Tuesday marked the close of Endeavor’s acquisition of WWE and its spin-off of the entertainment giant with UFC into a new company named TKO Group Holdings.
The new business closed its first day of trading at $103.05 in light volume on the New York Stock Exchange. That’s nearly 3% below the value Endeavor hung on the business when it struck a deal with Vince McMahon to buy WWE in April. But the quiet stock market start for TKO appeared to do little to dampen enthusiasm inside the TKO walls. The management team, which includes McMahon and UFC founder Dana White each running their respective sides, is “the Avengers of sports media biz execs,” said one TKO executive, who spoke not for attribution.
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In one sense, the analogy is a good one. Walt Disney Co. bought Marvel, which was doing just fine on its own and about half the size of WWE, for a steep premium in 2009. It then proceeded to blanket the world with content, leveraging seemingly every Marvel character into the Avengers cinematic universe. Endeavor, which controls TKO by virtue of 51% of its equity, offered a 19% premium to WWE when the deal was announced.
While TKO is just getting started—SEC rules and natural caution meant a lot of specific business plans haven’t been cemented before Tuesday’s merger—there are indications that expanding the content for the combined sports and entertainment business is a priority.
“We’re both incredible content creators,” said Lawrence Epstein, UFC chief operating officer, on a phone call. “Being able to sell our content globally together is going to be an incredible synergy. But it doesn’t end there. You can talk about sponsorships, consumer products, where WWE has been an absolute leader.”
Early signs are that TKO will seek to beef up the revenue its component businesses get from live events. “We’re looking at approaching tourism authorities and regional tourism operations that promote major events and saying, ‘Bring a UFC event, bring a WWE event, let’s put together a package that incentivizes us to come to particular markets,’” Epstein said. “More content to negotiate with these tourism authorities is going to pay significant dividends for us on the live events.”
WWE already makes significant money from countries paying for its events. In Saudi Arabia alone, the company makes more than $100 million annually under a 10-year contract to hold two events there each year. It doesn’t appear UFC has been quite as effective in getting such large dollar volumes (although Endeavor hasn’t specified one way or the other).
That said, the MMA league has developed its business to the point that any event held outside of its home arena, the UFC Apex in Las Vegas, comes with a “venue fee” paid to UFC. Authorities in Abu Dhabi, Australia, New Jersey and Utah have paid undisclosed amounts to get UFC events of late.
To keep the Disney-Marvel analogy going, remember when Spiderman was a stand-alone superhero in two sets of movies earlier this century? Eventually, in 2016, the puppet masters at Disney got Iron Man to rope Peter Parker into the Avengers universe.
Parsing the thoughts of Epstein and WWE’s Nick Khan, expect to see some more athlete crossovers in coming years, perhaps similar to Brock Lesnar and Ronda Rousey making the shift from WWE’s scripted entertainment ring to UFC’s very real MMA contests.
“Certainly we’re not going to push WWE superstars into a UFC octagon… but in terms of UFC folks crossing over to WWE, that’ll depend on talent, it’ll depend on circumstance,” Khan said on a phone call. “Obviously it has to work for the UFC product for it to work for WWE.”
Part of the strategy of getting more entertainers to cross one way or the other is to create more overlap in the fanbase of WWE and UFC, as part of a long-term attempt to solidify a broader base for the business to build off.
Data firm HundredX, in an independent analysis of a year‘s worth of fan information this year, found that while both have similar fanbase profiles (with UFC skewing younger), each league has more overlap with other sports than they do with the other. “There is a tremendous opportunity to increase the overlap and figure out ways to get WWE fans excited about UFC and vice versa,” Epstein said.
What all this means from a near-term revenue perspective isn’t clear. Khan said the company isn’t offering revenue guidance to investors yet. (Suggesting expected quarterly or annual sales is a typical practice by established publicly traded companies.) But certainly Wall Street will be looking for growth. WWE generated $1.29 billion in sales in 2022. Wall Street had been expecting that to rise 5% this year to $1.36 billion. UFC generated about $1.1 billion in revenue last year, and was expecting some level of growth to come from more of its slate of events being held outside Apex, bringing in more venue fees.
Wall Street analysts haven’t published their own expectations for TKO’s top line, though one analyst set a price target of $132 a share for TKO, according to data compiled by S&P Market Intelligence. A gain like that, which would be 28% over TKO’s current price, would go a long way to proving Endeavor’s proposition that combining WWE and UFC will unlock more value for shareholders. That indeed would be a Disney-esque move for Endeavor.
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