Class of 2020 | msprin@sas.upenn.edu
When discussing the UFC on ESPN, Analyst Max Kellerman said that “UFC has created the marketplace for MMA in this country [USA].” Within the United States, UFC has grown to be the monopolist in mixed martial arts entertainment; however, the company is in need of guidance in order to expand successfully. The organization produces over 40 live events annually, and provides the most Pay-Per-View content in the world. The UFC is also beginning to establish itself in the international mixed martial arts market, with broadcasts in over 156 countries, reaching close to 1.1 billion televisions worldwide in 29 languages. UFC is content best watched live, and therefore its Pay-Per-View service FIGHT PASS is able to generate huge profits from advertising that cannot be skipped.
In order to help guide the UFC through its international expansion, and continue its stellar growth among a largely male viewer population, WME-IMG has acquired UFC for $4 Billion, and hopes to pursue “new opportunities for UFC and its talented athletes to ensure the sport’s continued growth and success on a global scale,” according to WME-IMG co-CEOS Ariel Emanuel and Patrick Whitesell. WME-IMG’s investment was backed by preferred equity financing from Silver Lake Partners, KKR and MSD Capital. Debt for the deal was underwritten by Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, and KKR Capital Markets. WME-IMG will act as the operating partner who will help grow UFC’s business to an international scale, while the associated private equity firms are hoping to capitalize on an investment in a fast growing sports franchise, as other private equity firms have done in the past with other major sports properties. Silver Lake had already invested in WME in 2012, in order to support its creation of new business models that incorporated more technology. Silver Lake also reinvested to support the acquisition of IMG in 2014, and therefore is familiar with the firm as an investor.
WME-IMG represents some of the biggest names in UFC such as Rhonda Rousey, and will hope to push UFC out of its niche spot in sports and into the forefront of Pay-Per-View entertainment. Dana White will continue acting as the President of UFC, having signed a five-year contract; however, one should expect WME-IMG to push for changes within management in order to create increased viewership by developing more personalities such as Conor McGregor and Rousey who are able to bring in millions of viewers. The Fertitta Brothers, majority owners of UFC, will be giving up a large portion of their ownership in order to make way for top down changes to the organization that are backed by experienced private equity firms. WME-IMG and the investing partners should expect to make changes that drive growth for the quickly emerging demand for UFC events. A large area of growth for the business is overseas, and with UFC continuously hosting events year round, with no specific location requirements, WME-IMG should be able to guide UFC to a level of global dominance using its network and managerial expertise.
Although UFC has shown promise as it emerges as a leader in sports entertainment, I believe WME-IMG will provide essential guidance to a young and inexperienced management team led by Dana White, elevating UFC to new heights, and providing sizeable returns to the investing partners. Silver Lake and KKR have less experience managing sports franchises directly, but will play a key role in supporting WME-IMG financially, and with relationships across boardrooms worldwide. The biggest challenge to the deal should arise from problems within UFC, specifically whether or not they are able to manage all individually contracted fighters while simultaneously keeping investors satisfied with Pay-Per-View and advertising revenues. Given the momentum of the business, the business acumen of the new investors and the star power of their current champions, I think they will overcome these challenges and build tremendous investor returns.