled or postponed may experience reduced rates of athlete and fan attendance due to reduced interest (out of fear of being infected or quarantined, or in anticipation of cancelations or postponements) or ability to attend (due to travel bans, flight cancellations, quarantines or other travel interruptions).

“To date, we have seen in the first quarter of 2020 registrations for our mass participations sports events in China and the surrounding region decline. If the spread of the coronavirus continues, we expect we will see registrations for our mass participation sports events drop further in the second quarter of 2020, which could have a material adverse effect on results of operations in our Mass Participation segment.”

Impact on contract negotiations

Restrictions on travel to and attendance at large public gatherings will also disrupt the Spectator Sports and DPSS operations, WSG said, with a decrease in revenues expected from sports events organised or commercialised by Wanda Sports or its constituent parts.

WSG continued: “Moreover, as we are regularly engaged in negotiations with rights-in partners, rights-out clients, digital media partners, broadcasters, sponsors and other stakeholders, our ability to engage in these negotiations (for new contracts, to extend existing contracts or for acquisitions) may be adversely affected by any of the foregoing as well as the more practical impediments to scheduling and holding meetings, including restrictions on travel, office closures, business continuity concerns, and other distractions or disruptions…

“…we may also be compelled to accept contract terms that are less favourable to us than those we currently enjoy. Less favourable or unsuccessful contract negotiations could have short-, medium- or longer-term revenue implications for us.”

The filing concluded by stating that WSG is unable to predict the duration and severity of the spread of coronavirus, and responses thereto, on its results of operations, cash flow and liquidity.

WSG concluded: “While we expect we will suffer adverse effects, the more severe the outbreak and the longer it lasts, the more likely it is that the effects on us and our business will be materially adverse.”

It recently emerged that Wanda could entertain bids for its Ironman business, with Bloomberg reporting that the Chinese company has held meetings with private-equity buyers to discuss a $1bn sale. WSG bought Ironman in 2015 from Providence Equity Partners for a $650m, plus the assumption of debt.