Tough Talk In WME Partners Call As Agency Prepares For Prolonged Hard Times In Coronavirus Shutdown

Beyond the bombshell Paradigm chief Sam Gores teleconference to temporarily lay off over 100 staffers, a WME Partners conference call today has put the members of that select group in a state of shock.

Essentially, those agents were told of an indefinite postponement of a windfall they expected to occur on April 5. Basically, the partners were set to be given the option to cash out 20% of their equity, calculated on a $3.6 billion valuation of the company. That will be pushed down the road indefinitely and the partners were also told it is likely they will be asked to volunteer to take pay cuts, until business rebounds.

This is a watershed moment for WME. Some of the agents for the past several years kept their salaries at discounted rates, with the promise of an equity payout off a pricey IPO that would have made a lot of dealmakers independently wealthy. So this is quite a blow. It would have been an extremely hard thing to cash out all the partners now — as many as 150 — but it will remain to be seen whether everyone stays put long term as a result of this.

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These were moves that were under discussion, sources said, and nothing has been instituted. But parent Endeavor has rebuilt itself into an enterprise that derives up to half its revenues from live events, and that business has completely dried up. The agency has a heavy debt load, which prompted S&P Global to put it on a list of 107 companies across sectors put on negative credit watch or downgraded since the virus incapacitated everyone. Much of the agency’s future will be keeping these star agents in the fold and keeping morale up. It isn’t lost on anyone that agency toppers Ari Emanuel and Patrick Whitesell took $162.5 million each, in a moment where partners were given the option of liquidating before the agency underwent an IPO that it pulled back when the target numbers weren’t hit. These financials were listed on S-1 filings.

Insiders countered that Emanuel and Whitesell were entitled to exercise that option because they had long taken discounted salaries while turning the agency into a juggernaut. The now postponed equity buyback program wasn’t the first time partners were invited to cash out shares. This was the second offering, reflecting a lot more equity that was given to rising stars. Also, the other consideration here is that had Endeavor gone through with the IPO, the stock value would have gone through the floor anyway right now — before those agents would have been able to cash out their stock — said an insider sympathetic to the agency’s dilemma.

The agency is trying its best to keep the company afloat, and it might have been egregious from a survival standpoint to cash out partners in this current emergency. An insider sympathetic to the dilemma faced by Endeavor and WME leadership said the priority is to not engage in mass layoffs, which might be unavoidable if the drought lasts months. So it was inevitable that hard choices are going to be made.

Agency leadership will have to bet that things will get better down the line when the coronavirus curve flattens, and those partners will be made whole eventually. But right now, that seems a long way off, and this will be a test of loyalty for an agency whose parent company has been on a tear with high priced transactions with this crisis occurring at the most inopportune time.

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