‘Biggest first half ever’ – Endeavor’s Q2 earnings reveal UFC doing record business

On Monday the parent company of the UFC, Endeavor Group Holdings, released their second quarter earnings results. While the company missed Wall Street expectations with only $1.1 billion in revenue for the quarter, this can’t be blamed on the UFC which saw impressive growth and has proven to be a cash cow for the heavily in debt Endeavor. According to their release, the “UFC’s Q2 performance – including three sold-out, arena record Pay-Per-View events – led to biggest 1st half in UFC history.”

Endeavor’s CFO, Jason Lubin, elaborated on this during Monday’s earnings call:

UFC had a huge second quarter helping power to its biggest first half ever in terms of revenue and adjusted EBITDA. The quarter benefited from three incremental live events inclusive of one pay per view. All three pay per view events in the quarter were at full capacity and broke local gate records.

While neither Endeavor’s release nor their SEC filings revealed any UFC-specific numbers, they did have a breakdown of Endeavor’s three main segments, including Owned Sports Properties of which the UFC is the primary component.

Amongst the Owned Sports Properties highlights was revenues of $258.9 million for the quarter ending June 30, 2021. This was an increase of $106.6 million from Q2 2020. An impressive 70.0% increase. For the first 6 months of 2021 revenue reached $542 million, an increase of $157.9, or 41.1%, from the first 6 months of 2020.

The segment’s Adjusted EBITDA for Q2 2021 was almost double that of the previous year, rising from $66.8 million to $132.3 million. For the 6 months ending June 30, EBITDA rose from $168 million in 2020 to $278 million this year. Their margins are now over 51%.

Endeavor credits these improvements mostly to an increase in media rights fees and an increase in the number of events held. According to Endeavor, their last five rights renewals yielded a 100% increase and record media deals for them in France and China. As for the number of events, in the first 6 months of this year, they have held 22 UFC events, while during that same period in 2020 they only held 16 as several events were canceled due to Covid-19.

In addition to revenue and earnings their 10-Q/A reported that both their direct operating costs and their selling, G&A expenses were also up from last year. This increase was mostly attributed to the cost of personnel as well as “travel expenses related to the increase in the number of UFC events held, including UFC’s Fight Island 3.0.”

The UFC makes up the majority of these results for Owned Sports Properties. We can extrapolate just how much by comparing previous reports on the UFC’s annual revenue to that Endeavor’s reported revenue for the segment.

In 2019, the UFC generated approximately $860 million in revenue, 92% of the $936 million generated by Owned Sports Properties. In 2020, the UFC generated approximately $890 million in revenue, or 93% of the $953 million generated by Owned Sports Properties that year.

If we look at EBITDA, we see the UFC making up a similar share. In 2019, the UFC had an estimated EBITDA of $374 million, or 90% of their Owned Sports Property EBITDA. In 2020 it was an estimated $423 million, or 92% of the segment’s EBITDA.

If the UFC still makes up 90+% of the revenue and EBITDA of the Owned Sports Properties, then the promotion will looking at $500 million in revenue and an EBITDA of $250 million or more through the first 6 months.

If these numbers are matched in the second half of the year — which is very possible considering how UFC 264 was one of the most successful events in UFC history and will be included in Q3’s results — then the UFC may end up reaching the $1 billion mark in revenue this year, something they’ve already accomplished when looking at just the last 12 months. (At least $506 million in revenue in the last 6 months of 2020 and approximately $500 million in the first 6 months of 2021.)

On a per event average, the UFC will have seen their revenues increase from $22 million in the fist half of 2020 to $23 million this year. EBITDA per event will have also creeped up from $10 million last year to $11 million the first 6 months of 2021.

Assuming the UFC made up a similar portion of the Owned Sports Properties’s expenses, then the selling, general and administrative expenses will have decreased by 10%, from $4.3 million per event last year to $3.9 million in 2021. The direct operating costs — which would include fighter pay — will have fallen from an average of $8 million an event last year to $7 million per event this year.

Revenues for Endeavor’s Owned Sport Properties are mostly via “media rights fees, pay-per-view, sponsorships, ticket sales, subscriptions, and license fees.” While they don’t break down specific line items, they do separate it into three categories:

• Media rights, which covers most contractual rights, including domestic and international broadcasts rights fees, the contractual PPV revenue from ESPN+, and contractual licensing and sponsorship revenue.
• “Media production, distribution and content” which makes up a tiny percentage of the segment’s revenue.
• Events and performance, which would cover all the non contracted revenues such as ticket sales, additional pay-per-view revenue beyond the contracted guarantee, and royalties.

Over the last 12 months, the Owned Sports Properties generated $435 million in event and performance revenue. This is largely due to pay-per-view, with Endeavor CEO Ari Emanuel reporting that “[o]n the pay per view front, over the last 12 months, we’ve had a record total pay per view buy and the average pay per view buy per event, it’s been at a record level.”

Their reported revenues also show a drastic increase in media rights from 2018 to 2019 and an almost as drastic of decrease in events and performance revenue. The $278 million increase in media rights was partly from the new ESPN broadcast deal which paid more than the previous FOX deal and from the ESPN+ domestic residential pay-per-view contract. The $116 million decrease in events in performance was “primarily related to the transition of sales of residential pay per view for UFC events from cable and satellite providers on an event-by-event basis to inclusion in the long-term media rights contract with ESPN.”

Endeavor also reported that as of June 30, 2021, they had “borrowed an aggregate of $2.3 billion of first lien term loans under the UFC Credit Facilities” after having repaid $180.2 million the day before. These loans were repriced in January of this year, with the borrowings under the UFC Credit Facilities which bear interest at a variable interest rate equal to either adjusted LIBOR plus or the ABR plus. Based on current LIBOR the UFC should be looking around $81 million in interest over the next 12 months plus an additional $23 million in amortization. These payments should only take up around 1/5th of their EBITDA.

The UFC Credit Facilities also include a revolving credit facility, which had $205.0 million of total borrowing capacity and letter of credit and swingline loan sub-limits of up to $40.0 million and $15.0 million, respectively.

Endeavor did highlight a risk for the UFC: the current class action lawsuits for which they are waiting for official written opinion from the Judge granting class certification. The Plaintiffs are “seek treble damages under the antitrust laws, as well as attorneys’ fees and costs, and injunctive relief.” They note that the UFC intends to defend itself vigorously.

While the Endeavor notes the risk posed by the lawsuit, they seem to have little worry over competition form another MMA promotion. When Mark Shapiro, the President of Endeavor, was asked if they were being impacted by competition with other MMA entities, his reply revealed how little concern they had from erstwhile competitors or interest in acquiring any of them.

We’re not looking to band with anybody. We’re not looking at JVs. We don’t need any more dry powder. We’re in a very strong cash position, and frankly, our cash won’t be spent on MMA acquisitions. The UFC is paramount. It’s the trophy asset and it’s going to stay that way. We love the competition frankly. I mean it drives — is it Dana White needed any more octane in his bloodstream, if you work with this man, and a rising tide lifts all boats, whether the USFL and the XFL with the NFL, the Continental Basketball Association with the NBA, Major League Soccer and what’s that done, which is none — not — no impact whatsoever in terms of European Soccer, or PFL.

Remember that PFL, Pro Fighters League is on ESPN. In fact, they use the UFC to promote the PFL. So, come one, come all, anything that grows the MMA Sport, the combat sports area serves to our benefit. So we look forward to more of that to come.

Endeavor’s third quarter ends on September 30 and their next earnings call can be expected in November.