When DAZN launched to much aplomb in the United States almost two years ago, what garnered the least attention was the question of the financial stability of the outfit despite its lofty promise to spend $1 billion towards developing boxing over eight years.
Now, perhaps there was some initial confusion when it comes to American writers given DAZN was a privately held company. In the United States, the financial information of private companies is not disclosed by the SEC. Generally one only gets a glimpse into the workings of private companies through lawsuits or the times when one can get their hands on an investor presentation when a company is looking to raise money through debt offerings.
However, the United Kingdom operates in a different fashion. Every company registered in the UK provides public disclosure on transactions affecting the company. Quarterly and annual earning reports are granted the benefit of delayed reporting, however. Quarterly reports can be delayed for up to six months and annual reports can be delayed up to 9 months. This information can all be found by going to the Companies House registrar website. If UK companies fail to report they can be stricken off the record and their assets become Crown property.
Given that the same boxing pundits gleefully tried to tackle the financial positions of Showtime after they signed Floyd Mayweather to his then record-breaking six fight deal or when Premier Boxing Champions secured financing from Waddell & Reed to try to push the sport back to the public airwaves, it is very curious why the financials of such a bold endeavour never seemed to pique the interest of the writing crowd until recently.
Why DAZN’s financials never seemed to garner much interest until recently I cannot know. But it did over the last year lead to odd articles, such as SportsPro Media’s oft-cited piece proclaiming that DAZN’s debt had tumbled 93%. A headline that didn’t even match the information provided in the ensuing article. Even Thomas Hauser’s recent two-part report on DAZN stated that “DAZN’s finances are shrouded in secrecy” when in actuality, it’s pretty easy to access. So journey with me now as I take you through the thrilling world of financial statements.
Let’s Start From The Start
While repeatedly referred to solely as DAZN. DAZN was actually one of many companies that made up Perform Group Limited. There were two main components of PGL, a business-to-business (B2B) side called Perform that made most of its money from collecting and selling analytical data to sports teams and betting sites and the more publicly known business-to-consumer (B2C) side called DAZN. Which in addition to the over the top streaming service, DAZN, also includes several sports related websites such as The Sporting News and GOAL.
Perform was once a publicly traded company in the UK until it was acquired in 2014 by Access Industries,owned by Len Blavatnik, for 702 million who remains the primary financier of this operation. DAZN was launched in August of 2016 in Germany, Switzerland, Austria and Japan. It would go on to add Canada in 2017, the US and Italy in 2018 and Spain and Brazil in 2019.
Because of the relatively short operating existence of the DAZN platform, there are really only two years of year-over-year comparisons which makes it a bit easier than digging through an extensive financial history. Especially since in September of 2018, Perform Group Limited was split into two distinct companies. DAZN which would officially comprise of the companies related to their B2C venture and Perform Content which included the B2B companies.
There was some horse-trading between the divisions but it’s not like any of you are really that enthralled with the internals so I’m going shorthand. This separation was done in preparation of a sale of Perform Content which would leave DAZN solely focusing on its OTT service. This sale of Perform Content was completed in April 2019 when Vista Equity Services purchased Perform Content and rolled the business up into their Stats LLC platform to form STATS Perform.
This is what led to the reorganization of the Perform Group website and the loss of all the lovely quarterly filings. But thanks to Chapterhouse anyone can access the last available filing which is now represented as the accounts made up to December 31st, 2018. So enough with the preamble, let’s get to the juice!
“I just want the numbers!”
I have seen recently in the wild, various people use a Balance Sheet table from Page 16 of the aforementioned filing to state the losses DAZN or DAZN/Perform has suffered in 2018 and 2017. Some have reported these amounts in British Pound Sterling and others in United States Dollars.
Figure 1
The above table is split between DAZN (continuing operations) and Perform Content (discontinued operations) and the last section is the combined balance of all operations. DAZN had a loss on the balance sheet of £546.9 million ($694.5 million) in 2018 and £424.3 million($572.8 million) in 2017. Using a conversion rate of 1.27:1 and 1.35:1 respectively which were the exchange rates at the end of 2018 and 2017.
However, while tables are always handy. They are generally not complete when it comes to the finances of companies. One should always read the comments that are part of earnings reports. This is especially true in the UK when it comes to information detailed in the required Strategic Report section (The US uses Management Discussion & Analysis).
For in the UK, the Strategic Report contains government-required disclosures that are not found in balance sheet statements which only need conform to the Accounting Standards. And it is there are a rather interesting discrepancy can be found between the balance sheet and the strategic report statement in regards to the losses incurred by DAZN found on Page 5.
Figure 2
As you can see, there is a slight discrepancy for 2018 in the after-tax losses of £10.7 million ($13.6 million) but a far larger discrepancy in 2017 of £110.1 million($148.6 million). The noted figures in Figure 2 for the 2017 year do not even add up with the presented amounts. They offer no further explanation for the differences. It might be related to the carrying value of the loans from Access Industries that were eliminated in 2018 (more on that later) but I leave it up to any other internet sleuths to ponder.
As far as revenue, DAZN did see increases with the benefit of being established in DACH and Japan,full year service in Canada and the launches in Italy and the US.
Figure 3
DAZN’s revenue reporting segments consists of OTT which is the streaming service Media which comprises advertising revenue across their websites and media player and Ventures which basically generates its revenue from the reselling of sports rights.
What offsets the gain in revenue from £257.6 million($346.8 million) to £327.7 million ($416.1 million) is the increase in Cost of Sales and Administrative Expenses. These are all the costs required to grow DAZN; Rights, Marketing, Product Development and Salaries. You can reference Figure 1 to see the increase of £361.7 million($459.3 million)but once again, the commentary has different amounts.
While the build-out costs of DAZN might decrease once they achieve a larger portion of the public’s knowledge, the growth in content commitments is growing at a much faster rate than any form of revenue. At the end of 2017, DAZN had commitments to acquire £328.7 million($417.4 million) in rights for 2018 and by the end of 2018 this number had grown to £1.05 billion($1.33 billion) for 2019. The total commitment stood at £4.38 billion($5.56 billion). The annual right commitment is likely to have increased since the time of this report given DAZN’s move into additional territories and their acquirement of additional sports rights such as the three-year deal to show the Premier League in Canada.
The final point I want to stress is that with the rights there is a prepayment that DAZN has to make before the start of the period in which the various sports are aired and then DAZN pays the remainder of the obligated amounts after airing. For 2019 this prepayment was £526.2 million($668 million). It will be interesting upon the release of the accounts up to the end of 2019 the prepayment amount given the current state of the world with the suspension of sporting activity.
Does Any Of This Matter?
From the outset of DAZN, it has been funded primarily by Len Blavatnik’s Access Industries. Mr. Blavatnik amassed an estimated $25 billion empire out of the ashes of the USSR in the 1990s. A period known creating a large number of oligarchs who made fortunes after being granted state industries because of their closeness to Boris Yeltsin(or from having a better private army to take it from those guys). But unlike many of his business partners who have found themselves on the end of US sanctions, Mr. Blavatnik was a bit savvier and has used his wealth to ingratiate himself into Western society. To the point where he has been knighted by the British crown.
So as we see the losses incurred by the operations at DAZN, the question as to how long these losses can go own really comes down to the desires of Mr. Blavatnik. For DAZN still operates on loans from Access Industries. Earlier I referenced an article from SportsPro Media that proclaimed DAZN had eliminated 93% of their debt. Which was a very misleading headline.
A full history of the Perform Group’s debt facilities can be found on Page 47 of the account statement. But I will summarize the situation as to what I feel is important to understand against the article. To service the launch of DAZN, the Perform Group took out a loan from the parent group Access Industries for 100 million GBP. This loan was then extended to a total amount of £650 million.
Figure 4
The Z shareholder is Dentsu Inc who on May 8th, 2018 made an additional investment into DAZN for £300 million ($381 million). Under the terms of the loan from Access Industries, the option to convert the loan amount DAZN owed AI into shares was exercised. Some shareholders were paid out and their equity was converted into more shares for Mr. Blavatnik but the rest of the loan value was converted into additional shares being dispersed to Mr. Blavatnik and the managers and other investors.
So while the loan was no longer debt, that headline painted a false picture of the state of the company. Especially since in the preceding paragraphs SportsPro Media mentions how DAZN had taken out another loan from AI in USD.
Figure 5
A more accurate headline would have been, “DAZN reduces debt by 93%… for a few months”.
Summary
DAZN remains in Mr. Blavatnik’s control. As of the date of this report the current shareholders are Mr. Blavatnik who through AI holdings possesses all the Class A shares that comprise 76.41% of all shares. The Class M shares held by management, employees and other investors that comprise 7.72%, Class Z shares held by Dentsu Inc (although the July 25th, 2019 filing shows these have been transferred to an entity known as Global Sports Investments LLC) comprising 8.51% of shares and the Class G share group which are option shares granted to John Skipper that comprise 7.36% of the company. Mr. Skipper’s Class G shares won’t vest until the share price of the company hits a specific price point.
The July 25th, 2019 filing seems to indicate there have been no changes other than the issuance of deferred and preferred shares both of which are controlled by AI Holdings.
What the financials of DAZN show us is that it is very expensive to build and operate an OTT service. The subscribers are heavily lagging the rights costs and it is noted by the directors that DAZN will need substantial sources of funding to meet their obligations. Whether this financing comes from Mr. Blavatnik or outside parties one can never tell. But given that Mr. Blavatnik had to shelve a planned IPO for Warner Bros, another one of his holdings, I don’t think he wants to get in too deep into this venture.
But it could be a while before he can offload DAZN into the broader market given the current climate and the failed IPO attempts by WeWork and Endeavor. The ship might have sailed on money-losing companies with no clear path to profitability.