The New York Post is reporting that Ari Emanuel is making plans for Endeavor - of which he is the CEO - to buyout the other shareholders in UFC Holdings.
Currently Endeavor owns 50.1 percent of the UFC and is looking to buy the remaining 49.9 percent, the majority of which is held by the investment firms Silver Lake and KKR. According to the Post, 40 percent of the UFC is owned by these two firms. Meanwhile a 2019 SEC filing reported that they each owned “22.9 percent of the coming equity interest of UFC Parent,” or 45.8% percent total.
In addition to Endeavor, Silver Lake, and KKR a group of 23 celebrities, including the likes of Mark Wahlberg, Charlize Theron, Gisele Bündchen, Ben Affleck, and 19 other celebrities each hold a small share in ownership of the promotion.
To finance the acquisition of Silver Lake and KKR’s shares Endeavor will apparently not be looking to do it by taking out another loan, as Endeavor already has some $5.5 billion in debt outstanding. Instead they will be looking to sell equity in their parent company, and the money raised from this will be used to buy out the other two firms.
How much that will take is uncertain. The UFC was purchased by the Endeavor lead group back in 2016 for amount originally valued at $4.025 billion. According to the New York Post, the current estimated total value of the promotion is from $6 billion to $10 billion.
For their part, Silver Lake and KKR are each thought to have invested around $920 million for their share of the UFC, so buying them out could allow them to see a 100% return on their investment.
According to the Post “Endeavor’s valuation is now ‘significantly lower’ than it was when it first tried to go public in 2019, when it was valued at $6.4 billion.” Since the UFC valuation is thought to have increased since then, that means the majority of Endeavor’s value is now from the MMA promotion. This will be even more pronounced if the KKR and Silver Lake shares are acquired. In addition Endeavor would have to sell a large share of equity to even raise the billions needed.
A stumbling block for finding a investor could be the current UFC antitrust lawsuit that has recently been granted class certification. Unless an appeals court overturns the judges decision or it is settled, the case could be going to a jury trial where potential damages could run not just in the billions, but there is also the risk that a court ordered remedy would complete alter the UFC’s current business model.
UFC’s importance to Endeavor is hard to overestimate. According to the Post the “UFC accounted for 80% of their total profits last year,” as it was “revealed that the pandemic took a $2 billion chunk out of the overall company’s revenues as earnings plunged 80 percent.”
Without the UFC, Endeavor would not have much in the way of cash flow.
The Post also put the UFC’s profits for 2021 as between $400 million and $450 million. Based on previous information about the UFC’s finances, it is my educated guess that this number would most likely refers to their EBITDA and not their profits.
One benefit to Endeavor for acquiring control is that it would prevent the UFC from being spun off on its own IPO. According to Endeavor’s 2019 SEC filing:
UFC LLC Agreement also contains provisions relating to an initial public offering of UFC, which provide that after August 18, 2021, any of us, Silver Lake Partners or KKR, subject to certain ownership requirements, may exercise a demand right with respect to an initial public offering. Any initial public offering undertaken pursuant to the UFC LLC Agreement must be completed in accordance with the agreement
Thus by buying out the other owners Endeavor could be preventing a future IPO of the most valuable property in their portfolio, the UFC, preserving their own chance at an IPO.