New player: Tinseltown power broker goes global
There’s a new player in town as Endeavor’s Ari Emanuel moves from Tinseltown power broker to global mogul with deal after deal
Ari Emanuel is tired. He is preceded by a reputation as the archetype of the motormouth Hollywood agent, with a mobile phone clamped to his head as he energetically flatters, cajoles and consoles his way to the next big deal. Not this evening. He had three hours’ sleep on the flight to London last night. Emanuel then spent the day pressing flesh as part of an ambitious campaign to parlay his power-broker status in Tinseltown into bona fide global moguldom. Now, aboard his jet as it is prepared for the return to Los Angeles, he is tired. It has been a good day, though. Emanuel, who oversees his empire as joint chief executive of Endeavor, came to Britain to cast his eye over one of its recent acquisitions, the Frieze London art fair in Regent’s Park.
Endeavor also received a boost in its pursuit of the television production giant Endemol Shine, as ITV, a potential rival, ruled itself out of the £2bn auction. Despite his weariness, Emanuel remains an expert in artifice.
“I guess ITV just pulled out, right?” he deadpans as if he does not well know that Endeavor is now in a battle with Banijay, a French production company. “I hear that there’s other people potentially involved, I have no idea.”
Frieze London and the bid for Endemol Shine show how the 57-yearold and his partners are expanding Endeavor far beyond the traditional bounds of a Hollywood talent agency.
Its list of star clients is impressive. Hollywood A-listers Matt Damon, Charlize Theron, Idris Elba and Emma Stone have the company’s army of agents on call. In music they represent Adele, the Arctic Monkeys and Rihanna. Endeavor’s sporting roster includes Lewis Hamilton and Serena Williams. Kate Moss and Cara Delevingne are on the books of its modelling agency.
However, Emanuel and joint chief executive Patrick Whitesell have bigger ambitions still. They have raised billions of dollars to bolt on a vast array of related businesses in recent years.
Endeavor produces coverage of the Premier League and Wimbledon, owns the Ultimate Fighting Championship and Miss Universe, funds productions such as The Night Manager and La La
Land and is building its own streaming services to deal direct with consumers. As well as Frieze London it owns events including Winter Wonderland in Hyde Park and at New York Fashion Week. It has marketing agencies, a Chinese joint venture and Professional Bull Riders, a televised rodeo competition. It goes on.
Emanuel and Whitesell began empire-building by merging their talent agency, also called Endeavor, with rival William Morris in 2009 to create WME. In 2013 they expanded into sport, fashion and events by buying IMG for $2.2bn (£1.7bn) to create WME|IMG. The deals have not stopped and as the whole enterprise threatened to dissolve into an alphabet soup, last year the holding company was renamed Endeavor.
“We looked at the business and realised, long ago, I’d say almost 23 years ago, that three of the pillars that have made the business were being commoditised,” says Emanuel, who was raised in an affluent suburb of Chicago, where his brother is mayor.
Endeavor saw that the old order of the entertainment industry would be torn down. Studios, broadcasters and publishers would lose their stranglehold on distribution as the internet radically lowered the barrier to entry for new outlets. The rise of digital advertising would mean relationships with brands and sponsors would be disrupted. Crucially, Emanuel and Whitesell saw that Hollywood’s monopoly on money to fund production, distribution and marketing would come to an end as a result of more mobile and adventurous financial markets. For agents, there were threats and also new opportunities.
Scale would be vital. Film studios and television broadcasters merged. Nbcuniversal and Time Warner have since become part of even bigger beasts of the telecoms industry, Comcast and AT&T, as they seek to respond to the vast distributive power of Facebook, Amazon, Apple, Netflix and Google. Emanuel sees a more complex world where representing stars and rights holders and taking 10pc of their fee is not enough. Faced with giants, Endeavor is designed to provide alternative ways to cash in around the world. The company is assembling a network of assets. The financial model relies on connections between them enabling Endeavor to take multiple cuts of the income from a film, for example. It might part-fund the production, and represent one of the lead actors, then introduce brands for product placement and help distribute the on-television rights once its cinema run has ended. The theory is comparable to that of a major advertising group such as WPP.
“Absolutely,” says Emanuel. “When you’re talking to Visa, who are a client, they need help navigating FIFA, or the Olympics, or the NFL. But also, they want to create experiences for their people, and they want a different way to differentiate themselves.
“You can’t get that at a WPP. Actually, you can’t get that at a Google either, right? And you can’t get that at Disney.
“The kind of harmony between each division, which has taken a lot of years to do, is now functioning.”
The takeover of IMG was the big move. IMG’S billionaire controlling shareholder Teddy Forstmann died of brain cancer in 2011, prompting an auction of the business. Emanuel cooked up a deal with Egon Durban, a venture capitalist at the Silicon Valley firm Silver Lake, over lunch. Silver Lake would put up cash to buy IMG and take a 51pc stake in the combined business, which would borrow more than $2.4bn to complete the purchase. Despite being reduced to minority shareholders, Emanuel and Whitesell would retain corporate control under a 10-year deal.
“Patrick’s my friend, Teddy Forstmann got sick, and Egon and I would, on occasion have lunch, or talk on the phone,” Emanuel recalls.
“So, we had lunch and he gave me his thesis which lined up with ours, and he said we should go after IMG.”
As soon as IMG was secured, Endeavor set about further expansion. The deal had left it still heavily skewed towards the talent and rights representation businesses it knew best. The trio of Emanuel, Whitesell and Durban wanted half its income to come from ownership of rights, events and productions.
Ioris Francini is in the vanguard of that shift. As London-based copresident, the Italian is a rising star in the Endeavor firmament and tasked with spotting opportunities outside the bubble of Hollywood in sport, production and distribution. He is working on a new part of the empire to be separately established, focused on streaming services that deal directly with consumers. Still in the planning stages, the venture will be called either Endeavor X or Endeavor Digital.
The parent company will be a major shareholder, but Endeavor X aims to raise money from new investors seeking exposure to the growth of streaming and the economics of subscriptions. It will wrap up assets such as the UFC streaming service Fight Pass, Italian football subscription Serie A Pass, a joint venture with Harvard Business School in online masters courses and podcasts.
“If you look at Netflix the investments are based on the amount of subscribers you generate at scale as
‘If you don’t have a conflict you don’t have a business. Everybody manages through conflict. That’s the nature of your life’
opposed to earnings,” says Francini. “There’s scarcity for investors so it’s very appealing. We identify territories and markets where the incumbent broadcasters have perhaps been a bit slow. The attractions are pretty high.”
Such quasi-independent financing was key to Endeavor’s biggest deal to date, its $4bn takeover of UFC in 2016. It was again fuelled by private equity and debt, but the borrowing was kept off Endeavor’s own balance sheet and within UFC. Investors snapped up the high-interest bonds that were issued to load the mixed martial arts competition with debts of more than six times its earnings. The scale of the debt burden placed on UFC earned Goldman Sachs, which ran the bond sale, a rebuke from the Federal Reserve. Emanuel is unrepentant. “I’ve never had a problem raising money,” he says. Investors seem keen on Endeavor’s grand plans. In 2016 parent company took $250m from Softbank, Masayoshi Son’s acquisitive Japanese telecoms giant, and $1.1bn last year from the Canada Pension Plan Investment Board and Singapore’s sovereign wealth fund. The maths of the UFC deal mean Endeavor must exploit the sport as never before. In the US it sealed a $1.5bn five-year rights deal with ESPN, Disney’s sports broadcaster. In Britain the rights have been lost by BT and acquired by Eleven Sports, in which Endeavor itself is a shareholder.
The sale last month fuelled concerns across the entertainment industry that Endeavor’s expansion creates potential conflicts of interest. It was both the owner of the rights and the part owner of the buyer. In Hollywood, the powerful Writers Guild is resisting the involvement of agents in production, effectively arguing its members cannot trust that their interests are protected if their representatives are also buying their work.
Endeavor is trying to design a structure to allay such concerns.
“We address these kind of complexities and potential conflicts by having an arm’s-length approach, almost church and state, in the different businesses in which we’re involved,” says Francini. “The UFC is not the same shareholder and credit group as the agencies so we say for sure we have a stake in this channel but we will give you, as a client, every single option to decide on. The decision is based on whatever the management team in UFC for example thinks is best.” Emanuel is less conciliatory.
“Here’s what I would say about conflict,” he says. “If you don’t have a conflict you don’t have a business. Everybody manages through conflict. That’s the nature of your life.
“I own the UFC. We’re sitting in a situation with Eleven Sports, in London. Guess what? They managed through lawyers and et cetera, and then made a decision and negotiated together. Everybody’s gotta try and do the best deal. And it’s simple, you don’t want to do the deal, you don’t do the deal.
“Oh your agent’s going to be your producer? Shut the f--- up. The law that they are talking about [the Writers Guild] I think is from the middle of the Fifties. Really? Is this the conversation I’m having in 2018? Somebody needs to get a cup of coffee.”
The speed and financial demands of Endeavor’s expansion have drawn speculation that Emanuel and Whitesell will be forced to float the company on Wall Street to pay back investors sooner rather than later. Wideawake now, Emanuel is having none of it. “I can stay private… we don’t have to do anything. We can just keep on operating the business, which is growing at an incredible rate, financially.
So it’s all good.”
Ari Emanuel (right) and Ioris Francini are building a network