A new credit analysis from investor service company Moody’s was released on May 25th for UFC Holdings, LLC. This comes on the heels of Endeavor’s May 12 earning’s call and most recent SEC filings. Independently, each of these contain a few nuggets of information regarding the UFC’s current finances. Together, we can try to infer even more. So what do they reveal?
According to Moody’s, the UFC’s revenues for the 1st Quarter of 2022 were over $1 billion in the Last Twelve Months (April 1st, 2021 through March 31, 2022). A graph in the report also shows that UFC’s revenue for 2021 as being a little over $1 billion. This is double digit growth from the previous year, which is partly credited by Moody’s to the return of live audiences.
“Attendance revenue typically accounts for a modest portion of revenue (12% of revenue in 2019), but attendance revenue recovered strongly as health restrictions declined due to strong fan interest.”
As Endeavor’s CFO Jason Lubin revealed during the earning call, the UFC’s CAGR has been 21% a year since 2005. Since we know from disclosures in the Le et al v Zuffa, LLC antitrust lawsuit that the UFC’s revenues were $48.3 million back then, a 21% CAGR would come out to $1.02 billion in 2021. This would match the slightly more than $1 billion shown on Moody’s graph.
Lubin also disclosed that fighter pay had increased 26% CAGR since 2005. Since we also know what total fighter pay was in 2005 — $4.3 million — total fighter pay would have been around $178.8 million last year. That would be just 17.5% of their total revenue.
This would also confirm that the UFC continues to be the primary driver for Endeavor’s Owned Sports Properties. Since Endeavor’s SEC filings don’t break out the UFC’s finances separately from the segment, we’ll have to use the over $1 billion amount reported by Moody’s.
Endeavor’s 10-Q filings shows that their Owned Sports Properties had revenues of $1,108,207,000 in 2021. For first quarter of 2022, they reported $296,689,000 in revenue for the segment, an increase of $13 million over the first quarter of 2021. This would make the revenues for the Owned Sports Properties $1.121 billion for the last twelve months. The UFC is thus responsible for around 90% of all revenue generated by the segment.
In fact, of the $156 million in additional revenue the Owned Sports Properties segment saw in 2021 over 2020, approximately $130 million of it was due to increases in UFC revenues.
Neither Moody’s nor Endeavor’s SEC filings report on the UFC’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Endeavor’s 10-Q reveals that the Owned Sports Properties had an EBITDA of $537.6m last year. For the First Quarter of 2022 they reported an EBITDA of $148.7, a more than $3 million increase for First Quarter, 2021, where they saw $145.5 million. That would mean the segment had an EBITDA of around $541 million for the last twelve months ending on March 31, 2022.
Moody’s does not specifically give us their EBITDA but does reveal that the UFC’s debt/EBITDA ratio was 5.8X LTM. Since Endeavor’s SEC filings reveal their debt, we can use that to calculate their EBTIDA.
According to their SEC filings, as of March 31, 2022, UFC Holdings, LLC had borrowed an aggregate of $2,833,017,000 of first lien term loans under the UFC Credit Facilities. It also had “a revolving credit facility, which has $205.0 million of total borrowing capacity” although none of it had yet to be used.
Adding these together gives us their current total possible debt, which is around $3.035 billion. With leverage at 5.8X that gives them an EBITDA for LTM of approximately $523 million. This would also give them margins of just above 50%. Since Endeavor’s EBITDA for their Owned Sports Properties was $540 million the last twelve months that would make the UFC responsible for up to 97% of the segment’s EBITDA.
EBITDA is not profits of course, and neither their SEC filings nor Moody’s have any mention of their current profits. Moody’s does though have some information regarding the free cash flow, which we can use to get an idea for how much is available for distribution to Endeavor.
According to the Moody’s Credit Opinion: “Modest required capex levels contribute to a strong free cash flow as a percentage of debt ratio in the mid-teens prior to distributions as of LTM Q1 2022.”
Mid-teens is generally defined as from 15 to 17. So the UFC’s free cash flow for the Last Twelve Month ending the First Quarter of 2021 would be 15-17% of their current debt, which we already know was just over $3 billion. This would give us a free cash flow of $455 million to $516 million.
The difference between their free cash flow and EBITDA would be the amount the UFC spends on taxes and capital expenditures (capex). These would thus total anywhere from $8 million to $60 million. Does this range seem accurate? Well, for comparison, the UFC’s Lender Presentation from 2016 reported $12 million in income tax and $10 million is a number we can probably say is within the same ballpark.
Since interest payments are excluded from free cash flow, we still need to determine the UFC’s debt obligations to know how much would be available for distribution. Fortunately, Endeavor’s SEC filings include just that.
As of March 31, 2022, we have borrowed an aggregate of $2.8 billion of first lien term loans under the UFC Credit Facilities. Following a repricing under the UFC Credit Facilities in January 2021, borrowings under the UFC Credit Facilities bear interest at a variable interest rate equal to either, at our option, adjusted LIBOR or the ABR plus, in each case, an applicable margin. LIBOR term loans accrue interest at a rate equal to an adjusted LIBOR plus 2.75%-3.00%, depending on the First Lien Leverage Ratio, in each case with a LIBOR floor of 0.75%. ABR term loans accrue interest at a rate equal to (i) the highest of (a) the Federal Funds Effective Rate plus 0.5%, (b) the prime rate, (c) adjusted LIBOR for a one-month interest period plus 1.00% and (d) 1.75%, plus (ii) 1.75%-2.00%. The term loans under the UFC Credit Facilities include 1.00% principal amortization payable in equal quarterly installments and mature on April 29, 2026.
In March of 2021, the UFC had $2,440,946,000 in first lien term loans. This was lowered at the end of June after the UFC reported paid back $180.2 million. The debt went back up in October of 2021 after the UFC took out a $600 million add-on to their term loan. On March 31st, they had $2,833,017,000 outstanding on their first lien term loans.
Using LIBOR, the UFC should have paid approximately $122 million in interest payments and amortization over the LTM. Cash available for distribution would therefore be anywhere from $333 million to $394 million. Coincidentally, this is every close to the UFC’s reported cash balance of $967 million as of March 31, which includes the $600 million term loan issued in October of last year.
Deduct that loan and the UFC had cash balances of $367 million left over last year and now available for distribution to the parent company.
These numbers continue a trend for the UFC. It’s the third straight year in which they saw an increase in revenue, EBITDA, and EBITDA margins.
Estimated UFC Holdings Revenues and EBITDA
Since 2015, the last full year before Endeavor acquired the company, revenues have seen a steady CAGR of 9% while EBITDA has grown more than twice that rate, at 18.5%. Moody’s projects this trend to continue as “UFC’s growth will come from the increased monetization of content and brand through various distribution channels, such as already contracted domestic TV and PPV rights, digital media, sponsorship, and merchandising.”
Moody’s also notes that the UFC’s recent TV deal with Spain, South Korea, and the Netherlands, all of which saw large increases over their previous agreements, will help with the UFC getting better deals in Brazil, UK, Ireland, and Scandinavia — all of which are coming up for negotiations. Moody’s also anticipates the UFC continuing to see increase sponsorship revenues and licensing deals. Perhaps most importantly “(as) revenue growth from these different sources will have minimal incremental costs involved, we expect they will contribute to profitability at a very high level.”
“Minimal incremental costs” and high levels of profitability gives away that very little, if any, of the additional revenue is being earmarked for the fighters.
Instead Moody’s notes that “the variability of fighter costs is a credit strength for UFC, with those costs being lower as a percentage of revenues than the player costs in other long established major sports leagues (NFL, MLB, NBA, NHL, and Premier League). These largely fixed costs are the single most significant cost for other teams/ leagues and the primary reason why profits are low and deficits are not unusual in other sports.”
Moody’s does note that the potential threat from competition from other MMA leagues “which may lead to a higher competitive environment for fan interest and successful fighters over time.” They also note “pending lawsuit brought by former MMA fighters alleging monopolistic behavior... has the potential to impact UFC’s profitability and operations.”
Neither of these dampen Moody’s positive outlook for the UFC though, from which they expect to see “high single digit growth in revenue and EBITDA driven by increased contractual media revenue from both new and existing agreements as well as growth in merchandise revenue.”