2023-04-04 08:58:04 ET
World Wrestling Entertainment, Inc. (WWE)
UFC and WWE To Form Global Live Sports and Entertainment Company
April 3, 2023 08:00 AM ET
Company Participants
James Marsh - IR, Endeavor Group
Ari Emanuel - CEO, Endeavor Group
Mark Shapiro - President and COO, Endeavor Group
Jason Lublin - CFO, Endeavor Group
Presentation
James Marsh
Good morning. My name is James Marsh, Head of Endeavor's Investor Relations. Before we start, I want to remind everyone that the information discussed will include forward-looking statements and/or projections that involve risks, uncertainties and assumptions as well as described in the Risk Factors section of our filings with the Securities and Exchange Commission, including our 10-Qs and 10-K. If these risks or uncertainties ever materialize or any assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements and projections.
Forward-looking statements speak only to the date they were made, and we undertake no obligation to update them publicly and light new information or future events, except as legally required. Our commentary today will also include non-GAAP financial measures, which we believe provide an additional tool for investors to use in evaluating ongoing operating results and trends. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics can be found in the appendix of our presentation as well as in the non-GAAP financial information posted in our IR website.
With that, I'll turn it over to our CEO, Ari Emanuel.
Ari Emanuel
Thank you all for joining us today. I am joined by Mark Shapiro, President and COO of Endeavor and Jason Lublin, Endeavor CFO. This morning, we announced that we have signed an agreement to form a new publicly traded company, consisting of two iconic global brands, UFC and WWE.
Upon close, which is expected in late 2023, Endeavor will hold a 51% controlling interest in the new company. This is a once-in-a-lifetime opportunity to bring together 2 leading pure-play sports and entertainment companies that operate in the most attractive parts of the media ecosystem. For decades, Vince and his team have demonstrated an incredible track record of innovation and shareholder value creation, and we are proud to have represented them at both WME and IMG for more than 23 years. We know the business and are confident in what Endeavor can deliver to unlock even more growth and profitability.
This transaction is a natural evolution of the strategy we've been refining and successfully executing for the past decade, a rare and compelling opportunity to grow our global business. We see significant potential to drive growth through the Endeavor flywheel from media rights and sponsorship to event operations in premium hospitality. We will outline the new company's financial profile in greater detail during today's presentation. But suffice it to say, this is a transformational step in Endeavor's journey.
With that, I'll turn it over to Jason.
Jason Lublin
Thanks, Ari. Endeavor will form, a $21-plus billion global pure-play live sports and entertainment company comprised of UFC and WWE. UFC, a subsidiary of Endeavor and WWE will together form a new publicly listed company, which will be 51% owned by Endeavor and 49% owned by existing WWE shareholders.
NewCo will be capitalized with a $150 million cash at closing with 51% contribution from UFC and 49% from WWE. UFC and WWE will distribute the remaining cash on their balance sheet to Endeavor and WWE existing shareholders, respectively. Under the terms of the transaction, WWE shareholders will roll all existing equity into NewCo, that will be the parent company of UFC and WWE, which will list on the New York Stock Exchange. Newco's Board of Directors will be composed of 6 directors nominated by Endeavor and 5 directors nominated by WWE, each of which will include 3 independent directors. Following the closing of this transaction, which is anticipated to close by the end of the fourth quarter of 2023, Endeavor will consolidate NewCo's financials in its own sports property segment.
Let's now talk about how this transaction crystallizes the value of UFC for Endeavor. In 2016, we took a controlling interest in UFC, valuing the company at $4.1 billion, which at the time was one of the largest sports transactions in history. Given our long chain of relationship representing UFC and our unique insights into the business, we are confident in our ability to drive growth throughout the business using the Endeavor flywheel, including significant media rights upside. At the same time, we improved operating efficiencies. Our success is evident in the over 2x adjusted EBITDA growth at UFC since 2017.
Today, we are contributing UFC into NewCo at a $12.1 billion valuation, implying a per share value of UFC of $20.15, approximately 84% of Endeavor's share price as of Friday's close. This is the same playbook we have run in each of our acquisitions and with overwhelming success at UFC. The 3 key building blocks to our Endeavor strategy that will underpin the adjusted EBITDA growth potential at NewCo are operating synergies, media rights opportunities and other revenue synergies from Endeavor Flywheel, including, but not limited to, sponsorship, licensing, site fees, premium hospitality and more. We will go into all of this in more detail shortly, but first, let's discuss why Endeavor is a logical home for WWE to maximize long-term value creation.
Mark Shapiro
Endeavor is a leading global sports and entertainment company with a portfolio of iconic league event and entertainment offerings that we own or represent. Beyond the UFC and WWE franchises, we own professional bull riding, the Miami and Madrid open tennis tournaments, the Frieze art fairs and industry-leading auto auction company, Barrett-Jackson. We represent and partner with clients such as Wimbledon, the NCAA Final Four, the International Olympic Committee, the NFL and the English Premier League, all best-in-class. The depth of our product mix demonstrates the diversity of the fans and communities we serve. We have a deep roster of talent and brand relationships and a fully integrated suite of business units that represent license, distribute and support our owned and operated IP and our talent and enterprise clients.
WME is the largest talent agency globally with a diversified talent base across numerous sports, media, live and digital categories. We are a leader in experiential marketing through our cultural marketing agency, 160 over 90, rights and licensing at IMG, premium hospitality at our location and sports data and technology at IMG Arena and recently acquired OpenBet. Our company is comprised of more than 11,000 global employees spanning more than 30 countries. Our portfolio is diversified, synergistic and strategically embedded. We call it the Endeavor Flywheel. A driving force in our business is the continued appreciation and rights value of sports and premium content.
Global streaming has seen double-digit growth in content investment and is expected to grow 10% annually through 2025. The migration of consumers toward live experiences was widely evident before the pandemic and has returned in full force. Live sports and concerts grew 12% from 2019 to 2022, which is a reflection of the strength of aggregate demand, which we expect to remain strong. The sports betting trend continues to evolve with major sports betting apps competing for customers worldwide in addition to more than 30 states in the U.S.
The global TAM is expected to grow 13% through 2025. The interconnectivity of our owned and managed premium sports and entertainment properties, our content, talent and brands is a core reason we have been able to deliver consistently strong growth quarter after quarter. Endeavor has 4 reporting segments: first, owned sports properties, which will include the fully consolidated NewCo, the combined UFC and WWE, professional bull riding and the EuroLeague.
Second, Events, Experiences and Rights brings sports and live events to fans and cultivate future stars across the globe. This segment includes our owned premier tennis events and live entertainment portfolio, alongside our IMG Media Rights business, the IMG Academy and on location, our premium hospitality and experience this company.
Third, the representation segment incorporates businesses that connect some of the most influential talent, brands and platforms. This segment includes the flagship WME talent agency and our experiential cultural marketing firm, 160 over 90, along with global leader IMG licensing.
And finally, our newly created fourth segment, sports data and technology. This is an important growth opportunity for the company, bringing together IMG Arena and OpenBet in a single reporting line.
Now I'll turn it back to Jason.
Jason Lublin
Thanks, Mark. Now we think it's important to spend a minute on our performance and what we've accomplished since our IPO in May 2021. We generated approximately $5.3 billion in revenue and $1.2 billion in adjusted EBITDA in 2022, representing 15% and 59% growth, respectively, since 2019. We outperformed our 2022 adjusted EBITDA initial guidance range of $1.07 billion to $1.12 billion. We have been a good steward of capital, including accretive M&A, opportunistic divestitures and debt reduction. We have divested businesses like Endeavor content, our homegrown production business at a $1 billion valuation and used a portion of the proceeds to pay down debt.
We've been focused on increasing free cash flow conversion. We reduced our leverage from 7.2x as of Q4 2018 to 3.8x as of Q4 2022, in line with our stated 2022 year-end targets and recently received a rating agency upgrade from S&P taking us from B to B+. Endeavor is delivering growth at scale and strong free cash flow generation, which supports a healthy balance sheet. As of 12/31/2022 and prior to this transaction, our revenue mix is 25% OSP, 46% EE&R and 29% representation.
On a segment level, adjusted EBITDA mix is 44% OSP, 24% EE&R and 32% representation. Post transaction, we expect EBITDA margins and free cash flow conversion to expand, driven by an increased mix of higher-margin revenues at NewCo with even further upside from expected synergies. We -- as of 12/31/2022, Endeavor had net leverage of 3.8x. When combined with NewCo, we have a net leverage of 2.8x.
In summary, Endeavor has delivered double-digit revenue growth, strong adjusted EBITDA margins and free cash flow generation. We continue to strengthen our portfolio, operational capabilities and position in the large and expanding sports and entertainment ecosystem. Our commitment to prudent balance sheet management includes deleveraging and flexible capital allocation. Our seasoned management team has a proven track record. We believe that the Endeavor Flywheel creates multiple additional avenues for growth at NewCo.
Now let's discuss NewCo in more detail.
Mark Shapiro
UFC and WWE are both leaders in sports and 5entertainment. UFC is a mainstream worldwide sports leader with a large growing diversified fan base.
Since 2017, we have increased revenue by over 1.5x and doubled adjusted EBITDA. We've done this largely by leveraging our expertise in Endeavor in media and entertainment rights, licensing, premium hospitality, event operations and, of course, sponsorships. We've also expanded the business globally. We now have over 40 events across 170 countries every year.
Additionally, we have 700 million fans, and we reach over 900 million households. It goes without saying, we have tremendous respect for the WWE team. They've built a diversified IP ownership business. And since 2017, they've increased revenue by over 1.5x and grown profitability by approximately 3x. WWE has similar scale to UFC with hundreds of events across 180 countries each year, reaching over 1.2 billion fans globally.
In the universe of assets, at this scale, the opportunity is rare and finite. This is a unique opportunity to own these 2 global sports and entertainment leaders under one umbrella in one company. Currently, we both create hundreds of must-watch live and original content hours on a year-round basis. We both have a large, young and diverse fan bases who attend our events around the world and constantly engage and interact with us through multiple media channels such as linear and digital, social, live and licensing products. The UFC and WWE both have valuable media rights through our world-class IP. We have a track record of success in media rights opportunities, and we have upcoming media rights renewals at both companies on the horizon.
As stand-alone companies, both the UFC and WWE have tremendous growth in financial profiles. They both become uniforms when enhanced by the Endeavor Flywheel. The value of sports and entertainment rights continues to increase at unprecedented levels. Both the UFC and WWE are well positioned for new and emerging distribution platforms, and we will continue to capitalize on the evolving media landscape, particularly across rights and sponsorship.
NewCo has highly differentiated attributes compared to the rest of the sports and entertainment industry. We have highly engaged and global fan bases who are young, diverse and incredibly passionate. We also have full control of all rights. Unlike our peer set, we are the owner and the commissioner and have autonomy to make all operational and competition decisions. And of course, our content, unlike our peer set, is year-round. The combination of these 2 assets should create significant strategic value. We know the WWE team extremely well. We have a deep and trusted relationship over 2 decades.
The integration of these 2 businesses allows us to deepen our partnership and create significant shareholder value. We'll have a diverse rights portfolio with a highly visible revenue base driven by domestic and international media rights, and we both have upcoming media rights renewals on the horizon. Together, we'll have the ability to create more content, increase the number of live events and significantly enhanced sponsorship and licensing revenue opportunities. We also are exploring unique direct-to-consumer go-to-market possibilities. There are cross-pollination opportunities to promote branded content across both fan bases globally to build an even larger super fan community, -- strengthened by our integration within the broader Endeavor organization, NewCo will benefit from our wealth of expertise, our relationships and other flywheel capabilities.
In summary, I want to reiterate some pertinent themes where we see multiple opportunities for future growth. First, maximizing media rights; second, enhancing sponsorship opportunities; third, accelerating brand and talent placement and product licensing; and finally, developing new original programming such as the ultimate fighter. What is illustrated on this slide are all the ways we created the value with the UFC since we acquired the business in 2016. We grew the fan base from 625 million in the beginning of 2021 to over 700 million today. We did this by producing exceptional content, but also by expanding globally, introducing the UFC to new countries and audiences and by investing in local stars. We are experts at media rights opportunities.
In fact, we do this every day, especially at IMG Media, where we distribute 150 properties into over 160 countries. Because of that scale at the UFC, we have had meaningful AAV growth since 2018, both domestically and internationally. And it goes without saying, we have strong relationships with brands across the globe, which has enabled us to grow our sponsorship revenue by more than 3x since 2017.
Today, we host marquee events in Abu Dhabi, China, Melbourne, Australia, South Korea, Singapore, Perth, Australia, Utah and most recently, New Jersey. We were able to secure meaningful site fees and grants for staging events in these geographies. In ticketing and premium hospitality, we were able to build differentiated experiences to increase the number of VIP guests and revenue opportunities at our UFC events. We also introduced innovative technologies like Fight Pass and redeveloped UFC's technology stack through Endeavor streaming to drive further operational improvements.
All of these benefits were driven by integrating with the broader Endeavor Global infrastructure, which allowed us to realize $70 million in operating synergies at the UFC within 2 years post acquisition. Taken in totality, media rights and sponsorship upside and other nonmedia-related revenue plus significant operational efficiencies, particularly across event operations and ticketing optimization has resulted in us more than doubling UFC's adjusted EBITDA over the last 5 years.
Jason Lublin
We see significant operating synergies throughout the ecosystem. We have a combined cost base of approximately $1 billion, excluding direct operating costs, over half of which we believe is addressable. We expect this transaction to deliver $50 million to $100 million of long-term annualized run rate net operating synergies. As Mark said, we achieved approximately $70 million of annual run rate net operating synergies at UFC within 2 years of ownership. The combined business has an attractive financial profile across scale, growth, profitability and cash flow conversion with a healthy balance sheet.
The combined company had $2.4 billion of high-quality revenue, of which more than 70% is contracted and more than $1 billion of adjusted EBITDA in 2022. The combined business had a 10% revenue CAGR and north of 20% adjusted EBITDA CAGR over the last 3 years starting in 2019. In 2022, we generated over 40% adjusted EBITDA margins and had over 60% free cash flow conversion. We will have a strong and healthy balance sheet with net leverage of 2.5x based on combined over $1 billion of adjusted EBITDA, enhancing our credit profile. This is all before any operating synergies, meaningful upside from the upcoming media rights renewals at WWE and UFC, and other revenue opportunities from the impact of the Endeavor flywheel. This healthy balance sheet allows us to have a fluctual capital allocation strategy through organic investments, opportunistic capital return, continued deleveraging and disciplined strategic M&A.
Mark, back to you.
Mark Shapiro
So to summarize, this is a rare opportunity to create a pure-play sports and entertainment company with a highly differentiated and attractive value proposition. These are 2 iconic and category-defining brands that are highly complementary. They are best-in-class in their ability to create and distribute premium, live and original content. The combined business has a massive global fan base with 700 million UFC fans and 1.2 billion WWE fans across 180 countries who consume our content across multiple distribution platforms. We have a track record of achieving significant operational synergies further enhanced by our value creation flywheel.
And last but not least, the combined company has a highly attractive financial profile. The Endeavor management team has a long history of working together. We are proven value creators.
Now we are excited to work together with WWE to execute on the significant value creation opportunity. We'd like to thank all of you for joining us today, and we're excited for this incredible opportunity we have ahead with NewCo and for the continued success, we expect an Endeavor's next chapter.
Question-and-Answer Session
End of Q&A
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World Wrestling Entertainment, Inc. (WWE) UFC and WWE To Form Global Live Sports and Entertainment Company (Transcript)