As Endeavor grew from a small startup into a worldwide entertainment conglomerate, it cultivated a reputation for unlimited ambition and ruthless competition.
So when the company withdrew its public offer on Thursday, just hours before it would start trading on the New York Stock Exchange, it was more than a temporary setback. Not only did Endeavor lose several hundred million dollars in fresh capital – it also lost its air of invulnerability in brash.
CEO Ari Emanuel found himself bloody in the unknown arena on Wall Street.
"Pretty sure they're bouncing champagne bottles on Avenue of the Stars," said a studio executive, referring to CAA headquarters. "I mean I feel bad for the people working at WME, but there are a lot of people who wanted to see this blast in Ari's face."
The first priority is to strengthen morale. At WME, many agents have been compensated in equity units, which they have not been able to liquidate. Some have been encouraged to take equity instead of larger cash bonuses. The stock exchange listing would have triggered a one-year bond period, after which agents had been free to sell their shares. Now it has been thrown into the air, and there is no telling when agents will be able to pay out.
There have been fears that agents may go.
"For agents to start leaving," speculated an agent at a competing firm.
Leaving the company is not so easy ̵[ads1]1; many clients may prove to be more loyal to the agency than to the agents. And industry sources speculate that WME will move to compensate those who took stock rather than cash to avoid defections. It is also possible that the company can arrange a liquidity event through private equity partners.
"They're not stupid," said a senior CAA agent in WME management. – People will wait a bit and see how (compensation plans) are communicated. But we got some calls. "
Another concern is how this fits into the six-month standoff with the Writers Guild of America. The union is seeking to prevent agencies from charging TV packaging fees, prompting more than 7,000 writers to fire their agents in April. The fight, along with the public scrutiny of Endeavor's economy as part of the IPO process, has been demoralizing for many agents.
The Guild has struggled to undermine Endeavor's public listing, claiming victory on Thursday and issuing a statement saying IPO investors were scared of the agency's conflicts of interest. The fight continues to be fought in federal court, with no apparent resolution on the horizon.
Representatives for Endeavor and WME declined to comment Friday. On Thursday, after withdrawing the IPO, Endeavor said in a statement that it would "evaluate the timing of the proposed offer as market conditions develop." Analysts have pointed to several other problematic IPOs, such as WeWork and Peloton, as a sign that the market is cooling against public offerings to companies with no strong revenue at the moment.
Investors' demand for the Endeavor stock was overwhelming, and Emanuel and the company's advisers feared it would trade well below what they think the company is worth. Emanuel was in line for a $ 25 million bonus if the market price exceeded $ 7.5 billion, but the IPO put it a billion below that threshold. As devastating as the decision to pull the IPO was for morale, it would have been worse had the stock gone public and shot out.
The rejection from Wall Street could dampen some of the company's growth plans in the short term. The company had hoped to raise $ 546.8 million in fresh equity, of which about $ 500 million would have been used to pay down debt. Faced with soft demand, Endeavor cut its price range Thursday morning from $ 30- $ 32 per share to $ 26- $ 27 per share. This would have meant that the offer would have raised $ 361.6 million.
Failure to raise this amount, modestly by Wall Street standards, also represents a black eye for Goldman Sachs, who headed the insurance company.
Emanuel had set up his company as a unique platform for talent. But investors saw a company with various holdings – including WME, UFC, Professional Bull Riders and the Miss Universe event – that made it difficult to value, along with a significant debt load and recent operating losses.
The last straw appeared to be the performance of the IPO for Peloton, a manufacturer of exercise bikes. Peloton shares had a rough opening day for trading on Thursday, falling 11% below the offer price.
The response within WME to Endeavor's plan for IPO is significant because the agency is a key profit center for the company that has grown rapidly through acquisitions over the past five years. The agency has long been strengthened by a core group of senior agents who have been loyal to Emanuel and the agency. Despite the disappointment of the stock market listing, these ties and faith in Emanuel's leadership have only been strengthened, according to several sources close to the situation.
"We're going to redo our business, and this business will go well," a WME insider claimed.
Justin Kroll contributed to this report.