Endeavor the main shareholder in the UFC is looking to buyout the other shareholders in the company to gain full control of the Mixed Martial Arts leader.
According to a report from the New York Post's Alexandra Steigrad, the CEO of Endeavor Ari Emanuel is seeking to obtain the other 49.9 percent of shares his company doesn't own of the UFC in hopes of taking his company public after a failed IPO bid in 2019. The majority of that 49.9 percent is owned by investment firms KKR and Silver Lake, with a group of 23 celebrities owning the rest of the small shares in the promotion.
Emanuel is hoping to get private investors to buy equity in Endeavor ahead of the renewed IPO bid next month, believing that owning all of the UFC would present a "stronger package" to potential buyers given the MMA giant's success during the COVID-19 pandemic. The equity they sell into their sister company would be used to fund the potential buying out of KKR and Silver Lake. Sources told the New York Post that the UFC is estimated to be worth anywhere from $6 billion to $10 billion currently. Endeavor which built up $5.5 billion in debt during 2020 won't acquire more debt during this process.
The entertainment heavy company which relies on film and TV production, as well as live events for most of its revenue, has taken a blow in the recent year due to COVID-19. The UFC's persistence through the pandemic however kept Endeavor afloat, accounting for 80 percent of the companies profits in 2020. Simply put, gaining full control over an asset like the UFC would make Endeavor a more attractive buy for investors a source said to the New York Post.
“Buying out the remainder of UFC makes for a better investment,” the source said. “The complexity of Endeavor’s business is still there, but the UFC is the crown jewel.”
With Endeavor's value now lower than the $6.4 billion it was worth when the company tried to go public in 2019 and the estimated increase of the UFC's own value, Emanuel's companies worth is now directly intertwined with the promotion's success. BloodyElbow's John S. Nash also went into why the UFC's current antitrust lawsuit could be a concern for potential investors and how Endeavor gaining full control of the promotion would deny the UFC from creating its own IPO.
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.
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.