UFC for Sale?
ESPN on 5/10 broke a story that UFC is in advanced talks to sell the company, noting at least four major bidders.
The story, written by Darren Rovell, listed William Morris Endeavor/IMG (formerly International Management Group), China Media Capital, The Blackstone Group and the Dalian Wanda Group as having submitted bids and claimed the winning bid should fall between $3.5 billion and $4 billion. We are also aware of at least one other Asian fund that was in the process of placing a bid, although it’s also possible they are going in the China Media Capital bid.
Lorenzo and Frank Fertitta purchased the UFC from Bob Meyrowitz and Semaphore Entertainment Group in 2001 for $2 million. They reportedly invested $44 million between 2001 and 2005 before they were able to get the promotion a deal with Spike TV. Since then, the group’s fortunes turned around and for a time they were the fastest growing sport in the world.
Goldman Sachs had given financial information to those and other companies that UFC’s 2015 EBITDA (profits before interest, taxes, depreciation and amortization) were between $200 million and $250 million. That would have been significantly higher than any prior year in history. They also represented that after the current FOX deal expires at the end of 2018, that a bidding war for rights could reach an additional $250 million. The current deal had escalators annually but was worth about $110 million in 2014. There are a number of questions regarding sports networks and sports television rights. The UFC TV deal that was brokered in 2011, that seemed huge at the time, given it was triple what Spike was paying them, now seems low compared to other major sports. But with the rapidly changing television and media changes, it’s almost impossible to predict what will be the landscape even two years from now.
The company is owned by Lorenzo and Frank Fertitta, who each own 40.5 percent, along with Flash Entertainment, the Abu Dhabi government’s promotional arm, which owns 10 percent and Dana White owns nine percent.
Flash Entertainment was believed to have spent between $150 million and $200 million to purchase its stake in the company.
White immediately claimed the story wasn’t accurate, telling the Las Vegas Review-Journal that, “The UFC is not for sale. The ESPN story is overblown. Darren Rovell is not a fan of facts. His facts could not be further off.”
Later, on the Dan Patrick show, White said, “We’re not up for sale. We’re always working on deals and our expansion globally. I’ve been saying since this thing came out, no, we’re not for sale, but let me tell you, if somebody shows up with $4 billion, we can talk. We can definitely talk.”
When asked if there would be a partial sale as opposed to a full sale, White said he couldn’t answer due to confidentiality.
“Obviously if I’m in the middle of a deal right now, there’s a lot of confidentiality involved in it,” he said. “We’re working on expanding. We’re working on growing the company and moving into other territories like China and Japan, Korea, so yeah, we’re always working on deals. As far as the UFC being for sale, I’ve said this a million times, we get offers on the UFC all the time. It started in 2010. We got our first offer for the company, which was over $1 billion and we turned it down.”
Rovell defended his story noting that the UFC hired Goldman Sachs to give out the company’s financials to attract bids and cited they had five different independent sources for the story.
There had been rumblings about a sale for months, from talks of a full sale to a sale of around 20 percent to a strategic investor which would also be giving the company a high valuation of its worth based on the dollar figure.
But talk of a UFC sale in rumor form has been around for years. But we’ve also had a source with direct information of a company not listed in the ESPN story that had been working on a bid, but details of what the bid entailed were confidential. If a majority interest sale does go through, it would be, by far, the biggest story in the history of MMA as well as well as a story with more far-reaching repercussions than any story since, at the very least, the closing of WCW in 2001.
But in recent weeks, the talk got louder including direct reports of bids and contracts being drawn up for bids from different parts of the world with the money figure being floated always in the near $4 billion range. A sale of UFC will completely change the business because MMA is a unique and volatile business and you need the right people in charge who understand its nature and how to run it. It’s not knowledge easily acquired and a lot of requires business and instincts of what the public will and won’t be interested and the ability to understand what stars draw, what type of matches will and won’t work both from a money and an entertainment standpoint, as well as being able to see the future changes in business in rapidly changing times. This is very different from football which breeds executives from the ground floor up. You can count the number of people who have successfully run MMA promotions long-term on one hand and still have fingers left over.
Dana White when asked about sale rumors would always position is at if they would listen to an offer, but weren’t looking at selling. And they were making a lot of moves in the past year, from breaking ground on a new office complex that is scheduled to open in 2017 with facilities designed to give fighters the best medical care and rehab from injuries, to instituting a drug testing system far more aggressive than what they needed to do from a media and public standpoint, but one that legitimately has changed the sport. They’ve also worked on establishing new weight-cutting guidelines and spending money on expansion into foreign markets, all expenses made now for the future that weren’t going to have a short-term payoff.
They had spent tons of money to get the sport legalized in New York, the last major U.S. political battle. The entire Conor McGregor decision making seemed to be a company making a stand for the long haul because if they were looking at getting out, they’d be looking to get the big money fight on the biggest show and not worried about the long-term. The new drug policy, most notably hiring Jeff Novitzky, was a far more aggressive policy than they needed to do. They could have done a drug policy like most other sports that would look good for the public and the media, but not be as effective as the one they started. They also pushed for the longer penalties, something that felt at the time like a long-term decision that would hurt business in the short run. The Reebok deal, a major morale killer for a lot of fighters, although there were also those show benefitted since outside sponsorship for rank-and-file fighters had declined greatly, was also something that looked like a long-term decision.
But there were no concrete stories until recent weeks when word had gotten around about actual serious proposals being made.
Even those who have had success in sister industries like boxing or pro wrestling, are aging and while they may understand aspects of business, they wouldn’t have that level of understanding of the unique aspects of MMA.
A large corporation in charge may not be able to react as quickly to these changes as UFC could, with Fertitta as owner and on the ground floor, working with White, a long-time best friend, and both being immersed in this at a major level and with 15 years of experience of understanding all the players and all the situations that can occur.
There are so many unanswered questions as to who would stay, who would go, and what kind of changes would be made. White has in many ways been synonymous with the sport itself, and how this would affect his future is only one of the many huge questions.
In the past, White had said that there would come a day when he would walk away and not look back, but never gave an indication of when that would be. Others have said that they could see White staying on with a new regime as a public figure, doing his television shows and promoting the live events. Whether he’d devote his entire life to it as he has for the last 15 years is different. Plus, what kind of a salary could he be paid to stick around when he’d be getting something in the neighborhood of $315 million to $360 million in cash if there is a total sale and he has no more ownership stake? It was noted that White really believed after the incredible growth in the early years that they could build UFC into being one of the biggest sports in the world. It’s possible it could get bigger. All signs of late have shown significant growth. Perhaps some day they could even have a Mayweather-Pacquiao day if the right stars aligned at some point. But as modern boxing has shown, that doesn’t change the fundamental level of popularity of the sport as a whole, an realistically, it would never be soccer or the NFL or the NBA.
Patrick asked White if he would stay with the company if part of the agreement in making the sale was his continued involvement because of how closely he is linked to the sport with the public.
“I don’t know. I don’t know how that would all work out, but I’ll tell you this, the day we decide to sell, I probably don’t want to do this anymore. I love this. I love this business. I love the sport. I jump out of bed every day excited to go to work.”
He said if there was a sale it would be a mutual decision with he and Fertitta.
Fertitta has a casino business that just went public that is looking at major acquisitions and expanding. Red Rock Resorts, after going public, announced on 5/10 that they had acquired The Palms Hotel and Casino in Las Vegas in a $312.5 million purchase, a deal scheduled to close in the third quarter of this year. Others have said that Fertitta loves MMA, and the only thing he might like more is to run an NFL team, and that’s unlikely to happen given the NFL’s position on gambling and Fertitta’s business interests. This coincides with talks of the Oakland Raiders moving to Las Vegas, and that a suitable stadium would need to be built in Las Vegas to acquire the team.
Since they had hired Goldman Sachs to shop it around, this was not a situation where somebody came in with an incredible offer that they couldn’t turn down. This is a conscious effort, for a reason, to either get a strategic partner or sell points for a high price or to cash out. Looking for a strategic partner to buy a minority percentage is where the different Chinese companies being key players in the story makes sense, because that’s a difficult market to crack for American companies. But they are in talks with a number of companies. In that case, like with the Abu Dhabi deal, nothing substantial changed and the same people were running things.
White had told people in the past about offers the company had gotten in the past that they had turned down offers that he said made no sense to turn down, because they weren’t looking at selling.
Both ESPN and MMA Fighting pointed to the China-based Dalian Wanda Group as the favorite in the bidding and that the sale could take place as early as July.
Its chairman, Wang Jianlin, the richest man in China, is said to be worth nearly $35 billion. Last year the company bought Atletico Madrid for a reported $48 million and in January purchased Legendary Entertainment, a major Hollywood studio, for a reported $3.5 billion. In 2012, they purchased the AMC Theater chain for $2.6 billion.
Many have talked that 2015 was a fluke year with the incredible drawing power of Conor McGregor and Ronda Rousey propping up the company and greatly expanding the sport’s fan base. But while the overall interest is growing, as noted by rising ratings for television, the PPV business, the key to the business success, is a volatile business based on the attraction.
Rousey’s future remains in question as she’s largely kept a low profile and hasn’t agreed to a fight since her November loss to Holly Holm. Plus there is the question of how she will rebound mentally. White on the Patrick show said that he didn’t know if she’d fight in 2016, saying the decision is up to her. Fertitta had talked of her headlining Madison Square Garden I November. After her first fight back, which will be huge, it’s uncertain what would happen to her drawing power if she doesn’t win, or if she’d even fight again. McGregor is also coming off a loss and has been at odds with the company, although White claimed that was water under the bridge.
The point is that the financials look great because of last year, and there is no indication there is a star on the horizon who can keep the PPV business at the level it is at, nor that Rousey and McGregor would continue to draw at the level they are doing more than one or two fights in the future. If there was a time to sell and look good, this is that time.
Exactly what would happen under new ownership is impossible to say. There are television contracts and a sports infrastructure in place. But as 2014 and 2015 show, its popularity is extremely volatile even though with the television deals, they were able to turn a substantial profit even during a year where they had constant injuries and lost their two top drawing cards. Then they lucked into two charismatic people coming at the same time, but the 2015-16 UFC was very much WWE with Rock and Steve Austin together during the boom period, but as we’ve seen with pro wrestling, that type of popularity is based on luck and timing and in the big picture, is fleeting. The $4 billion price tag is also notable because that’s roughly triple the current market value of the WWE ($1.32 billion with a $17.43 share price) and WWE had larger revenues this past year, and a higher percentage of its revenue were based on more stable business factors. But WWE was nowhere near as profitable but is less dependent on individual stars and less stable streams like PPV going forward. It’s also a stronger television property with a larger worldwide fan base, and has it during an average historical period as opposed to a historical boom period.
It has been confirmed to us that China Media Capital, an investment firm, which partnered with Citic Capital to buy 13 percent on the Manchester United soccer team had also put in a bid and they were listed in the ESPN article. WME/IMG is Ari Emmanuel’s Hollywood talent agency that acquired the sports management firm IMG. Emmanuel is the inspiration for Ari Gold of “Entourage” and represents celebrities and athletes including Rousey and Dwayne Johnson and within WWE is known as someone who often advises Vince McMahon and who McMahon listens to. IMG promotes the Stars on Ice touring show, The Indian Super League, The Pro Bull Riders tour, as well as golf, tennis, surfing, motor sports and triathlon events.
Blackstone Group is a private equity, investment banking asset management company based in New York. They are listed as being worth $31.5 billion and have investments in a number of household known brands like Allied Barton Security, Allied Waste, Luxury Resorts, Hilton Hotels, The Weather Channel, and Busch Entertainment.