The Collapse of Ari Emanuel’s Frankenstein Unicorn Dream—And the Week That Ended the Hype-IPO Party

Endeavor failed to make it to market. WeWork failed to make it to market. Peloton made it to market—and promptly spiraled down. Is Wall Street trying to tell us something?

By William D. Cohan

September 27, 2019

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The party is over. That’s the clear and unequivocal message coming from the market for initial public offerings, or IPOs, in the wake of the failed and overhyped IPO for Peloton, the exercise bicycle company, and two recently pulled IPOs—the one last week for the We Company, parent of WeWork, and the one yesterday for Endeavor Group Holdings, the parent of Hollywood superagent Ari Emanuel’s fever dreams. (In a terse press release, a spokesperson wrote that “Endeavor will continue to evaluate the timing for the proposed offering as market conditions develop.”)

Thanks to the hand-wringing about the colossal disaster that was the failed WeWork IPO—the ridiculous valuation, the out-of-control antics of the cofounder and (now former) CEO, the years of financial losses—the handwriting for the IPO market was on the wall. Tim Armour, the CEO of the Capital Group, which has nearly $2 trillion in assets under management, said at a Financial Times conference last week that the demise of WeWork’s IPO may be akin to the proverbial ringing of the bell at the top of the market. “We have been through one of the glory periods for companies to remain private and get funding and do things without making money for a long period of time,” he said. “I question whether that will continue.”

Armour was right. And the end came quickly yesterday. First, there was the immediate breaking of the Peloton IPO, which, when it finally opened for trading around noon, pretty much made a beeline straight down. At one point, with 45 minutes left to go in the trading day, the stock, which had been priced at $29 per share (and at a valuation of around $8 billion), the high end of the underwriters’ range, was fetching $24.85, a decline of about 15%. It closed down roughly 11%. In case you are wondering, that’s the opposite of how IPOs, if they are priced correctly, are supposed to trade. And as usual, it is retail investors—people like you and me—who take it in the shorts. (As I have written previously, related to the Uber IPO, Wall Street finds ways to win, even if the IPO trades down.)

Of course, you could see the Peloton hype machine a mile away: the slick television ads featuring lithe and sinewy models breaking a sweat and loving every minute of it; the making a virtue out of years of financial losses that even the time-honored “adjusted EBITDA” investment-banking trick could not rectify—there were still losses despite showing Peloton’s adjusted EBITDA; the high-tech-oriented slogans, “We are a technology, media, software, product, experience” and “together we go far.” The Peloton flop was brought to us by a crop of venture capitalists and hedge funds—among them, Tiger Global; True Ventures; Technology Crossover Ventures; and Fidelity—and lead underwriters Goldman Sachs and JPMorgan Chase who, along with a group of other banks, raised nearly $1.2 billion for the company and are expected to take home fees of about $60 million.

Meanwhile, also yesterday, Goldman and JPMorgan Chase were also struggling with underwriting the Endeavor IPO, a hoped-for payoff that has been almost 25 years in the making for Emanuel, the inspiration behind Ari Gold, the Hollywood superagent who was the fictional star of HBO’s Entourage, and 18 years in the making for Patrick Whitesell, his longtime partner.

The underwriters were planning to price the Endeavor IPO at between $30 and $32 per share, raising around $600 million, and valuing the company, like Peloton, at around $8 billion. But at the last minute yesterday morning, a new filing appeared at the Securities and Exchange Commission that lowered Endeavor’s valuation to nearly $6.5 billion and reduced roughly 25% the amount of money it sought to raise, reflecting rapidly changing investor sentiment. But investor support, even at that lower level, evaporated through the course of the day. After the market closed yesterday, Emanuel and Whitesell, along with their longtime financial backers at Silver Lake Partners, a private-equity behemoth, pulled the plug, marking the second time this year Emanuel had tried and failed to turn his hodgepodge of businesses into a publicly traded company.

Make no mistake: Ari Emanuel is one helluva storyteller, turning the failed IPO for the Hollywood legend all the more bittersweet. Like his two older brothers, Rahm and Ezekiel, Emanuel is a driven iconoclast. He is not someone you bet against, even when it looks like you should. Then working as a Hollywood agent at ICM, Emanuel started Endeavor in March 1995, two years after a flatbed truck hit him while he was crossing the street after a client meeting. “I wiggled my fingers, and I wiggled my toes, and realized I wasn’t paralyzed,” he says in a 31-minute video that was used by the Endeavor management on the IPO roadshow. “…Life is not a dress rehearsal. It could end quickly. You’d better get started.”

Emanuel met Whitesell in the mail room of the InterTalent agency on Whitesell’s first day on the job. Emanuel was a junior agent. After Emanuel started Endeavor, he called Whitesell, then at CAA, at around 6:30 a.m. every day until he convinced Whitesell to join him at Endeavor. Whitesell joined in early 2001. Emanuel, brash, outspoken, and unforgiving, is also the kind of guy who recruited Mark Shapiro, the company’s president, to Endeavor in 2014, during a cross-country flight, after he watched the longtime former ESPN executive working away at a laptop computer for three hours. He then asked the guy sitting next to Shapiro to change seats with him so that he could talk to Shapiro.

Had the Endeavor IPO succeeded, its “executive holders”—with Emanuel and Whitesell, the estranged husband of the woman in the middle of Jeff Bezos’s divorce, being the most prominent among them—would have controlled shares in Endeavor worth, on paper, nearly $1.3 billion. Silver Lake would also have made a fortune, again on paper, of around $2.85 billion. (Neither Emanuel, Whitesell, nor Silver Lake were going to sell shares in the offering; only the company planned to sell shares and was going to use the money raised—some $420 million—to pay down bank debt and for working capital purposes.)

But just what was Endeavor offering its potential new investors for their money? A share of the ownership of another California unicorn, one that reflects Emanuel’s obsessive penchant for dealmaking, even if not all of those deals were particularly well conceived. It is not a pure play like Peloton or Beyond Meat, which now has market value of more than $9 billion, more than double the value of when it went public in May. Endeavor is more a collection of Emanuel’s whims and fascinations that he’s stitched together into a Hollywood fairy tale.

After 14 years focused on Hollywood talent management, in 2009, Endeavor merged with the fabled William Morris Agency, founded in 1898, to form William Morris Endeavor Entertainment (WME) to diversify its representation into books, theater, music, and non-scripted entertainment. But that was only the beginning. Thanks to equity infusions from Silver Lake, Emanuel went on a buying spree, adding some 20 companies to the fold. In 2014, WME and Silver Lake acquired IMG Worldwide Holdings from buyout firm Forstmann Little, adding sports, media, fashion, events, and event ownership to its roster. Some thought Emanuel overpaid for IMG; regardless, the merger was a rocky one.

But there was no stopping Emanuel. In 2016, Endeavor acquired a stake in UFC, the mixed martial arts juggernaut, increasing it to 50.1% the following year. Those purchases made KKR, another private-equity behemoth, one of Emanuel’s partners through its ongoing ownership of 22.9% of UFC. (KKR also had a lead role underwriting the Endeavor IPO, another example of the changing calculus on Wall Street.) There’s more. Endeavor also owns PBR, a professional bull-riding organization; Frieze, the arts event and media company; 160over90, a branding and marketing agency; and NeuLion, a streaming technology company. For good measure, Endeavor also owns a minority stake in the Raine Group, a media investment banking boutique that received an advisory fee from Endeavor in connection with the IPO.

But it was not to be. Investors could not get past the 32 pages of “risk factors” included in the IPO prospectus and the complicated and convoluted corporate structure that keeps Emanuel, Whitesell, and Silver Lake firmly in control of Endeavor. And they could not get by Endeavor’s use of “adjusted EBITDA,” a concept all the rage these days among companies hoping to raise capital in the public-equity markets. Basically, “adjusted EBITDA” allows companies, with the considerable help of its underwriters, accountants, and the Securities and Exchange Commission, which must sign off, of course, to turn operating losses into operating profits. It just takes a few clicks of the keyboard. For instance, in addition to Endeavor showing operating losses of $58 million in 2017 and $107 million in 2018, the prospectus also shows—abracadabra—“adjusted EBITDA” of $516 million in 2017 and $551 million in 2018. Instead of a net income loss of $220 million for the first six months of 2019, there is an “adjusted EBITDA” profit of $250 million.

But it’s all good, right? All you had to do was wrap your mind around Emanuel’s vision. In his letter to investors in the prospectus, Emanuel explained that Endeavor has always been “a catalyst for culture-defining content.” That was still Emanuel’s plan for Endeavor as a public company. “As the entertainment industry moves toward a closed ecosystem model with less transparency, our clients and businesses need more insight, resources and solutions than ever before,” Emanuel wrote. “We believe being a public company will only further accelerate our ability to look around corners and open up new categories and opportunities for those in the Endeavor network.” Not this time.

William D. Cohan

William D. Cohan is a special correspondent at *Vanity Fair.*

William D. Cohan is a special correspondent at Vanity Fair.