Endeavor Group - Q3 2022

Transcript

Operator (participant)

Good afternoon, and thank you for attending today's Endeavor third quarter 2022 earnings call. My name is Jason, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone keypad. I'd now like to pass the conference over to our host, James Marsh.

James Marsh (Head of Investor Relations)

Good afternoon, and welcome to Endeavor's third quarter 2022 earnings call. A short while ago, we issued a press release which you can view on our investor relations website, investor.endeavorco.com. A recording of this call will also be available via that site for at least 30 days. Today, you will hear from Endeavor CEO Ari Emanuel and CFO Jason Lublin before we open for questions.

The purpose of this call is to provide you with the information regarding our third quarter 2022 performance in addition to our financial outlook for the balance of the year. I do want to remind everyone that the information discussed will include forward-looking statements and/or projections that involve risks, uncertainties, and assumptions as well as described in the Risk Factors section of our filings with the Securities and Exchange Commission, including our 10-Qs and 10-K.

If these risks or uncertainties ever materialize or any assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements and projections. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them publicly in light of new information or future events except as legally required.

Our commentary today will also include Non-GAAP financial measures which we believe provide an additional tool for investors to use in evaluating ongoing operating results and trends. This measure should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations between GAAP and Non-GAAP metrics for our reported results can be found in our press release issued today as well as in the Non-GAAP financial information posted on our IR website. With that, I'll turn it over to Ari.

Ari Emanuel (CEO)

Thanks, James. Our business performed well in the quarter despite an increasingly turbulent macro environment. We've built and positioned Endeavor relative to a broad set of secular industry trends that continue to demonstrate resilience and enable us to deliver on our long-term growth strategy. Today, I want to hit on two of these trends, the competition for premium sports and entertainment content and the demand for live events and experiences.

I'll then turn it over to Jason who will share more segment-level color as well as considerations for the remainder of the year. First, as it relates to premium sports and entertainment content, the company's strength lies in its decision we made nearly a decade ago to become a premium content supplier to the diversified and expanding list of tech and media companies who have pivoted to DTC.

Alphabet, Amazon, Apple, and Microsoft are in a race to add offerings across multiple categories to attract customers to their ecosystems and convince them to stay. These mega bundles are often packaged and priced as all-in-one subscriptions that deliver strong value. These leading tech companies go head to head with major streaming and media players, including Disney, Netflix, NBCUniversal, Warner Bros.

Discovery, and Paramount for the best video, podcast, gaming, and social content. Every single one of them requires a steady flow of premium entertainment and sports content, and we are the leader in these categories. It's undeniable that premium sports and entertainment content have become the most powerful and efficient means to acquire customers and keep them engaged. Take Amazon and Thursday Night Football.

Viewership on Prime has exceeded most common expectations, especially when you consider the strength of schedule, making it both appointment viewing and a powerful promotional tool for the platform. The NFL and Amazon are also partnering on a first ever Black Friday game, creating more opportunities to drive consumer product sales. Bottom line, Amazon and their competitors understand the network effect generated from premium content, and our flywheel is uniquely positioned to deliver it and benefit from it.

Meanwhile, as linear players battle to keep viewers, they've increasingly turned to live sports. You are seeing this play out in new deals for the NFL, Major League Soccer, Formula One, college football across linear as well as SVOD and AVOD services. Additionally, sports betting is quickly becoming the ultimate live sports viewing complement and yet another way to keep consumers engaged.

During the third quarter, we closed our acquisition of sports betting tech leader OpenBet, helping round out our tech offering in this space. Once again, we've positioned ourselves on the supply side of this industry, working directly with rights holders and sports books to deliver everything from official data, streaming feeds to betting odds and mobile apps. Beyond sports, the demand for premium talent-led content shows no sign of slowing.

In fact, opportunities for talent are expanding into new formats as both big tech and the incumbents fight to link top creators to their platforms. We're closing more long-term deals for our clients with studios as we did recently with HBO for the Game of Thrones executive producer and showrunner Ryan Condal. We've also moved more talent and personality into podcasts, evident in the launch of Stephen A. Smith's new podcast, No Mercy.

We're seeing streamers learning more of our clients from the big screen to the small screen, whether it's Keanu Reeves landing his first television deal with Hulu or Tyler Perry's new deal with Amazon. We're also beginning to understand the impact of ad-supported streaming with new tiers being introduced from companies like Disney and Netflix and the launch of new free ad-supported streaming services. We expect this shift towards an ad model to lead to greater streaming adoption, further supporting the need for more premium content inventory.

This is all to our continued benefit, especially when factoring in the incumbent broadcast and cable networks' ongoing content needs. The second broad theme I want to hit is the continued consumer demand for experiences and live entertainment. The UFC has achieved 26 consecutive sellouts since restarting events during COVID-19.

UFC 276 set a new record for single event VIP experience revenue via our On Location business, and our first ever event in France set a VIP revenue record for a non-pay-per-view event. In the third quarter, we serviced 3 times as many UFC VIP guests as in the prior year. Looking at the rest of our portfolio, our UK-based Big Feastival music and culinary event sold the greatest number of tickets in its history.

Meanwhile, the NFL international games produced strong demand for On Location packages, and Super Bowl LVII sales are pacing incredibly well. In fact, interest in Super Bowl LVIII, slated for Las Vegas in 2024, is already outpacing last year's Super Bowl, and that's an event that's 16 months away.

As for new launches, we recently debuted Frieze Seoul, the fifth installment of our Frieze art fairs, with more than 100 galleries and 70,000 attendees over the four days, making it our strongest inaugural Frieze event ever. As it relates to music and comedy tours, we continue to see strong demand, booking shows for our talent well into 2024.

Comedy, in particular, is surging. Kevin Hart and Bill Burr sold out the only 2 arena shows at the Just for Laughs festival, and Bill Burr at Fenway Park became the highest grossing comedy show of all time. Whether it's across premium sports and entertainment content landscape or in all forms of live events and experiences, our business continues to perform well despite the macro headwinds.

While we cannot yet predict those headwinds' full impact, we remain confident in our position and the strategy we laid out to capitalize on the most resilient secular trends long term. I'll now turn it over to Jason to walk you through our financials and update you on where we're headed as we look to close out the year.

Jason Lublin (CFO)

Thanks, Ari, and good afternoon, everyone. I'll start by walking you through our financial results for the third quarter. I'll also provide you some color around what we're seeing in each of our operating segments. As a reminder, all comparisons will be to the COVID-impacted third quarter of 2021. For the quarter ended September 30, 2022, we generated $1.221 billion in consolidated revenue, down $170 million or 12%.

The prior year included $334 million of revenue from the restricted Endeavor Content business, which we sold in January of this year. Excluding revenues related to this business, consolidated revenues would have been up 15%. Net loss for the quarter was $12.5 million, as compared to net income of $63.6 million a year ago.

This quarter's results included $85 million of losses from affiliates, predominantly from our minority investment in Learfield, compared to $18 million of losses last year. Income before equity losses of affiliates was $72 million in the current quarter, compared to $81.5 million last year. Adjusted EBITDA for the quarter was $303.1 million, up $19.8 million or 7%.

The prior year included $26.5 million of adjusted EBITDA from the restricted Endeavor Content business. Free cash flow was $153.2 million in the quarter, representing 50.5% conversion of adjusted EBITDA to free cash flow, defined as cash flow from operating activities less CapEx.

Owned Sports Properties segment generated revenue of $402.3 million in the third quarter, up $113.8 million or 39%, while the segment's adjusted EBITDA was $195.7 million, up $61 million or 45%. Growth in this segment was driven by an increase in media rights fees, sponsorships, licensing, commercial pay-per-view, and event-related revenue at UFC. In addition, the UFC had one more pay-per-view event in this quarter versus the same quarter last year, as well as more events with live audiences. Segment results were also driven by the new team series format at PBR and the inclusion of Diamond Baseball Holdings.

At UFC, with the return of live audiences at our fight night events, we set the highest grossing sporting event records at host arenas in San Diego, Dallas, Salt Lake City, London, and Paris. The Paris event was the first in France's history after having worked with the local government there for 12 years to lift their broadcast ban on this sport.

The event had the largest gate and merchandise records in the arena's history. Overall, UFC has had 26 consecutive sellouts since restarting full capacity events. In connection with the launch of Fight Pass in Brazil, we announced a new partnership with Band, one of the largest TV broadcasters in Brazil, for free-to-air distribution of select events and original content. UFC Fight Pass Brazil remains slated to debut on January 1, 2023. Now turning to events, experiences, and rights.

The segment recorded revenue of $440.6 million in the quarter, down $5.7 million or roughly 1%, and adjusted EBITDA of $49.7 million, down $35.3 million or nearly 42%. Segment revenue was impacted by certain biennial and quadrennial events like the Ryder Cup, UEFA Euro Championships, and CONCACAF World Cup qualifying games, which all occurred in 2021 but not in 2022.

Revenue was also impacted by the timing of certain events that occurred in the second quarter of 2022 compared to the third quarter of last year. These factors were somewhat offset by growth in our academy business, the introduction of our FreeStyle event, and events returning in 2022 that were canceled in 2021, including the Aer Lingus Classic college football game, as well as a number of music events.

We also saw record attendance at the Big Feastival in London, the Mubadala Silicon Valley Classic tennis tournament, and our On Location business saw continued demand across properties such as Wimbledon, the US Open tennis tournament, the NFL, and WWE's biggest events. Adjusted EBITDA was impacted by the timing of events, insurance recoveries recognized in the prior year, as well as increased cost of personnel, including the Olympics business with On Location and the addition of Barrett-Jackson, which we acquired in the quarter.

Additionally, our acquisition of OpenBet closed at the end of the quarter. As we previously announced, OpenBet and IMG Arena will form a fourth reportable segment called Sports Data and Technology beginning January 2023. Finally, representation. Our representation segment revenue was $388.3 million, a decrease of $276.4 million or nearly 42%.

Third quarter 2021 included $334 million of revenue from the restricted Endeavor Content business. Excluding that, segment revenues would have been up $57.3 million or 17%. Segment adjusted EBITDA was $132.9 million, down $8.9 million or nearly 6%. The prior year included $26.5 million of adjusted EBITDA from the restricted Endeavor Content business.

Excluding that, adjusted EBITDA would have increased $17.6 million or 15%. Performance in this segment was driven by continued strength in our core talent agency business and the continued recovery of live entertainment, predominantly music, as well as our 160over90 marketing business, where we saw increased spending from our corporate clients. Moving to the capital structure.

We ended the quarter with $5.5 billion in debt and $970.8 million in cash. In the quarter, we made a voluntary paydown of $250 million of debt. At quarter end, our aggregate fixed-rate debt is now approximately 43% of our outstanding total debt. We intend to pay down an additional $250 million of debt before the end of the year.

Together, we expect a combined paydown to reduce our annual cash interest cost by approximately $30 million. We also expect our net leverage to be approximately 3.85 times by year-end. We continue to anticipate free cash flow conversion of approximately 40% for the full year 2022. We also anticipate achieving roughly 50% free cash flow conversion for the full year 2023.

With the strength of our free cash flow profile, we see more opportunities to continue to delever. Moving on to our updated 2022 outlook. We are tightening our revenue guidance range to be between $5.235 billion and $5.325 billion, which is $5.28 billion at the midpoint, representing year-over-year revenue growth of 21%, excluding the restricted Endeavor Content business.

In addition, we are raising our adjusted EBITDA guidance range from $1.145 billion and $1.175 billion, which is $1.16 billion at the midpoint, up $10 million from the midpoint of our prior range, representing expected year-over-year adjusted EBITDA growth of 32%. Our updated guidance incorporates the following considerations.

Our high degree of visibility into revenues for the balance of the year, the continued adverse impact of FX, the delayed timing of content deliveries within our non-scripted business, the earlier than anticipated sale of the Miss Universe organization, and our ongoing cost discipline. Even in the face of an uncertain macro environment, we remain confident in our ability to execute on our strategy and the resilience of our business against challenges ahead. With that, I'll turn it back over to James.

Ari Emanuel (CEO)

Great. Thank you. Jason, we'll now take questions please.

Operator (participant)

If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, it's star one. Our first question is from John Hodulik with UBS. Your line is now open.

John Hodulik (Managing Director and Senior Equity Research Analyst)

Great. Thanks, guys. So obviously a lot going on in the traditional media space right now with the weakening ad market and sort of stronger cord cutting. Do you guys think this changes the calculus companies are making when it comes to sports rights? I mean, is there any sense that, you know, especially traditional companies are sort of becoming more reticent to spend or, you know, to spend on sports at this point.

Does it accelerate the shift of sports from traditional platforms to digital platforms? That's number one. Then maybe for Jason, just the margins in the representation business were really strong this quarter. I mean, is this 34% sort of a good level as we start to look out into 2023? Thanks.

Ari Emanuel (CEO)

I'll take the front end of that question. Premium content continues to be in huge demand, whether that be sports rights or movie or television or podcast. The tech players like Amazon and Alphabet and Apple are in a race to add offerings across multiple categories to attract customers into their ecosystems and convince them to stay.

As an owner of premium sports like the UFC, as well as a guy that represents premium leagues and federations, more interest from bidders in live sports is a win-win for us, and more opportunities to strike broadcast deals for our talent. Apple, as we know, kind of moved in on MLS and MLB. Amazon now has exclusive Thursday Night Football, and they added the Friday night games for Black Friday.

Netflix bid on F1 is rolling out their AVOD service. They are gonna add sports. They're gonna follow what we believe was Amazon's process going after international rights for sports, testing it there, testing their system there, and then moving that to the domestic front. They're gonna go day and date and live. I think it was just announced with Chris Rock.

YouTube announced, you know, 15 MLB regular season games. Also ESPN said that they're carrying international games during this year's NFL. It just shows the value of sports. There's gonna be a couple sports coming up, the NBA, ours, and some others. There's gonna be multiple players in competition, whether that be from Paramount+, Comcast, Apple, Amazon, ESPN, and Warner Bros. Discovery. I think the value of sports rights as we have seen, even with the Formula One deal going to $75 million, is only going up. I do not think it's going down even in this environment.

Jason Lublin (CFO)

As far as the EBITDA margins go, you know, part of the 34% was the mix shift in the quarter between WME, our 160over90 business, and licensing. You know, we should be 30+% margin for this segment on a go-forward basis.

Ari Emanuel (CEO)

Great. Thanks.

John Hodulik (Managing Director and Senior Equity Research Analyst)

Thanks, guys.

Operator (participant)

Next question, please. Our next question comes from Stephen Laszczyk with Goldman Sachs. Your line is now open.

Stephen Laszczyk (Analyst)

Hey, great. Thanks, guys. On OpenBet, maybe for Ari or Mark. Now that the deal is closed, could you maybe talk a little bit more about the game plan for integrating OpenBet and IMG Arena over the next few quarters? What are the next steps? Are there any revenue or cost synergies that you think you can act quickly against, and that we should keep in mind as we think about modeling the new segment in 2023?

For Jason on FX, you know, we saw some reprieve today, but FX continues to be a headwind. Could you remind us what your specific ex-FX exposure is and how much of a headwind it was or has been on revenue and EBITDA this year, and maybe how that relates to some of the guidance revisions that we saw come through? Thank you.

Ari Emanuel (CEO)

Just to remind you, we're in the B2B side of the betting business. We're not competing like the other players in the space for players and consumers. We're on the supply side to all of them. You know, we have multiple touch points in the company across sports and sports betting ecosystem. IMG Arena distributes data and content on behalf of rights holders to sports books.

OpenBet offers sports books a betting platform and a content offering ranging from player wallet account management, trading, and odds creation. As a result, you know, there's, I think, in this space, there's nice secular tailwinds in the betting space, both internationally and domestically as it rolls out to more states.

On the synergies, I would just say both IMG and OpenBet are profitable businesses right now. It's gonna be a new segment for us, going into 2023. The combination, you know, we expect to achieve meaningful revenue synergies, when IMG Arena has the data and the content, and OpenBet has player odds and et cetera. On the revenue side and the cost side, we feel very positive about the business and it's a profitable business for us.

Jason Lublin (CFO)

On the FX side, roughly 85% of our revenue is denominated in USD. We do have some top line revenue exposure, mostly in our E&R segment. Roughly, let's call it, you know, $750 million-ish of exposure. We expect the impact this year to be, on a full year basis, roughly $120 million or 2% revenue. For us, though, you know, the revenue exposure is offset as the cost of those contracts and servicing them are also in that currency. It has a limited impact on our bottom line, as evidenced by us continuing to raise and forecast up our EBITDA guidance.

Stephen Laszczyk (Analyst)

Great. Thank you.

Ari Emanuel (CEO)

Next question, operator.

Operator (participant)

Our next question comes from Ben Swinburne with Morgan Stanley. Your line is now open.

Ben Swinburne (Managing Director)

Hey, everybody. It's Ben. Good afternoon. Ari, I had a question for you around capital allocation, and then I had a question for Jason on sort of sports rights and how those roll through the business. You guys have built this company, as I know you know, through lots of opportunistic and successful M&A. We are certainly in a new rate environment.

Cost of capital is higher. You're a public company. Can you just talk about your sort of philosophy as you look out over the next year plus around continuing to be opportunistic to make sure you don't miss, you know, big opportunities, but also recognizing sort of what's happened to the cost of capital and sort of where investors are focused from a leverage point of view?

Jason, you know, IMG and WME Sports, you know, rep a lot of these big conferences. I noticed you guys were on the Big 12 deal, which I think got a 70% AAV increase. We typically don't think about that business that much, but can you just remind us how you guys get paid for businesses, you know, for deals like that as, you know, it flows in over the course of those deals and sort of what segment that shows up? 'Cause obviously that's a decent part of the IMG business as well. Thank you.

Ari Emanuel (CEO)

Well, as you saw, you know, Jason talked about we're gonna pay down another $250. On the allocation side, as we've said to you, we're gonna be sub-4. We're now sub-4. Going into next year, we have a conversion rate of 50%, which I think Jason talked about, which we also indicated that we are gonna get to. We're always opportunistic as it relates to M&A.

We have a different formula for everybody. We kind of create moats around our businesses and see kind of where the opportunity is. Yes, cost of capital is more expensive. However, you know, we're long-term players. We evaluate everything about where we think it's best for the shareholder value. We continue to be very kinda inquisitive, but with the understanding of where interest rates are going.

Right now, we're looking at the marketplace, haven't seen anything that we want. We closed a bunch of deals that we wanted to do. That's where we stand right now. Ben, I would just add on the capital allocation. You know, as Ari said, we're gonna be 3.85x at year-end, roughly. We paid down $250 of debt, gonna pay another $250 this quarter.

You know, based on our free cash flow expectation next year, we'll be generating a lot of cash for the company. You know, we're gonna look at all things to how to maximize shareholder return with our capital, whether that's continued debt repayment, stock buybacks, dividends, as well as M&A.

We're constantly looking at the best way to, you know, maximize shareholder value with our capital over the long term. As far as your second question on media rights, typically what would happen is we would charge a commission percentage on the media rights deal. It can take a variety of different forms. Sometimes it might just be on the total value of the deal.

It might just be on the increased value of the deal or, you know, there could also be hurdles that you add additional, you know, you earn additional commissions based on, you know, certain thresholds. It's traditionally just a commission rep agreement on those deals. Great. Thanks, Ben.

Ben Swinburne (Managing Director)

Thanks, guys.

Ari Emanuel (CEO)

Jason, next question, please.

Operator (participant)

Our next question comes from Jessica Ehrlich with Bank of America. Your line is now open.

Jessica Reif Ehrlich (Managing Director)

Oh, thank you. I've at least two questions. On UFC, ESPN+ reported some weakness in pay-per-view revenue from UFC, and I think they alluded to the number of matches. Could you just talk about what's going on, you know, under the surface and, you know, what you're seeing in terms of engagement? Then, can you give us some color on, like, what happened with the equity loss in affiliate line? You said this is Learfield. Well, the Learfield is IMG College. Why'd the loss widen? Then guidance, why did you tighten the revenue guidance and bring it down a little bit?

Ari Emanuel (CEO)

Thanks. Well, I'll probably take the first one, then Jason will jump in on the last two. Thanks, Jessica. Listen, Disney/ESPN, they're great partners to us. Handful of our events from them was broadcast on ABC, kind of a huge amplifier for us. The ratings continue to be very strong. We look at our that business specifically in the ecosystem on an annual basis, not on a quarter-to-quarter basis.

Marquee events shift from quarter to quarter, year-over-year. As actually was mentioned on the Disney call, there was a robust performance on ESPN+, largely attributed to the UFC content. The third quarter of last year featured a match-up that resulted in an oversized pay-per-view.

Like every sport, we'll have matchups that drive increased demand based on various factors like rankings and hype. The good thing is we're fortunate with the UFC, one of the most exciting fast-paced sports. It's reflected in continued record-breaking achievements and sellouts, 26 over the last fights that we've had. Our big one is coming up Saturday, another sellout. In the quarter, I think record-breaking sellouts six out of the last eight in this quarter. It's just kind of a matchup happened that was bigger in that quarter.

Jason Lublin (CFO)

On the losses from affiliates, the majority, the vast majority of that is a charge from Learfield. Learfield took an impairment charge, and that flows through our earnings, so that's where that's coming from. On the revenue guidance, you know, a few things that we've incorporated in our guidance over the balance of the year that brought the revenue down slightly.

One was the continued impact that FX is having on the business. Two, we have some non-scripted content deliveries that have moved, that have pushed from Q4 to Q1. Lastly, we sold the Miss Universe organization earlier than we had expected, so originally that we expected revenue from that in the fourth quarter.

Kutgun Maral (Analyst)

Thanks, gentlemen.

Stephen Laszczyk (Analyst)

Thank you.

Ari Emanuel (CEO)

Next question please, Jason.

Operator (participant)

Our next question comes from Kutgun Maral with RBC Capital Markets. Your line is now open.

Kutgun Maral (Analyst)

Great, thanks for taking the questions. You know, I know you spent some time on this in the opening remarks, but can you talk a bit more on what you're seeing across the health of the consumer, with your events and experiences?

I think we on the outside are just all trying to reconcile what's going on between these strong results that you and most of your peers have reported compared to what I think a lot of us are viewing as being an increasingly challenging macro backdrop. I know it's kind of a tough one to really answer, but, you know, how do you think about what's going on, and how does that inform your near-term outlook? You know, that would be helpful.

Just a second, sorry, Jason, to follow up on the FX question. I think you characterized or sized the FX hit as being about $120 million. I think last quarter you had sized it as close to $60 million. I'm just trying to better understand. Was the FX impact to the financials an incremental $60 million in the back half relative to what you were expecting? Because if so, kind of seems like your top line guidance tweak, you know, wasn't that punitive. In fact, ex FX, sounds like everything has been in line to maybe slightly better, but I just wanna get a better sense there.

Ari Emanuel (CEO)

Look, on the consumer side, I'll take the first part of the question, and Jason will take the second part on the FX issue. Limited impact on the business to date. We saw solid performances across the broad platform. On the owned sports side, as I said in the last answer, UFC sold out all events in the quarter. 26 consecutive sellouts since we came back from COVID.

5 more ticketed events versus last year. UFC 276 set a new record for single event VIP experiences on location. We sold four on location VIP experiences going into Madison Square Garden for $40,000, and there were some at $24,000. UFC 281 is the highest premium experience sold out.

I talked about that there was six out of the eight events in the third quarter broke records. On the events and experience side for On Location, strong performance at Wimbledon, US Open, MLB All-Star Game, WWE, our biggest event. When I look at interest in the Super Bowl LVIII is outpacing Super Bowl LVI and we're 16 months away. On the IMG Academy side, I'm just giving you a flavor because how we look at it in a broad way, we had a record at the boarding school and a record at our summer camps. From our perspective, that's going well. I would

Well, also, if you just look as you talked about, you know, some people in the same space. Live Nation reported, I think it was 44 million fans in 11,000 events. I mean, they're up double digits. Disney saw strong demand at the parks. I would just say, I think the way we're looking at it, and we constantly monitor this, spending habits have shifted, but our company has a presence that at every point on the purchase chain.

Whether it be premium experiences to concerts to supply of content for the streamers. I would just say during COVID, people were buying stuff, and post-COVID, they're more focused on experiences. We're the beneficiary at, on that side of the equation. With that, I'll turn it over to Jason for FX.

Jason Lublin (CFO)

The $60 million when we gave you last time was for the balance of the year, and that number as rates continue to move has grown. The 120 I gave was from the original budget for the balance of the year. Original budget was the full year impact of FX is $120 million.

Kutgun Maral (Analyst)

Got it. Thank you so much.

Ari Emanuel (CEO)

Yep. Next question, operator.

Operator (participant)

Our next question is from Bryan Kraft with Deutsche Bank. Your line is now open.

Bryan Kraft (Director)

Hi, good afternoon. Ari, I know that you have expressed a great deal of confidence in the growth outlook for the representation segment. I wanted to ask you in light of some of the larger media companies talking about more spending discipline and slowing down the growth in their content budgets. From your perspective, how are they changing what they're doing to kind of optimize the returns on content investment? I know they're still growing their budgets, but, you know, where are they getting more disciplined? Where are they pulling back on spending? You know, any color on that that you could share would be super helpful. Thank you.

Ari Emanuel (CEO)

I think it's in their best interest to say that they're amidst austerity. That being said, from where I sit, we believe our buyers are staying at their content spend levels. Even, I mean, Netflix said they're gonna be at 17%, potentially increasing revenues based on sub growth. Paramount went from $2 billion to $6 billion. We know Roku's in there right now.

I think Disney said they're at 30%, going to 33%, depending on some sports rights. You know, on the podcast side, we've made, I mean, very high-end deals right now across all the different players. You know, the funny thing is Endeavor, EDR, is a proxy for content growth, and a barometer for overall content, not only in movies and television.

It's going up across the board. We are not feeling any decrease in the spend. I just give you this. In the quarter, the total number of scripted and non-scripted shows sold have increased when you compare it to the third quarter of 2021. You know, global subscriptions have increased when you look at all the different players.

The only way to keep people engaged in their platforms is through movies, television, and if it's, you know, the streamers pod, you know, podcast or sports rights. Now they're moving to AVOD, where they have to gonna have to add more content, and Netflix is gonna have to go into sports or live. We feel very good about what they're doing.

I understand what they have to say, but we're seeing no decrease in our representation segment. Actually, as I stated before on these calls, we've increased double digits if you take 2020 out, and we don't see that decreasing at any point.

Next question, please.

Bryan Kraft (Director)

If I could ask just one follow-up.

Ari Emanuel (CEO)

Sure.

Bryan Kraft (Director)

Thanks. Sorry, just one quick follow-up. You mentioned the AVOD launches. Do those AVOD launches trigger new layers of payment to you and your clients because of the way the deals are structured?

Ari Emanuel (CEO)

We're not there yet. Do I suspect that at every turn of a new content platform, there might be negotiations for different economic revenue models? Yes. I don't have what those formulas are right now. Some of them only have the rights for SVOD, so that they're then gonna have to come back to us if they wanna have an AVOD layer for different economics for our clients. We're not there yet. Once that happens, we'll report it.

Bryan Kraft (Director)

Okay. Thank you.

Ari Emanuel (CEO)

Thanks, Bryan.

Next question, Jason.

Operator (participant)

Our next question is from Doug Mitchelson with Credit Suisse. Your line is now open.

Doug Mitchelson (Managing Director)

Oh, thanks so much. A couple quick ones. Ari, I was just curious on podcast renewals. Some of the podcast platforms talk about dramatic improvements for margins in their businesses and increases in profitability as they grow ad revenue. Do you think, you know, the talent is gonna maintain share of revenue in the podcast business, or do some of these platforms deserve, you know, a greater share of revenue and they were just overspending to start up the business?

You know, on the second one, I was just curious on On Location, just how much more runway there is to add events. Have you already captured, you know, the vast majority of the major events like, you know, the Olympics and Super Bowls, or is there a lot more events that you can sort of plug into that business? Thanks.

Ari Emanuel (CEO)

On the podcasting side, over the last two quarters, and I can't finalize the number for this quarter, but you know, they're making significant overall deals across all those three players. You know, there's a revenue mix with regard to advertising, et cetera. Will they change those deals? I'm not really sure. Not really my issue.

They're complicated, like in the SVOD and the AVOD. They're complicated deals on who gets the revenue mix on advertising, et cetera, and how you're structuring those deals. It's all over the place. To give you one broad answer doesn't work. On the On Location side, we added the WWE. We're adding Barrett-Jackson. We have the Super Bowl. We have the Olympics.

There's a lot more out there in the space. I think we are a unique company as it relates to that, and our offering. I mean, you can just see what, I mean, what we've done at the UFC and what, you know, the revenue increase that we've had there over the years has been pretty substantial. When people are realizing that high-end experiences, the consumer definitely wants.

Doug Mitchelson (Managing Director)

All right. Thank you.

Ari Emanuel (CEO)

Operator, can we have the next question, please?

Operator (participant)

Our next question is from David Karnovsky with J.P. Morgan. Your line is now open.

David Karnovsky (Managing Director)

Hi, thank you. I know it's a small asset, but you did sell Miss Universe recently. As you look at your businesses, are there other places where you would want to pare your portfolio, or is this more of a one-off? Jason, can you just walk through the factors driving the higher expected free cash flow conversion to 2023? Thank you.

Ari Emanuel (CEO)

Why don't you take both of those, Jason?

Jason Lublin (CFO)

Sure. Look, on the free cash flow, some of the factors are, we've obviously paid down debt. We're gonna continue to pay down debt. That should generate roughly $30 million of incremental cash flow. Really also working on our net working capital and our change in net working capital and getting that more stabilized. We've had some ramp-up of the net working capital, given pre-Olympic spend and some other things. That's primarily how we're expecting to get additional free cash flow.

David Karnovsky (Managing Director)

Second question is about optimizing the portfolio with the sale of Miss Universe.

Jason Lublin (CFO)

Yeah. Look, we're always looking across the portfolio. If we have an asset that doesn't necessarily fit in the portfolio anymore, and we can, you know, get a good return on it, we're always evaluating those opportunities.

David Karnovsky (Managing Director)

Thanks, Teddy.

Ari Emanuel (CEO)

Next question, please.

Operator (participant)

There are no more questions at this time, so I'll pass the call back over to the management team for closing remarks.

Ari Emanuel (CEO)

Great. Thanks everyone for joining us today. Look forward to seeing you next quarter.

Operator (participant)

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.