Why the WWE-UFC Deal Is a Winner – and Could Fuel More Merger Mania | Analysis
It’s merger mania!
The $21.4 billion deal between Worldwide Wrestling Entertainment and the Endeavor Group-owned Ultimate Fighting Championship is poised to shake up the future of live sports entertainment.
Sports and particularly live events are seen as a key means of attracting audiences to streaming services and linear networks alike, which is prompting a scramble to secure rights, assemble assets and bolster existing programming. Though rising interest rates and an uncertain economic environment may have pressed pause on megadeals, there’s avid interest in smaller-scale dealmaking, whether that’s a merger like the UFC-WWE combination or long-term agreements with leagues.
“Sports entertainment has never been more valuable than it is today. Endeavor saw an opportunity, and leapt on it,” UCLA professor and former NBC and UPN executive Tom Nunan told TheWrap.
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Under the terms of the deal, the companies are combining to form a live sports and entertainment powerhouse, which intends to list on the New York Stock Exchange under the ticker symbol TKO. The deal, which is expected to close in the second half of 2023, values UFC at $12.1 billion and WWE at $9.3 billion. Upon closing, Endeavor will hold a 51% controlling interest in the new company and existing WWE shareholders will hold a 49% interest in the new company.
The new math of sports
“The WWE sale to Endeavor is a classic case of one plus one equals three… WWE plus UFC will equal unparalleled dominance in the world of edgy, no-holds-barred fights,” said Nunan.
The new company may occupy a specific niche, but others are eager to do their own similar kind of math. The rise of sports betting, in particular, has increased the perceived value of sports rights. And streamers are seeing sports programming as a particularly valuable means of acquiring and retaining subscribers.
Media companies’ interest in live sports has grown in recent years. Endeavor cited third-party estimates that total global live sports revenue will reach $74 billion by 2025, up from $60 billion in 2022, while global sports media and global sports sponsorship revenues will reach $62 billion and $87 billion by 2025, up from $50 billion and $67 billion in 2022.
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Multiple major streaming players have dove head first into live sports, including Amazon, which reached an 11-year, $13.2 billion agreement for Thursday Night Football on Prime Video; Apple TV+, which has a seven-year, $595 million deal for Friday Night Baseball and a 10-year, $2.5 billion Major League Soccer deal; and Alphabet-owned YouTube’s seven-year agreement for the NFL Sunday package, which is reportedly valued at around $2 billion a year.
While Netflix has said that it sees “no profit path to renting big sports,” the Wall Street Journal reported in November that the company has explored streaming rights for the ATP tennis tour for some European countries, including France and the U.K. The streamer also discussed bidding for other events such as the U.K. rights to the Women’s Tennis Association and cycling competitions and was in talks to acquire the World Surf League in 2021, but negotiations fell apart, according to the Journal.
Ampere Analysis predicts that streamers will collectively spend over $8 billion on sports rights in 2023, a 64% increase compared to last year. The firm also predicts that the share of spend on sports rights by streaming services will increase in 2023 to reach 21% of global sports rights investment, up from
13% in 2022.
Broadcasters, which long dominated the acquisition of sports rights, aren’t ceding ground readily. Fox Corp. CEO Lachlan Murdoch emphasized that the cable giant is focused on its live news and sports offerings as “core brands” multiple times during a Morgan Stanley investor conference last month. Paramount, which notes that CBS Sports Network broadcasts more than 4,500 hours of live events a year, touts sports as a key differentiator for Paramount+. Disney offers ESPN+ as part of a bundle with Disney+ and Hulu.
Getting bigger to survive
The fighting-sports duo weren’t small on their own: WWE has a fan base of over 1.2 billion people, while the UFC has a base of more than 700 million people. Combined, the two had revenue of $2.4 billion in 2022, the companies said. But the rise of streaming has created new pressures to scale up, along with bigger opportunities.
Bank of America analyst Jessica Reif Ehrlich said in a note to clients on Monday that the WWE-UFC combination will create a “pure-play sports IP ownership entity with exposure to the fastest growing sub-segment of media and entertainment-live sports and, in this case, a sports area that has yet to be fully monetized.” Nunan agreed that combining “the world’s most popular wrestling brand with the world’s most popular MMA brand” would likely allow the new company to raise the prices it charged a “rabid fan base.”
In addition to the potential licensing, sponsorship and cross-promotional opportunities that may arise, Investing.com senior analyst Vince Martin told TheWrap that the timing of the WWE-UFC deal puts the former in a strong position as it enters renewal negotiations for its television media rights agreements. Currently, WWE’s deals with NBCUniversal and Fox are slated to expire next year. Media rights accounted for 75% of WWE’s $1.3 billion in revenue and 71% of UFC’s $1.1 billion in revenue for fiscal year 2022, according to an investor presentation by Endeavor.
Martin said the WWE-UFC deal is the latest signal that media consolidation is on the horizon.
“Content distributors and content creators no longer are separate entities; even WWE itself launched its own streaming platform before folding that into Peacock via an agreement signed in 2021. The industry’s biggest players are giants, and through tie-ups like Disney and Fox and WarnerMedia and Discovery only have gotten bigger of late,” he said. “In that environment, any small media company thus runs the risk of lacking the scale needed both to get its content seen by viewers and to negotiate the best possible monetization of that content.”
Bloomberg reported that Saudi Arabia explored a $20 billion bid for Formula 1, though the nation’s sports minister has called that report “speculation.” (Liberty Media acquired Formula 1 for $4.4 billion back in 2016.)
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Fitz-Gerald principal analyst Keith Fitz-Gerald told TheWrap that putting WWE and UFC together will make it a more attractive property down the road in the event a potential suitor comes knocking.
“Digital rights are orders of magnitude more valuable than butts in seats. Now it’s all about fingers on the remote and, I think, real-life betting that will inevitably follow,” he said. “My guess, if I had to play this all the way through, is that ultimately the goal [of the deal] is integration into a social network of some sort with betting, commentary and more.”
Chris Stafford, a partner in the mergers & acquisitions practice at West Monroe, told TheWrap that rising costs, quick and easy access to a large consumer base and audience, and scaled means of distribution are some of the major driving forces that smaller companies are seeking as they try to grow and expand.
“We’re in a very active time when the convergence of sports, entertainment, sports betting and gaming has tremendous momentum,” he said. “I am sure we’ll see deals both large and small continuously over the next several years in these markets.”
