Learfield, the dominant deal-maker in college sports, had more than $1.8 billion in losses in the three years between 2019 and 2021, according to an Endeavor SEC filing.
The numbers illustrate how Learfield’s business was challenged in the lead-up to COVID-19, and during the pandemic itself. The information is disclosed in Endeavor’s most recent annual report because as a publicly traded business, Endeavor must account for equity stakes it owns in businesses it doesn’t control. Endeavor owns 42% of Learfield, with private equity firms Silver Lake and Atairos holding the balance.
Learfield is the primary middleman in connecting brands and media companies with athletic departments across the country. The business currently works with more than 1,000 schools in some capacity, handling multimedia rights for nearly 200 of them, including roughly 75% of the Power Five.
Learfield had a net loss of $164.3 million last year on revenue of $1.09 billion, according to the Endeavor document. In 2020 the business posted a net loss of $996.2 million on sales of $760.5 million, while in 2019 Learfield lost $689.1 million on revenue of $1.3 billion.
These financial disclosures are a central part of a lawsuit filed last month against Learfield by its competitor Playfly, which has a convoluted financial relationship with Learfield at the University of Florida. Playfly claims that Learfield failed to fulfill the full extent of their partnership and that the company’s wider financial struggles are part of the reason.
The lawsuit, filed in Delaware, directly mentions quarterly and yearly losses laid out in various Endeavor filings under a section of the lawsuit that claims the company has been “hemorrhaging money.”
Learfield says it isn’t in breach of its Playfly partnership. “The allegations in Playfly’s original complaint are misleading and do not provide a complete picture of Learfield’s results,” according to a statement provided by Learfield spokeswoman Jennifer Duncan. A representative for Endeavor, which releases second quarter earnings on Thursday, deferred financial questions to Learfield.
“The adjustments reflected in Endeavor Group Holdings’ fillings are related to non-cash goodwill and intangible assets,” the Learfield statement added. “Learfield was EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) positive for each of the calendar years disclosed in Endeavor Group Holdings’ fillings (2019, 2020, and 2021), and the company has signed an affidavit attesting to that in the Playfly matter.” The affidavit wasn’t available through public portals, and the company didn’t provide it when asked.
Goodwill is catch-all term for tough-to-value assets, and often represents the premium buyers pay for a business over knowable assets like cash on hand, inventory in stock and real estate.
“Goodwill is the amount of the value that you cannot explain by [accounting as] tangible assets. And that’s one of the problems with a sports multimedia type of business—the tangible values are low, if not negligible,” said Tony Sondhi, president of A.C. Sondhi & Associates, an accounting consultancy.
Sondhi reviewed Learfield financial figures provided by Sportico. “Most of their valuation comes from goodwill,” he said. “And as people’s opinions about college sports and multimedia changes… value is going to decline.”
According to Sondhi, who also is a member of the Investor Advisory Group of the Public Company Accounting Oversight Board, a federally created entity that oversees public company audits, as well as a member of the Emerging Issues Task Force of the Financial Accounting Standards Board, Learfield’s EBITDA statement should be viewed in context.
“What they’re doing is any write-downs that they had of goodwill, and any other impairments, they’re simply adding it back to come up with EBITDA,” Sondhi said. “So their comment, in a sense, mathematically is correct, but from a value perspective is totally useless.”
EBITDA by definition comes before subtracting depreciation and amortization, a term for the depreciation of intangible assets.
Some write-offs of intangibles likely happen every year in standard accounting procedures. Endeavor, for instance, writes down a portion of value it sees in client relationships, its trade names and internally developed technology over some period between two and 22 years, according to disclosures in its annual report.
In the case of other intangibles accountants call goodwill, there are no regular annual write-downs. Goodwill is written down when a significant, negative change occurs to a company’s business or its market (goodwill values never increase unless the business is sold for more money).
Certainly the pandemic has affected Learfield’s business the last two years, as Endeavor acknowledges in its annual report. “[F]ollowing the merger of our IMG College business with Learfield, the operating results of the business had been weaker than anticipated driven by lower than expected sales and have been further impacted in 2020 by COVID-19 as a result of the delay, cancellation of or shortened college football season and the prohibition of fans by many teams, which resulted in impairment charges at Learfield IMG College in 2020.”
In addition to goodwill write-off, the market value given to Learfield by its owners has declined in the same period. Learfield IMG College took its current form in late 2018, when Atairos-owned Learfield merged with IMG College, its main competitor, whose investors included Endeavor and Silver Lake. When Learfield and IMG College merged, Endeavor sold 13% of IMG Learfield College to Silver Lake for $250 million, valuing the total business at $1.92 billion. Three years later, in June 2021, Endeavor raised its ownership stake in Learfield to 42% from 36% for $107.4 million—hanging a lower valuation of $1.79 billion on the operation.
The COVID-19 pandemic created major financial challenges across sports and entertainment, and that held true for Learfield, which typically offers its college partners a guaranteed revenue payment in exchange for the ability to sell various sponsorship and multimedia rights. The canceled basketball tournaments, disrupted seasons and limited attendance affected the value of those commercial deals, and Learfield spent much of 2020 negotiating impairments to their guarantees. (The Playfly lawsuit, at its core, is a disagreement about those impairments).
Looking forward, the company seeks to distance itself from a fixed-fee structure toward more long-term deals where the fee paid to colleges is variable and dependent on the company’s sales. That could help Learfield avoid one of the main challenges of its current business—the need to grow revenue for its commercial deals at a faster rate than universities raise the value of their own rights. A variable structure includes less risk, and also keeps the schools financially invested in the monetization of their rights, which is less direct when there’s a guaranteed check coming no matter what.
Expectations are that college sports are rebounding from the pandemic, benefiting Learfield’s business, according to a June credit opinion issued by Moody’s Investors Service.
“While Learfield’s multimedia rights business accounts for a significant portion of operations, the company will also be focused on expanding revenue in digital media content, data attribution analysis, name and likeness opportunities, esports, new sponsorship categories such as sports betting, digital signage as well as other growth initiatives,” the opinion said.
However, the Moody’s report also noted Learfield remains saddled with a high level of debt and an uncertain future given the rising cost of securing collegiate rights. Credit opinions like Moody’s are used by investors who buy Learfield’s debt and extend it credit. Moody’s estimation of Learfield’s business is that it’s a Caa1 credit, “judged to be of poor standing and subject to very high credit risk,” according to Moody’s rating definitions.
With assistance from Michael McCann.