TKO Group Holdings is the newly merged entity combining the operations of UFC and WWE. TKO went public with much excitement. However, the company is facing an uphill battle with significant debt that needs refinancing by 2026. The share price experienced a slight decline from $102 to $101 after its initial public offering.
The primary concern surrounding TKO is its substantial leverage, with a debt load of $3.2 billion, backed by approximately $1.2 billion of EBITDA for 2023. Additionally, a looming concern is the ticking time bomb represented by $2.7 billion of UFC debt due in 2026.
Refinancing this debt may lead to increased costs. According to the prospectus, the UFC’s interest expenses may rise, given that borrowings under the UFC Credit Facilities bear interest at a variable rate. Factors like interest rate hikes by the Federal Reserve to combat inflation can contribute to this increased expense.
Despite these challenges, it might not spell doom for TKO. In fact, Moody’s Investors Service is contemplating upgrading UFC’s B2 Corporate Family Rating. They cite the combination’s enhanced scale, higher operating leverage, and greater business diversity as key factors. The merger of WWE and UFC creates an entity with a more extensive and dedicated fan base across various geographies, allowing the company to maximize the value of its media rights and sponsorships.
Private equity firm Silver Lake is working on a proposal to take talent and media company Endeavor Group Holdings private.
Endeavor has initiated a review of strategic options to better value the company, but it won’t consider selling or disposing of its majority interest in TKO Group Holdings, including a stake in UFC.
Silver Lake holds approximately 71% of the voting power of Endeavor and is not interested in selling its shares to a third party or entertaining bids for media group assets.
Endeavor’s shares surged 24% in extended trading upon the news of Silver Lake’s proposal.
Endeavor Group Holdings, with a valuation of around $8.4 billion, has interests in talent management, live sports, and festivals, and its CEO, Ari Emanuel, aims to maximize shareholder value.
Endeavor Group and Fenway Sports Group had expressed interest in investing in the PGA Tour.
Silver Lake had acquired a minority stake in the William Morris Endeavor talent agency in 2012, and its executives serve on Endeavor’s board of directors.
The expiration of contracts with media companies like Fox, NBCUniversal, and the Walt Disney Company over the next few years provides an opportunity for the new company to monetize its content across various platforms.
Mark Shapiro, TKO’s president and chief operating officer, has revealed the company’s ambitions to make acquisitions and expand beyond combat sports. As the boundaries between sports, entertainment, and lifestyle brands continue to blur, companies that can create platforms with substantial scale are poised to dominate the entertainment industry.
A report by Seaport Research Partners echoes this sentiment, emphasizing that key synergies should arise from Endeavor’s knowledge of global rights pricing and access to media distribution and sponsorship partners. It suggests that WWE’s contracts with Comcast and Fox, with a combined annual value of approximately $520 million, could see a significant increase in value if certain adjustments are made.
Regarding UFC, Seaport believes that the MMA promotion can increase its revenue per event, which could help alleviate some of the concerns about its debt load.