In the latest edition the Sports Business Journal reports on the UFC sale to WME-IMG for $4 billion. The article has comments from members of the industry and outlines what the UFC means in the context of the long-term goals that Ari Emanuel and Patrick Whitesell have for WME-IMG.
One of the largest selling points to justify the hefty price tag is the upcoming television contract with FOX:
Based on numbers the UFC supplied to potential buyers during its sale process, it says that media rights revenue could grow from its current average of $115 million per year from Fox Sports to an average annual payout of more than $400 million beginning in 2019.
That figure does not include projected increases from pay-per-view and its over-the-top Fight Pass service, and certainly will depend on what shape media deals take in the future. The UFC told at least five potential buyers that it expects its next media rights deal to run 10 years or more.
Ari Emanuel, co-CEO of WME-IMG, negotiated the first deal between FOX and the UFC so the direction of the relationship between the two companies has been well known to Emanuel for years. The $400 million price tag must reflect a great partnership thus far. FOX and sports thrives on reaching the 18-24 year old demographic, which the UFC excels in attracting. Negotiations for the new contract between the UFC and FOX will begin in 2018 with the a new contract being signed in 2019 when the current one ends.
Also of note are some of the other companies that participated in a possible bid for the UFC. ESPN, FOX, and Time Warner, along with China Media Capital and the Dalian Wanda Group, were all interested in buying the UFC. The three domestic media broadcast companies left the negotiation table mostly due to skepticism around the media rights valuation. The skepticism was due to a perceived unlikeliness of TV distributors raising prices in order to make money on the broadcast rights.
SBJ on the importance of the media rights deal reaching expectations:
The purchase price of $4 billion, based on UFC’s earnings before interest, taxes, depreciation and amortization, means that WME-IMG paid a 22 multiple for the business. UFC’s gross revenue is $600 million, with EBITDA at $180 million, sources said.
If UFC can hit those lofty media rights goals, it would grow revenue enough to lower the multiple to the 13-14 range, essentially making UFC look like a much better buy.
The UFC is still a stand-alone company that puts on events and creates content for a global market. Further evidence that it will be business as usual for the UFC, at least structurally, is Dana White maintaining his role as President in the organization.
WME-IMG has been buying many different sports entities. The other companies include the Formula 1 Racing Series, Miss Universe, Professional Bull Riders, and making the ELeague. There are a few main reasons why WME-IMG was interested in these companiesFirst, sports is outpacing the movie and TV business, especially globally. Second, all the leagues control their own content. Third, there is room for growth in media rights, sponsorship, and cross-promotion.
Rumors say that some of the reasoning behind WME-IMG acquiring the UFC is to increase the valuation and thus beginning payout of an IPO that may happen later this year:
Wall Street has been expecting big moves like the UFC because of the expectation that WME-IMG is readying itself for an IPO.
“WME is looking for consolidation opportunities to increase their [cash flow] in preparation for going public and maximizing Enterprise and Equity Valuation,” a senior private equity source wrote in an email.
“If they can buy sizable properties like UFC at a multiple that is accretive (i.e. less than where they could price an IPO), then they get a double benefit. Proceeds from IPO would pay down debt. But there’s a lot here that needs to work.”
There are a lot of positives behind this deal that benefit WME-IMG. They have content they can monetize to distributors, they can reach a strongly desired demographic, they can grow the UFC business to a level that seemed unlikely even ten years ago, and the UFC acquisition can help the bottom line for WME-IMG if, but most likely when, the company goes public.
[h/t Sports Business Journal]