UFC Valuation Rivals the Dallas Cowboys
The slowest sports w
eek of the year got off to a Ronda Rousey-esque start on Monday with the announcement that the Ultimate Fighting Championship (UFC) has been sold for $4 billion to talent agent WME-IMG and a group of private equity investors. The mixed martial arts league, founded in 1993, was near bankruptcy in late 2000 when Dana White, working as the manager for UFC fighters Tito Ortiz and Chuck Liddell, contacted childhood friend and casino operator Lorenzo Fertitta about purchasing the struggling league from Semaphore Entertainment Group. Lorenzo Fertitta and his brother Frank formed Zuffa, LLC to purchase the league for $2 million in January 2001. Mr. White was installed as president and a part owner (9%). UFC Valuation Rivals the Dallas Cowboys.
The Fertitta brothers and White began to streamline the sport with rules and regulations to appease the concerns of broadcast partners and state governing bodies previously unwilling to sanction fights. After three years of significant losses and relying solely on the financial resources of the Fertitta brothers, the league’s popularity exploded in 2005 with the debut of the Ultimate Fighter television show on Spike TV. The mainstream media began to take notice of the league’s appeal in 2006 when a fight between Tito Ortiz and Ken Shamrock scored higher in the 18-34 male demographic than several games of the World Series.
The majority of UFC’s revenues originate from pay-per-view with additional revenues from the league’s TV deal with Fox and its over-top-streaming (OTT) service UFC Fight Pass The Fox media rights deal signed in 2011 provides an average of $100 million per year through 2018 and the league has sponsorship deals with Bud Light, Reebok, Monster Energy, EA Sports, Toyo Tires, Harley-Davidson and MetroPCS.
The purchase price of $4 billion is the largest of any sports organization. It is nearly double the amount paid for the Los Angeles Dodgers in 2012 and the Los Angeles Clippers in 2014 and equivalent to Forbes’ latest valuation of the Dallas Cowboys. A valuation comparison of the UFC deal and the latest valuation of the Dallas Cowboys is presented in the following table.
The UFC deal represents an annual return of 63.3% over 15.5 years compared to 13.1% for Jerry Jones’ investment in the Dallas Cowboys. (Mr. Jones paid $140 million in 1989) The Cowboys recently eclipsed Real Madrid as the most valuable sports franchise in the world.
The acquisition of the UFC was led by William Morris Endeavor-International Marketing Group, a sports and entertainment talent agency. WME purchased IMG in 2013 for $2.4 billion. WME has been an active investor in sports entities, forming a strategic partnership with Zumba Fitness in 2012, acquiring an agency representing e-sports players in 2015, and purchasing the fast growing Professional Bull Riders (PBR) in April 2015.
Silver Lake Partners is a private equity firm that owns a minority stake in WME-IMG and has invested in Dell, Go Daddy and sold a $1.9 billion controlling stake in Skype to Microsoft for $8.5 billion. Other investors include Kohlberg Kravis Roberts and MSD Capital (private investment firm of Michael Dell). The Fertitta brothers will no longer be involved in managing the league but will retain a small ownership stake. Dana White will remain UFC’s president with a new five-year deal which reportedly includes 9% of annual profits.
Mr. White will continue to balance the task of growing the league for its new owners while managing the volatility and compensation demands of the league’s top talent. Ronda Rousey has generated a lot of interest in the UFC outside of the male 18-34 demographic and she is one of the league’s most marketable assets despite her stunning loss at UFC 193 in November 2015. Rousey has landed several product endorsements and recent movie cameos. However, Ms. Rousey’s return to the “Octagon” may not happen until late 2016 or early 2017.
The league’s most recognizable men’s fighter, Conor McGregor, was scratched from last weekend’s UFC 200 card in April because of a dispute over participation in promotional events. McGregor responded with a two day retirement from the sport. UFC had to scramble in the days before last weekend’s UFC 200 as popular fighter Jon Jones was pulled from the main event after failing a pre-fight drug test. Mr. Jones’ status remains unclear and he could face a two-year suspension.
Despite the pre-event turmoil, UFC 200 set records for attendance and gate receipts in Las Vegas and early estimates suggest the pay-per-view buys will be one of the top three in league history. Mr. White shuffled the main card to feature bouts between Amanda Nunes and Miesha Tate and the return of former UFC fighter and current WWE star Brock Lesnar to face Mark Hunt. UFC 202 scheduled for August 20th will feature the anticipated rematch of Mr. McGregor and Nate Diaz. In March, New York became the last state to sanction MMA fights and the UFC is looking to stage a late 2016 event in Madison Square Garden.
Looking ahead, the company will continue develop its OTT platform Fight Pass and distribution network through multiple platforms such as smart-TVs and device and video game systems. The UFC could double its annual cable rights revenue from $100 million to $200 million beginning in 2019. Although cable networks (most notably ESPN) have come under fire recently for subscriber losses, unbundling and ala carte cable packages, the Big Ten Conference recently negotiated a six-year media rights deal with Fox, ESPN and CBS that tripled the league’s television revenue.
The UFC deal provides lead investor WME-IMG closer ties to the league’s marketable stars for business opportunities outside the Octagon. It is assumed the new owners will push global expansion, especially into the Chinese market. Several of the rumored bidders for the UFC in recent months were backed by Chinese investment firms.
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