filings.toolsTKO Group Holdings 10-Q 2023-09-30
Filed 2023-11-07. 5 sections, 370K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-Q
____________________
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended September 30, 2023 | |
| or | |
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from ______ to ______ |
Commission File Number: 001-41797
TKO GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 92-3569035 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
200 Fifth Ave, 7th Floor
New York**,** NY 10010
(Address of principal executive offices)
(646) 558-8333
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Class A Common Stock, par value $0.00001 per share | TKO | The New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ¨ | Accelerated Filer ¨ | Non-Accelerated Filer x | Smaller Reporting Company ¨ | Emerging Growth Company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of November 3, 2023, there were 83,372,699 shares of the Registrant’s Class A common stock outstanding and 89,616,891 shares of the Registrant’s Class B common stock outstanding.
TABL****E OF CONTENTS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of present and historical fact contained in this Quarterly Report, including without limitation, statements regarding the anticipated benefits of and costs associated with the Transactions; our expectations surrounding the Transactions and our ability to grow our business and bolster our financial position; our expected contractual obligations and capital expenditures; our future results of operations and financial position; industry and business trends; the impact of market conditions and other macroeconomic factors on our business, financial condition and results of operations; our future business strategy, plans, market growth and our objectives for future operations; and our competitive market position within our industry are forward-looking statements.
Without limiting the foregoing, you can generally identify forward-looking statements by the use of forward-looking terminology, including the terms “aim,” "anticipate," "believe," "could," “mission,” "may," "will," "should," "expect," "intend," "plan," "estimate," "project," "predict," "potential," “target,” "contemplate," or, in each case, their negative, or other variations or comparable terminology and expressions. The forward-looking statements in this Quarterly Report are only predictions and are based on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties and assumptions, including but not limited to:
difficulties with the integration and in realizing the expected benefits of the Transactions, including the business combination;
the unfavorable outcome of legal proceedings that may be instituted against TKO Group Holdings, UFC, WWE and their affiliates in connection with the Transactions, including the business combination;
the inability to capture all or part of the anticipated cost and revenue synergies;
fees and expenses associated with negotiating and completing the Transactions, including the business combination;
potential liabilities that are not known, probable or estimable at this time;
the inability to maintain the listing of our Class A common stock on the NYSE;
the risk of adverse tax consequences of the Merger and the Conversion;
the inability to retain WWE or UFC management, employees and/or talent;
the impact of future domestic and international industry trends on our business and our future growth, business strategy and objectives for future operations;
the inability to renew or replace our distribution rights agreements on equal or more favorable terms;
the possibility we may be adversely affected by other economic, business and/or competitive factors; and
other important factors that could cause actual results, performance or achievements to differ materially from those described in: this Quarterly Report in Part I, Item 2. “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors”; the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our final prospectus filed with the Securities and Exchange Commission (the “SEC”) on Form 424(b)(4) on September 19, 2023 (the “Prospectus”); and our subsequent filings with the Securities and Exchange Commission (the “SEC”).
These risks could cause our actual results to differ materially from those implied by forward-looking statements in this Quarterly Report. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Even if our results of operations, financial condition and liquidity and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods.
You should read this Quarterly Report and the documents that we reference herein completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these
cautionary statements. Except as required by applicable law, we have no obligation to update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Available Information and Website Disclosure
We are required to file annual, quarterly and current reports, proxy statements and other information with the SEC. Our filings with the SEC are also available to the public through the SEC’s website at www.sec.gov.
You also can find more information about us online at our investor relations website located at www.investor.tkogrp.com. Filings we make with the SEC and any amendments to those reports are available free of charge on our website as soon as reasonably practicable after we electronically file such material with the SEC. The information posted on or accessible through our website is not incorporated into this Quarterly Report.
Investors and others should note that we announce material financial and operational information to our investors using press releases, SEC filings and public conference calls and webcasts, and by postings on our investor relations site at investor.tkogrp.com. We may also use our website as a distribution channel of material Company information. In addition, you may automatically receive email alerts and other information about TKO when you enroll your email address by visiting the “Investor Email Alerts” option under the Resources tab on investor.tkogrp.com.
DEFINITIONS
As used in this Quarterly Report, unless we state otherwise or the context otherwise requires:
“we,” “us,” “our,” “TKO Group Holdings,” “TKO,” the “Company,” and similar references refer (1) prior to the consummation of the Transactions to Zuffa Parent, LLC, and (2) after the consummation of the Transactions to TKO Group Holdings, Inc. and its consolidated subsidiaries.
“Board” refers to the board of directors of TKO Group Holdings.
“business combination” refers to the combination of the businesses of WWE and TKO OpCo.
“DGCL” refers to the General Corporation Law of the State of Delaware.
“Endeavor” refers to Endeavor Group Holdings, Inc., a Delaware corporation.
“Endeavor OpCo” refers to Endeavor Operating Company, LLC, a Delaware limited liability company and subsidiary of Endeavor.
“fully-diluted basis” means on a basis calculated assuming the full cash exercise (and not net settlement but, for the avoidance of doubt, including the conversion of the Convertible Notes (to the extent not converted prior to closing of the Transaction)) of all outstanding options, warrants, restricted stock units, performance stock units, dividend equivalent rights and other rights and obligations (including any promised equity awards and assuming the full issuance of the shares underlying such awards) to acquire voting interests of TKO Group Holdings (without regard to any vesting provisions and, with respect to any promised awards whose issuance is conditioned in full or in part based on achievement of performance goals or metrics, assuming achievement at target performance) and the full conversion, exercise, exchange, settlement of all issued and outstanding securities convertible into or exercisable, exchangeable or settleable for voting interests of TKO Group Holdings, not including any voting interests of TKO Group Holdings reserved for issuance pursuant to future awards under any option, equity bonus, share purchase or other equity incentive plan or arrangement of TKO Group Holdings (other than promised awards described above), and any other interests or shares, as applicable, that may be issued or exercised. For the avoidance of doubt, this definition assumes no net settlement or other reduction in respect of withholding tax obligations in connection with the issuance, conversion, exercise, exchange or settlement of such rights or obligations to acquire interests of TKO Group Holdings as described in the foregoing.
“NYSE” refers to the New York Stock Exchange.
“TKO Class A common stock” refers to the Class A common stock, par value $0.00001 per share, of TKO.
“TKO Class B common stock” refers to the Class B common stock, par value $0.00001 per share, of TKO.
“TKO OpCo” refers to TKO Operating Company, LLC (f/k/a Zuffa Parent LLC), a Delaware limited liability company and our direct subsidiary.
“TKO OpCo Units” refers to all of the existing equity interests in TKO OpCo.
“Transactions” refer, collectively, to the transactions pursuant to the Transaction Agreement (defined below) pursuant to which: (i) WWE undertook certain internal restructuring steps; (ii) Whale Merger Sub Inc. (“Merger Sub”) merged with and into WWE (the “Merger”), with WWE surviving the Merger (the “Surviving Entity”) and becoming a direct wholly owned subsidiary of the Company; (iii) immediately following the Merger, the Company caused the Surviving Entity to be converted into a Delaware limited liability company (“WWE LLC”) and the Company became the sole managing member of WWE LLC (the “Conversion”); and (iv) following the Conversion, the Company (x) contributed all of the equity interests of WWE LLC to TKO OpCo in exchange for 49% of the membership interests in TKO OpCo on a fully diluted basis, and (y) issued to EOC and certain of Endeavor’s other subsidiaries a number of shares of TKO Class B common stock representing, in the aggregate, approximately 51% of the total voting power of the Company’s stock on a fully-diluted basis, in exchange for a payment equal to the par value of such TKO Class B common stock.
“Transaction Agreement” refers to the transaction agreement, dated as of April 2, 2023, by and among Endeavor, Endeavor OpCo, TKO OpCo, WWE, the Company, and Merger Sub.
“UFC” refers to the Ultimate Fighting Championship.
“WWE” refers to World Wrestling Entertainment, Inc. (n/k/a World Wrestling Entertainment, LLC).
“Zuffa” refers to Zuffa Parent, LLC (n/k/a TKO Operating Company, LLC or TKO OpCo).
RISK FACTOR SUMMARY
Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report. You should carefully consider these risks and uncertainties when investing in our securities. Principal risks and uncertainties affecting our business include the following:
our ability to generate revenue from discretionary and corporate spending on events, such as corporate sponsorships and advertising, is subject to many factors, including many that are beyond our control, such as general macroeconomic conditions;
we depend on key relationships with television and cable networks, satellite providers, digital streaming partners and other distribution partners. Our failure to maintain, renew or replace key agreements, certain of which we anticipate negotiating soon, could adversely affect our ability to distribute our media content, WWE Network and/or other of our goods and services, which could adversely affect our operating results;
we may not be able to adapt to or manage new content distribution platforms or changes in consumer behavior resulting from new technologies;
because our success depends substantially on our ability to maintain a professional reputation, adverse publicity concerning us, or our key personnel could adversely affect our business;
the markets in which we operate are highly competitive, rapidly changing and increasingly fragmented, both within the United States and internationally, and we may not be able to compete effectively, which could adversely affect our operating results;
we depend on the continued services of executive management and other key employees, and of our parent company, Endeavor. The loss or diminished performance of these individuals, or any diminished performance by Endeavor, could adversely affect our business;
changes in public and consumer tastes and preferences and industry trends could reduce demand for our content offerings and adversely affect our business;
owning and managing events for which we sell media and sponsorship rights, ticketing and hospitality exposes us to greater financial risk. Additionally, we may be prohibited from promoting and conducting our live events if we do not comply with applicable regulations. If the live events that we own and manage are not financially successful, our business could be adversely affected;
unfavorable outcomes in legal proceedings may adversely affect our business and operating results;
we have a substantial amount of indebtedness, which could adversely affect our business, and we cannot be certain that additional financing will be available on reasonable terms when required, or at all;
we are a holding company whose principal assets are the TKO OpCo Units we hold in TKO OpCo and, accordingly, we are dependent upon distributions from TKO OpCo to pay taxes and other expenses;
we are controlled by Endeavor. The interests of Endeavor may differ from the interests of other stockholders of TKO Group Holdings;
an active trading market for our Class A common stock may not develop and you may not be able to sell your shares of Class A common stock;
the market price of our Class A common stock may be volatile, and holders of our Class A common stock may be unable to resell their Class A common stock at or above their purchase price or at all;
tax matters may cause significant variability in our financial results; and
TKO OpCo may be required to pay additional taxes as a result of the partnership audit rules.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TKO GROUP HOLDINGS, INC.
Consolidated Stateme****nts of Operations
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||
| September 30, | September 30, | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Revenue | $ | 449,058 | $ | 340,699 | $ | 1,060,973 | $ | 868,376 | ||||
| Operating expenses: | ||||||||||||
| Direct operating costs | 130,312 | 99,619 | 302,253 | 243,483 | ||||||||
| Selling, general and administrative expenses | 193,211 | 56,497 | 313,033 | 155,707 | ||||||||
| Depreciation and amortization | 31,698 | 14,947 | 61,900 | 44,945 | ||||||||
| Total operating expenses | 355,221 | 171,063 | 677,186 | 444,135 | ||||||||
| Operating income | 93,837 | 169,636 | 383,787 | 424,241 | ||||||||
| Other expenses: | ||||||||||||
| Interest expense, net | (60,636) | (35,319) | (172,439) | (90,767) | ||||||||
| Other (expense) income, net | (696) | 400 | (1,560) | (444) | ||||||||
| Income before income taxes and equity (earnings) losses of affiliates | 32,505 | 134,717 | 209,788 | 333,030 | ||||||||
| Provision for income taxes | 11,156 | 5,044 | 17,655 | 12,490 | ||||||||
| Income before equity (earnings) losses of affiliates | 21,349 | 129,673 | 192,133 | 320,540 | ||||||||
| Equity (earnings) losses of affiliates, net of tax | (671) | — | 309 | — | ||||||||
| Net income | 22,020 | 129,673 | 191,824 | 320,540 | ||||||||
| Less: Net (loss) income attributable to non-controlling interests | (22,471) | 631 | (21,683) | 1,638 | ||||||||
| Less: Net income attributable to TKO Operating Company, LLC prior to the Transactions | 66,377 | 129,042 | 235,393 | 318,902 | ||||||||
| Net loss attributable to TKO Group Holdings, Inc. | $ | (21,886) | $ | — | $ | (21,886) | $ | — | ||||
| Basic and diluted net loss per share of Class A common stock (1) | $ | (0.26) | N/A | $ | (0.26) | N/A | ||||||
| Weighted average number of common shares used in computing basic and diluted net loss per share | 83,161,406 | N/A | 83,161,406 | N/A |
(1)Basic and diluted net loss per share of Class A common stock is applicable only for the period from September 12, 2023 through September 30, 2023, which is the period following the Transactions (as defined in Note 1 to the unaudited consolidated financial statements). See Note 14 for the calculation of the number of shares used in computation of net loss per share of Class A common stock and the basis for computation of net loss per share.
See accompanying notes to consolidated financial statements.
TKO GROUP HOLDINGS, INC.
Consolidated Statements of Compreh****ensive (Loss) Income
(In thousands)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||
| September 30, | September 30, | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Net income | $ | 22,020 | $ | 129,673 | $ | 191,824 | $ | 320,540 | ||||
| Other comprehensive income (loss), net of tax: | ||||||||||||
| Foreign currency translation adjustments | (300) | (1,253) | (1,432) | (1,033) | ||||||||
| Cash flow hedges: | ||||||||||||
| Change in net unrealized gains | 574 | 1,684 | 775 | 4,959 | ||||||||
| Amortization of cash flow hedge fair value to net income | (76) | (76) | (228) | (228) | ||||||||
| Total comprehensive income, net of tax | 22,218 | 130,028 | 190,939 | 324,238 | ||||||||
| Less: Comprehensive (loss) income attributable to non-controlling interests | (22,471) | 631 | (21,683) | 1,638 | ||||||||
| Less: Comprehensive income attributable to TKO Operating Company, LLC prior to the Transactions | 66,121 | 129,397 | 234,054 | 322,600 | ||||||||
| Comprehensive loss attributable to TKO Group Holdings, Inc. | $ | (21,432) | $ | — | $ | (21,432) | $ | — |
See accompanying notes to consolidated financial statements.
TKO GROUP HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
| As of | ||||||
| September 30, | December 31, | |||||
| 2023 | 2022 | |||||
| Assets | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 188,592 | $ | 180,574 | ||
| Accounts receivable (net of allowance for doubtful accounts of $1,947 and $2,355, respectively) | 195,773 | 45,448 | ||||
| Other current assets | 116,611 | 42,278 | ||||
| Total current assets | 500,976 | 268,300 | ||||
| Property, buildings and equipment, net | 568,090 | 175,048 | ||||
| Intangible assets, net | 3,679,868 | 475,765 | ||||
| Finance lease right-of-use assets, net | 236,268 | — | ||||
| Operating lease right-of-use assets, net | 35,235 | 23,276 | ||||
| Goodwill | 7,644,053 | 2,602,639 | ||||
| Investments | 17,113 | 5,416 | ||||
| Other assets | 54,850 | 30,286 | ||||
| Total assets | $ | 12,736,453 | $ | 3,580,730 | ||
| Liabilities, Non-controlling Interests and Stockholders'/Members' Equity | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 20,898 | $ | 16,842 | ||
| Accrued liabilities | 244,716 | 108,189 | ||||
| Current portion of long-term debt | 26,650 | 22,683 | ||||
| Current portion of finance lease liabilities | 6,444 | — | ||||
| Current portion of operating lease liabilities | 3,629 | 1,793 | ||||
| Deferred revenue | 94,473 | 71,624 | ||||
| Other current liabilities | 2,644 | 9,048 | ||||
| Total current liabilities | 399,454 | 230,179 | ||||
| Long-term debt | 2,719,463 | 2,736,315 | ||||
| Long-term finance lease liabilities | 233,029 | — | ||||
| Long-term operating lease liabilities | 33,085 | 22,594 | ||||
| Deferred tax liabilities | 376,837 | — | ||||
| Other long-term liabilities | 3,035 | 12,818 | ||||
| Total liabilities | 3,764,903 | 3,001,906 | ||||
| Commitments and contingencies (Note 18) | ||||||
| Redeemable non-controlling interests | 11,111 | 9,908 | ||||
| Stockholders'/Members' equity: | ||||||
| Class A common stock: ($0.00001 par value; 5,000,000,000 shares authorized; 83,162,215 and 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively) | 1 | — | ||||
| Class B common stock: ($0.00001 par value; 5,000,000,000 shares authorized; 89,616,891 and 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively) | 1 | — | ||||
| Members' capital | — | 568,070 | ||||
| Additional paid-in capital | 4,186,621 | — | ||||
| Accumulated other comprehensive income | 217 | 846 | ||||
| Accumulated deficit | (21,886) | — | ||||
| Total TKO Group Holdings, Inc. stockholders’/members' equity | 4,164,954 | 568,916 | ||||
| Nonredeemable non-controlling interests | 4,795,485 | — | ||||
| Total stockholders'/members' equity | 8,960,439 | 568,916 |
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Item 1A. Risk Factors
Investing in our Class A common stock involves substantial risks. You should carefully consider the following factors, together with all of the other information included in this Quarterly Report on Form 10-Q, including under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Prospectus before investing in our Class A common stock. Any of the risk factors we describe below could adversely affect our business, financial condition or results of operations. The market price of our Class A common stock could decline if one or more of these risks or uncertainties develop into actual events, causing you to lose all or part of your investment. We cannot assure you that any of the events discussed below will not occur. While we believe these risks and uncertainties are especially important for you to consider, we may face other risks and uncertainties that could adversely affect our business. Please also see “Forward-Looking Statements” for more information.
Risks Related to Our Business
Our ability to generate revenue from discretionary and corporate spending on events, such as corporate sponsorships and advertising, is subject to many factors, including many that are beyond our control, such as general macroeconomic conditions.
Our business depends on discretionary consumer and corporate spending. Many factors related to corporate spending and discretionary consumer spending, including economic conditions affecting disposable consumer income such as unemployment levels, fuel prices, interest rates, changes in tax rates, tax laws that impact companies or individuals, and inflation, can significantly impact our operating results. While consumer and corporate spending may decline at any time for reasons beyond our control, the risks associated with our businesses become more acute in periods of a slowing economy or recession, which may be accompanied by reductions in corporate sponsorship and advertising, decreases in attendance at live events, and purchases of pay-per-view (“PPV”), among other things. There can be no assurance that consumer and corporate spending will not be adversely impacted by current economic and geopolitical conditions, or by any future deterioration in economic conditions, thereby possibly impacting our operating results and growth. A prolonged period of reduced consumer or corporate spending, such as those that occurred during the COVID-19 pandemic, could have an adverse effect on our business, financial condition, and results of operations.
We depend on key relationships with television and cable networks, satellite providers, digital streaming partners and other distribution partners. Our failure to maintain, renew or replace key agreements, certain of which we anticipate negotiating soon, could adversely affect our ability to distribute our media content, WWE Network and/or other of our goods and services, which could adversely affect our operating results.
A key component of our success is our relationships with television and cable networks, satellite providers, digital streaming and other distribution partners, as well as corporate sponsors. We are dependent on maintaining these existing relationships and expanding upon them so that we have a robust network with whom we can work to arrange multimedia rights sales and sponsorship engagements, including distribution of our events and media content. Our television programming for our events is distributed by television and cable networks, satellite providers, PPV, digital streaming, and other media. We have depended on, and will continue to depend on, third parties for many aspects of the operations and distribution of WWE Network. We have an important relationship with ESPN as they are the exclusive domestic distributor of all UFC events. Because a large portion of our revenues are generated, directly and indirectly, from the distribution of our events, any failure to maintain or renew arrangements with distributors and platforms, the failure of distributors or platforms to continue to provide services to us, or the failure to enter into new distribution opportunities on terms favorable to us could adversely affect our business. We regularly engage in negotiations relating to substantial agreements covering the distribution of its television programming by carriers located in the United States and abroad. We have agreements with multiple PPV providers globally and distribute a portion of our events through PPV, including certain events that are sold exclusively through PPV. We have substantial relationships with NBCU, which carries RAW and NXT through its cable networks. WWE Network is distributed exclusively via Peacock in the domestic market. Fox Network currently carries SmackDown, which will move to USA Network beginning October 2024. These relationships are expected to continue to constitute a significant percentage of our revenues. We anticipate that we will be involved in negotiations to renew or replace our domestic television distribution rights agreements for RAW and NXT with their current licensees or others before their expirations through 2024. These domestic licenses together account for a very significant portion of our
media segment revenues and profitability. No assurances can be provided as to the outcome of these negotiations. There is no guarantee that the growth in value of sports media licensing rights in the recent years will continue or can be maintained or that the current value of our sports media licensing rights will not diminish over time. Any adverse change in these relationships or agreements, including as a result of U.S., European Union and United Kingdom trade and economic sanctions and any counter-sanctions enacted by such sanctioned countries (e.g., Russia), or a deterioration in the perceived value of our sponsorships or these distribution channels, could have an adverse effect on our business, financial condition and results of operations.
We may not be able to adapt to or manage new content distribution platforms or changes in consumer behavior resulting from new technologies.
The manner in which audio/media content is distributed and viewed is constantly changing, and consumers have increasing options to access entertainment video. Changes in technology require resources including personnel, capital and operating expenses. Conversely, technology changes have also decreased the cost of video production and distribution for certain programmers (such as through social media), which lowers the barriers to entry and increases the competition for viewership and revenues. We must successfully adapt to and manage technological advances in our industry, including the emergence of alternative distribution platforms. If we are unable to adopt or are late in adopting technological changes and innovations, it may lead to a loss of consumers viewing our content, a reduction in revenues from attendance at our live events, a loss of ticket sales, or lower site fee revenue. Our ability to effectively generate revenue from new content distribution platforms and viewing technologies will affect our ability to maintain and grow our business. Emerging forms of content distribution may provide different economic models and compete with current distribution methods (such as television, film, and PPV) in ways that are not entirely predictable, which could reduce consumer demand for our content offerings.
We must also adapt to changing consumer behavior driven by advances that allow for time shifting and on-demand viewing, such as digital video recorders and video-on-demand, as well as internet-based and broadband content delivery and mobile devices. Cable and broadcast television distribution constitutes a
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Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
Unregistered Sales of Equity Securities
Issuance of Capital Stock
Subject to the terms of the Transaction Agreement, the aggregate consideration paid to WWE stockholders was 83,161,123 shares of TKO Class A common stock in exchange for their previously held WWE securities.
Other than the shares of TKO Class A common stock registered by the Registration Statement on Form S-4 (File No. 333-271893) filed by the Company, which was declared effective by the SEC on August 22, 2022, the securities issued in connection with the Transaction Agreement have not been registered under the Securities Act in reliance on an exemption from registration provide by Section 4(a)(2) or other applicable section of the Securities Act.
Equity Award Grants
In September 2023, we assumed (i) an aggregate of 1,011,215 outstanding restricted stock units covering TKO Class A common stock and (ii) an aggregate of 661,650 outstanding performance stock units covering TKO Class A common stock, granted under the WWE 2016 Omnibus Incentive Plan as a result of the consummation of the Transactions on September 12, 2023.
In September 2023, we granted restricted stock units covering 459,415 shares of TKO Class A common stock to certain employees and non-employee directors pursuant to the TKO Group Holdings, Inc. 2023 Incentive Award Plan.
None of the transactions listed above involved any underwriters, underwriting discounts or commissions, or any public offering.
Item 5. Other Information
(a) We are reporting the following information in lieu of reporting on a Current Report on Form 8-K under Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Employment Agreement with Mr. Schleimer
The Company entered into an employment agreement with Mr. Schleimer on November 5, 2023 (the “Schleimer Employment Agreement”). The following represents a summary of the material terms of the Schleimer Employment Agreement.
The term of the Schleimer Employment Agreement will expire on December 31, 2026. The Schleimer Employment Agreement provides that Mr. Schleimer shall serve as Chief Financial Officer and will report to the Company’s President or Chief Operating Officer or any successor position thereto.
Mr. Schleimer’s employment agreement provides for an annual base salary of $2,000,000, subject to increase from time to time as approved by the Company’s board of directors or such other party to which the board of directors has delegated power and authority from time to time (the “Governing Body”).
For fiscal year 2023, Mr. Schleimer will be eligible to receive a cash bonus, which amount will be determined by the Governing Body. Beginning in fiscal year 2024 and during the remainder of the term of the Schleimer Employment Agreement, Mr. Schleimer will be eligible to receive an annual bonus with a target bonus amount equal to $2,000,000. The amount of the annual bonus will be based on the achievement of performance metrics based on Company performance (including EBTIDA), as determined by the Governing Body in good faith.
On or promptly following November 5, 2023, Mr. Schleimer will be entitled to receive an equity award of restricted stock units (the “Initial Equity Award”) with a value of approximately $3,000,000 that will vest in three equal installments on each of December 31, 2024, December 31, 2025 and December 31, 2026, subject to Mr. Schleimer’s continued employment through each applicable vesting date. In addition, in respect of fiscal year 2023 and each fiscal year commencing during the remainder of the term of the Schleimer Employment Agreement, Mr. Schleimer will be eligible to receive an annual equity award in respect of each such fiscal year, with a target equity award amount equal to $1,506,849 in respect of fiscal year 2023 and $5,000,000 in respect of each such fiscal year thereafter. The amount of each equity award will be based on the achievement of performance metrics, continued service and/or other criteria, as determined by the Governing Body in good faith, and each equity award is expected to consist of restricted stock units or similar awards that vest in three equal installments on each of the one-year, two-year and three-year anniversaries of the date of issuance, subject to Mr. Schleimer’s continued employment through each applicable grant and vesting date.
If Mr. Schleimer’s employment is terminated without “cause” (as defined in the Schleimer Employment Agreement) or due to a resignation for “good reason” (as defined below) prior to the end of his term, he is entitled to (i) payment of an amount equal to one and
one-half times his annual base salary, payable during the period commencing on the date of termination and ending on the twelve month anniversary of the date of termination, and (ii) an amount equal to his target bonus for each calendar year commencing with the calendar year in which the date of termination occurs and ending on the eighteen month anniversary of the date of termination (prorated for any partial year). For Mr. Schleimer, “good reason” means, the occurrence of, without Mr. Schleimer’s consent, the breach by the Company of any terms under Mr. Schleimer’s employment agreement. Notwithstanding the foregoing, if Mr. Schleimer’s employment is terminated without “cause” or due to a resignation for “good reason” prior to the end of his term and within two years following a “change of control” (as defined in the Company’s 2023 Incentive Award Plan), he will be entitled to (i) payment of an amount equal to two times his annual base salary, payable during the period commencing on the date of termination and ending on the twelve month anniversary of the date of termination, and (ii) an amount equal to his target bonus for each calendar year commencing with the calendar year in which the date of termination occurs and ending on the twenty-four month anniversary of the date of termination (prorated for any partial year).
If, before the end of Mr. Schleimer’s term, the Company fails to give Mr. Schleimer a bona fide offer of employment that provides compensation that is substantially comparable to the annual cash and equity compensation provided under his employment agreement (excluding the Initial Equity Award), and Mr. Schleimer’s employment is then either terminated by the Company without cause or by Mr. Schleimer for any reason within the thirty day period following the end of the employment term (an “Employer Non-Renewal”), Mr. Schleimer shall be entitled to payment of an amount equal to his annual base salary, payable during the period commencing on the date of termination and ending on the twelve month anniversary of the date of termination.
Further, if Mr. Schleimer’s employment is terminated by the Company without cause or due to a resignation for good reason prior to the end of his employment term, or if Mr. Schleimer’s employed is terminated by the Company without cause in connection with an Employer Non-Renewal, any unvested portion of Mr. Schleimer’s equity awards that are subject solely to vesting based on continued service will accelerate and vest in full.
If Mr. Schleimer’s employment is terminated due to death or disability prior to the end of his term, he shall be entitled to payment of his target bonus for the year in which termination occurs, pro-rated for the portion of such year in which he was employed.
The Schleimer Employment Agreement includes confidentiality and assignment of intellectual property provisions and a six-month post-termination non-compete covenant, provided that, to the extent Mr. Schleimer’s employment is terminated due to a resignation without good reason or following the end of the employment term (other than due to an Employer Non-Renewal) and the Company desires to enforce the post-termination non-compete covenant, the Company must provide Mr. Schleimer with a supplemental payment equal to six months of base salary.
Any severance that Mr. Schleimer is entitled to receive upon his termination by the company without cause, due to a resignation for good reason or, due to an Employer Non-Renewal and any supplemental payment that Mr. Schleimer is entitled to receive in connection with enforcement of his post-termination non-compete covenant are subject to Mr. Schleimer’s execution and non-revocation of a release of claims for the benefit of the Company.
Mr. Schleimer’s employment agreement provides that, if any payments to Mr. Schleimer would be considered “excess parachute payments” under Section 280G of the Code and subject to excise taxes under Section 4999 of the Code, such payments will be reduced to the extent such reduction would provide a greater net after-tax benefit to Mr. Schleimer in relation to the net after-tax benefit to Mr. Schleimer if all such payments had been made.
The foregoing summary of the Schleimer Employment Agreement is not complete and is qualified in its entirety by reference to the Schleimer Employment Agreement, a copy of which is attached hereto as Exhibit 10.8 and incorporated herein by reference.
(b) None.
(c) During the three months ended September 30, 2023, no director or “officer” (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | * | ||||
|---|---|---|---|---|---|---|
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | * | ||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | * | ||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | * | ||||
| 104 | Cover Page Interactive Data File – formatted as Inline XBRL and contained in Exhibit 101. | * |
- Filed herewith.
** Furnished herewith.
Annexes, schedules and/or exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant undertakes to furnish supplemental copies of any of the omitted schedules or similar attachments upon request by the SEC.
SIGNAT****URES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TKO GROUP HOLDINGS, INC. | ||||
| Date: | November 7, 2023 | By: | /s/ ANDREW SCHLEIMER | |
| Andrew Schleimer | ||||
| Chief Financial Officer | ||||
| (principal financial officer and authorized | ||||
| signatory) | ||||
| By: | /s/ SHANE KAPRAL | |||
| Shane Kapral | ||||
| Chief Accounting Officer | ||||
| (principal accounting officer and authorized | ||||
| signatory) | ||||