At the end of April, Moody’s released a credit opinion for UFC Holdings LLC. The report gives us some insight into not only how successful their 2019 might have been financially but also as to how much of an impact the current Coronavirus Pandemic might have on their business.
According to Moody’s the UFC’s US media agreement with ESPN “led to a material increase in revenue and EBITDA in 2019” and with which they would see ”modest contractual increases in future years.” Previous reports by Variety had their ESPN deal at $300 million a year for the rights to both their lineal channels and streaming service broadcast. Moody’s notes that while “the media rights deal led to a significant increase in profitability, the PPV agreement is expected to dramatically reduce the volatility of the business.”
The report gave several possibilities for revenue last year. It was either “well over $800 million in 2019,” “$0.9 USD Billion” for the year ending 12/31/2019, or, according to a graph in the report, approximately $850 million. I am assuming the last one is the most accurate, as it not only allows the other two numbers to still be accurate if one rounds up to the nearest hundred million, but the revenues on the graph for the years 2012-2015 also matches what has been reported by the UFC in their Lender’s Presentations and Corporate Overviews. For the other year, revenues appear to have been approximately $690 million for 2016, $750 million for 2017, and $695 million for 2018.
Also of interest, a footnote to the graph mentions that “2017 benefited from the Mayweather vs McGregor fight.”
Moody’s also reported that the UFC’s debt-to-EBITDA ratio was 6.7x as of the 4th quarter of 2019. With a debt of $2.34 billion (as reported by Reuters last year) we can estimate that their Earnings Before Interest Taxes Depreciation and Amortization in 2019 was around $349 million. With $850 million in revenue this would give the UFC an EBITDA margin of 41% for last year.
As 2019 came to a close, Moody’s reports the promotion had a cash balance of $151 million and access to a $162.75 million revolving credit facility (a credit line that functions almost like a credit card where a company can draw up to the established maximum amount as needed), which was drawn down in the first quarter of 2020. It does not tell us how much of the cash balance is still available or what the revolver was used for but in “January 2020, the board of directors authorized $300 million in distributions (payments of earnings) to equity holders and $129 million was paid out during the first two months of 2020.”
As a live event company the UFC seems to be at particular risk financially if they can’t hold events due to the pandemic. Moody’s notes though that of all the sports, MMA is particularly suited to hold events at this time, thanks to “the small area and limited number of participants per fight (two fighters, a referee, and coaching staff), and the ability to hold the event in almost any location.”
Moody’s also notes that the UFC benefits from its mostly fixed costs and lower costs for athletes. “[T]he company has fighter costs which have significant variable components that limit exposure to underperforming fighters. Guarantees and upfront bonuses are more rare, and termination clauses exist for weak performance.”
Thanks in large part to their contracted media revenues, mainly from ESPN, and the fact that attendance revenue accounted for less than 12% of revenue in 2019, the effects of coronavirus should be limited. Even with the loss of live attendance, media rights should easily be enough to support performance and generate a positive cash flow, although leverage is expected to increase either in the form of higher debt or lower EBITDA. This, of course, is dependent on live events being held.
Any excess cash flow, according to Moody’s “will likely be used for dividends or the repayment of the revolver balance.”
After the Pandemic has subsided, Moody’s projects that the ESPN deal will help the UFC negotiate higher international rights fees. As an example, they note that the UFC was able to sign a new Scandinavian media agreement at a higher rate. They also project that the UFC will continue to increase their sponsorship and licensing revenues. Given the fact that the globe may be facing a massive economic downturn and major advertisers are currently looking to claw back advertising dollars, this last part seems like it may be a tad bit optimistic.
Moody’s does warn that as the sport grows in terms of revenue and popularity, we will potentially see increased competition from other promotions like Bellator and ONE, as well as demands for greater compensation from the UFC’s athletes, although to me, neither of these seem like realistic concerns at this time.
Moody’s also notes that there is a legal risk from the current class action antirust lawsuit, which they claim has “the potential to impact UFC’s profitability and operations.” Next to the pandemic, this seems like the item that would have the most plausible potential of impacting the UFC’s current business model.