Learfield’s Looming $1B Debt Bill Forces Six College Deal Makeovers
Learfield has had to renegotiate terms with six of its top-tier multimedia rights partners as the college dealmaking giant faces $1.1 billion in debt maturing this year and a trio of payments rapidly approaching. UCLA and Florida State were among those six, according to two people with knowledge of the deals.
The Texas-based multimedia rights provider approached the six schools about renegotiating the terms of their existing contracts, presumably looking to lessen their guaranteed commitments to those partners. Reworking contracts incurring the biggest losses better positions the company for restructuring and was a requirement of Learfield’s lenders as they labor to reduce the company’s billion-dollar debt tab. Those restructuring plans are expected to be finalized in the coming weeks, Learfield says, but whispers of the renegotiations have already reached—and started to worry—other schools.
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The timing has left Learfield walking a delicate balance of simultaneously renegotiating terms with one group of partners while trying to reassure the others that the business remains healthy.
All six deals were signed prior to Learfield’s merger with IMG College in late 2018, when the two entities were still competing for school partners. The merged entity is 42% owned by Endeavor Group Holdings. Learfield has struggled to manage its debt since the IMG College merger, the bulk of which is now coming due.
The company confirmed restructured agreements with six of its schools but declined to disclose any specifics around the new deals or partners involved. The company said no additional renegotiations are planned now that new terms have been finalized with the six target properties—agreements that Learfield says would have lost a “substantial” sum over the next several years if left as originally written.
“The schools that we approached recently were strictly those under legacy deals that yielded significant losses,” Learfield CEO Cole Gahagan said in an interview. “When we sat down with our partners, our number one focus was both flexibility and ensuring that we could put the best possible partnership in place for those schools. Our greatest hope and intention is that we remain in partnership with these schools for a long time.”
UCLA did not immediately respond to a recent request for comment. Florida State confirmed it had renegotiated with Learfield and can solicit bids from other MMR providers at the end of this fiscal year.
Learfield said no relationships were immediately severed, but Sportico has learned at least two other schools also have rights to test the market going into the 2024 fiscal year, which will begin July 1, 2023—essentially ensuring an option to walk away from their renegotiated terms for a better deal without penalty.
The situation has spooked several of the company’s other college partners, who have grown increasingly concerned about Learfield’s future. Many have begun contingency planning for the possibility that their deals could be torn up in a future bankruptcy filing. Some have started to explore what bringing their multimedia rights operations in-house might mean, while others have begun vetting potential new partners, according to several athletics administrators who were not authorized to speak publicly.
Learfield’s debt maturities include a total of $58 million in payments due May 31, June 30 and July 31, and a bigger chunk due Sept. 1, according to S&P. The college fiscal year ends June 30, and many of Learfield’s contracts, per Sportico’s review of more than three dozen obtained via public records requests, include at least partial payments owed at fiscal year’s end. Two of the company’s other outstanding loans, which amount to $970 million, are due Dec. 1. Another $75 million is due in December 2024.
S&P predicted in January that the company “will not be able to repay all its debts coming due this year,” and downgraded Learfield’s credit rating further into junk territory.
A group of lenders to Learfield engaged law firm Paul Weiss Rifkind Wharton & Garrison LLP—restructuring attorneys—earlier this year as payment dates near. Looking to avoid a formal Chapter 11 filing, Learfield has been working with its lenders to restructure the company’s debt. (Learfield is being advised by Kirkland & Ellis LLP.) Many of the company’s debt holders will likely become equity holders in Learfield through the restructuring. It is unclear how those swaps will impact the stakes of current investors.
Gahagan said the company has been anticipating the upcoming debt maturities “for quite some time, and we’ve been in active discussions” with lenders and equity partners.
“We fully intend to restructure and significantly reduce that debt in the weeks ahead,” Gahagan said, declining to disclose a specific timeline. “We’re nearing the finish line of our process. And while nothing we’re going through will impact our school partners, we’re looking forward to updating all of our partners across the entire enterprise once we’re finished.”
The company typically offers its college properties a guaranteed annual payment in exchange for the ability to sell various sponsorship and multimedia rights. In some cases, the guarantees to schools amounted to more than the revenue generated from the agreement.
Under UCLA’s original contract, for example, which Sportico obtained through records requests, the school was guaranteed nearly $17 million by the end of its 10-year pact with Learfield. According to Sportico’s analysis of two of the Bruins’ past royalty reports, which include an accounting of payments made, Learfield IMG lost more than $1.7 million on the deal in 2019-20. That followed a nearly $1 million loss the year prior, records show.
Learfield negotiated heavy impairments to many of its agreements during COVID-19, which it continued to claim even as sports returned to normal operations and the NCAA's events limits were lifted.
In many of those cases, the company negotiated away from the fixed-fee structure toward smaller guarantees and revenue-sharing agreements, according to documents obtained by Sportico. A 2020 amendment to Kansas State's agreement with Learfield, for example, swapped the school's guaranteed royalty payments for an annual license fee of 65% of adjusted gross revenue through the end of the Wildcat's contract—provided that the cut met an established minimum of $2.5 million.
Wyoming's original guarantees were similarly replaced in a pandemic-prompted amendment with an escalating percentage of adjusted gross revenue (reaching as much as 60%) through the 2023 fiscal year. The contract's original terms would then be honored for the final two years of the deal.
These hybrid or variable structure deals include less risk for Learfield, and keep the schools financially invested in the monetization of their rights. Similar repositioning was part of Learfield’s strategy in the new deals it recently negotiated with the six schools, the people said.
The retooled agreements are just one step in Learfield’s restructuring process, which Gahagan said does not include plans to sell any assets. Gahagan said the company is on track to finalize its restructure without initiating formal court proceedings.
That said, in any restructure, there is the possibility that not all creditors agree with the proposed solution, forcing an eventual Chapter 11 bankruptcy filing. In Chapter 11 proceedings—as opposed to Chapter 7, which involves liquidation of assets to repay debts—the debtor proposes reorganization plans keep its business going while paying back its creditors over time.
In that case, Learfield could present a bankruptcy judge with a prepackaged plan, created in conjunction with its creditors, outlining which parties would be paid on what schedule and who would get equity in Learfield in the restructure. It’s typically a relatively collaborative process, though not quite as voluntary as lender participation before the courts are involved.
“There's absolutely no reason for any school partner, brand partner, licensee, retailer, any Learfield partner or stakeholder to be concerned,” Gahagan said. “Learfield is not a retailer in existential threat. Learfield is a market-leading, highly profitable, innovative company that will be in a significantly healthier position on the other side of this process. That's the only outcome that any of our partners should expect as a byproduct of this process.”
As a publicly traded business, Endeavor Group Holdings (NYSE: EDR) is required to account for its equity stakes in businesses it doesn’t control in its financial filings. After writing down millions in annual goodwill “primarily due to continued losses,” over the last several years, essentially determining that the value of Learfield’s business has gone down substantially since its acquisition of the company, Endeavor stopped recognizing its share of Learfield’s net losses in its most recent filing for the first quarter of 2023 “given that the investment carrying value is zero.”
Endeavor’s most recent annual earnings report noted $312.5 million in pre-tax losses for Learfield in 2022. (Endeavor reports financials on a calendar year basis; Learfield's fiscal year follows an academic schedule.)
Learfield disputes Endeavor’s characterizations of its financial health, pointing to positive adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, in each of the calendar years disclosed in Endeavor’s filings (2019, 2020, 2021 and 2022).
According to numbers provided to Sportico, Learfield says it recorded $45 million in adjusted EBITDA (which differs from generally accepted accounting principles) on $1.03 billion in net revenue—which it says excludes certain items such as fulfillment expenses incurred on behalf of partners—and $76 million in adjusted EBITDA on $1.06 billion in net revenue for 2023. The company said its EBITDA is adjusted for "non-operating items and one-time expenses and income," but did not detail the specific adjustments.
Mark Bradshaw, professor and chair of the accounting department at Boston College's Carroll School of Management, describes adjusted EBITDA as "ordering pasta primavera—everybody has their own recipe, and without any disclosures of the ingredients, you don't know what to expect."
Bradshaw says companies opt to use adjusted metrics over standard EBITDA either to "remove the effects of transitory items like an inventory writedown," or to eliminate expenses "and make it seem like profitability is higher."
This year’s adjusted numbers still leave the company with debt more than 14x greater than EBITDA. Healthy ratios are typically considered to be those in the low single digits. For the 2024 fiscal year, the company projects net revenue to exceed $1.1 billion and adjusted EBITDA to land at $100 million.
Learfield is the primary middleman connecting brands and media companies with athletic departments across the country and currently works with more than 1,000 schools in some capacity. It handles multimedia rights for more than 180 of them, which includes roughly 75% of the Power Five, though it has lost a handful of prominent partners in recent months including Nebraska.
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