Endeavor’s IPO Is Ari Emanuel’s Next Step Toward Media Mogul

(Bloomberg Businessweek) -- Update: After this story published, Endeavor Group Holdings Inc. pulled its U.S. initial public offering after downsizing the listing, according to a statement issued Thursday after the markets closed, Bloomberg News reports. “Its bankers and executives had been monitoring the rocky performance of Peloton Interactive Inc. throughout the day and felt that market conditions were too uncertain,” people familiar with the matter told Bloomberg. The company said it will evaluate the timing of the proposed IPO as market conditions develop.

Ari Emanuel has sold just about everything in his 30 years as a Hollywood talent agent. He’s represented writers, directors, actors, producers, sports leagues, and Fortune 500 companies. Emanuel struck the deal for Aaron Sorkin’s follow-up to The West Wing and Seth MacFarlane’s directorial debut, Ted. He even sold NBC on a reality show centered on a real estate mogul named Donald Trump. Come Friday, Emanuel will make his toughest sales pitch ever.

Endeavor, the company Emanuel co-founded in 1995 and has run since then, will list shares on the New York Stock Exchange. The listing will mark the first time in four decades that a talent agency goes public. Endeavor aims to raise $405 million (down from a prior plan of raising up to $619 million), according to an amended filing. Talent representation is not and has never been the ideal foundation for a public company. While highly profitable, it’s a low-growth, volatile business easily upended by the whims of individual artists. As one former top agent told Bloomberg, “What do you do when Steven Spielberg says, ‘I want to take two years off?’ Go explain that to an analyst.”

Five months ago, thousands of screenwriters fired their agents, because of a dispute over how much agencies receive for packaging different clients into projects. Agents have long collected fees for building a potential TV show around writers, directors, and actors they represent, fees they accrue on top of—or instead of—their share of clients’ earnings from the project. These so-called packaging fees are one of the most profitable businesses for a talent agency. The writers, incensed by what they say is agencies’ growing share of their earnings, have decided to strike back.

Most agents have hoped this fight would be over by now. Instead, the Writers’ Guild of America in September reelected David Goodman as president—he has been leading the fight against the agencies. Endeavor could be without any writers for months, if not years to come. That deprives them of millions in potential earnings, and could inspire other clients (say, actors) to do the same.

“I can’t wait for the stock price to move based on client signings,” says Keyvan Peymani, a former agent at ICM who’s now an analyst at Salem Partners, a Los Angeles-based investment firm. “I can’t think of another company where a major asset can wake up one morning and decide, ‘I’m no longer in business with you.’”

Emanuel is the most famous talent agent in town, thanks to his lineage: He’s the brother of former Chicago Mayor Rahm Emanuel and esteemed doctor Ezekiel Emanuel. He was also the inspiration for Ari Gold, the foul-mouthed agent on HBO’s Entourage (produced by Mark Wahlberg, an Emanuel client). Navigating Wall Street would put Emanuel in a category of one. But now he has to convince investors he’s more than just an agent. Since raising money from Silver Lake Partners in 2012, Emanuel has transformed his 24-year-old firm into a media company spanning sports, fashion, and entertainment. Endeavor has acquired more than 20 companies, including a competitive bull riding league and Ultimate Fighting Championship, a mixed martial arts company. The company tentacles extend beyond film, TV, and sports into cooking, music, book publishing, and public speaking.

“There’s no company like us,” Emanuel says toward the end of a glossy 30-minute video, part of his sales pitch to potential investors. It made the rounds online last week.

Every company, public or private, wants to prove that it’s unique and valuable. With Endeavor, the claim is true. No other talent agency owns a sports league. No other sports league owns a modeling agency. And no other events promoter represents director Michael Bay, tennis star Maria Sharapova, and model Chrissy Teigen. “All of this allows us to be at the center of the cultural conversation,” Mark Shapiro, Endeavor’s president, says in the video.

The company swears its assets will continue to complement one another. Endeavor has identified a few test cases in a filing. There’s Dwayne Johnson, better known to some as the Rock. William Morris Endeavor, the company’s talent agency, represents Johnson as an actor, collecting fees for his participation in more than 30 films, including Fate of the Furious and Jumanji. The company helped Johnson create a fitness and lifestyle convention called “Rock Games,” a production company called Seven Bucks, and a YouTube channel.

Whether investors will share Emanuel’s optimism is unclear. “Many industry observers are skeptical of these synergies, and also point out the evident conflicts of interest between the representation business and everything else,” analyst Todd Juenger wrote in a July note titled “Endeavor IPO, Not for the Faint of Heart.” How does representing chefs boost the company’s events business? Does staging UFC fights lead to the development of new streaming programs?

Endeavor declined to comment for this article because companies are prohibited under securities law from publicizing themselves between filing for an initial public offering and the listing of shares in the company. Some investors would prefer that Endeavor use any money raised to pay down its $4.5 billion in debt. But Emanuel plans to use most of it to invest in TV production, international expansion, and live sports—and continue his shopping spree, according to people familiar with his plans who requested anonymity because of the quiet period.

Even Emanuel’s staunchest critics are rooting for him. Rivals Creative Artists Agency and United Talent Agency have both raised outside capital and would love to follow Emanuel to Wall Street, say sources familiar with those agencies’ interests who requested anonymity because of the quiet period. They are also reluctant to doubt him. Ten years ago, he pulled off one of the greatest coups in modern Hollywood. He convinced William Morris, a century-old shop whose operations spanned film, TV, music, and book publishing, to merge with his agency, Endeavor, which was less than half William Morris’s size. He also convinced a board of the entertainment industry’s top dealmakers that he should run the show. The union, which was announced in April 2009, established Emanuel as one of Hollywood’s biggest power brokers. It also taught his rivals a lesson: Never bet against Ari.

To contact the editor responsible for this story: Dimitra Kessenides at dkessenides1@bloomberg.net

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