The threat of injunctive relief and massive class-action settlements will generate a swift corporate reaction.
The suit is the UFC’s Sword of Damocles hanging overhead
The after-glow of Sean O’Malley winning at UFC 292 was unmistakable for company management. They couldn’t wait to get the knockout of Aljamain Sterling on all of their socials. The fact that this result happened in Dana White’s native turf of Boston was the chef’s kiss.
Then came the Monday news bomb from Federal judge Richard Boulware: the long-awaited antitrust lawsuit against UFC is getting “fast-tracked” into 2024. Talk about a proverbial turd in the punch bowl for Endeavor corporate management.
The dichotomy of UFC’s business rising in a delicate economic environment while the Sword of Damocles hangs over legal’s head with antitrust action is why Endeavor is quickly restructuring the focus on the company’s overall business model. Managing to enact such change while not distracting the fans from the fights in the cage has been their greatest feat to date.
A decade’s worth of dirty laundry about to be aired
A major component of Monday’s ruling from Judge Boulware was to give both sides in the antitrust lawsuit an opportunity to prepare the guidelines for unsealing massive amounts of discovery generated from both sides.
A decade’s worth of dirty laundry is about to go public, covering both the pre-Endeavor UFC and current-Endeavor UFC ownership eras. You could practically create an MMA version of Wikileaks with searchable functionality to write 10 books alone on all the dramatic twists and turns that resulted in Endeavor’s $12 billion dollar valuation of UFC.
How will Endeavor react to the mountains of court-generated discovery? Discard the old dirty laundry and create some new dirty laundry. Let the suckers get buried in the muck and grime from the past. They’re moving forward with a bolder, more ambitious venture capital plan to extract as much value out of the UFC. Always stay a few steps ahead in the foot race to chase cash and power.
A big component of Endeavor’s reformation of UFC is melting down the separation of (MMA) Church and State.
If the cost of doing business for UFC rises because of court edicts, Endeavor is going to find a way to get somebody else to pay the bills. Your tax dollars and pension investments may very well help their cause.
As the Freakonomics interview revealed, Ari Emanuel always plays the highest margin side on any investment he’s involved in. Currently, the margins are fantastic for UFC and it’s why he is very comfortable being the owner.
If Judge Boulware changes the future cost of doing business for UFC, Ari Emanuel will be quickly forced into getting someone to subsidize the higher costs.
As long as someone else is paying the bills and maintaining his razor-sharp profit margins, like a state or federal government agency, everything is cool. It’s when that calculation gets upended that he will ultimately exit the business.
This is why we are so heavily focused on UFC morphing their business model into more of a quasi-government contractor status. The upcoming roadblocks for UFC are legitimate business hurdles that require skillful navigation.
Would you invest your pension in UFC & WWE stock?
From antitrust legal fallout to the implosion of the streaming bubble involving companies like Paramount and Disney getting slaughtered, UFC is being forced into a situation where they have to guarantee their income streams while somehow managing to keep the image of being a growth company. Embedding UFC into government contracts and side deals is a flight to safety.
Outside of Netflix and Apple, what media operations are cash flowing on their level? Everyone is bleeding. It’s a massive race to the bottom with several major media entities flooded with $50 billion dollars in debt. The crippling debt loads, combined with higher interest rates, mean rapid consolidation.
I would never bet against Ari Emanuel and Nick Khan in any television negotiation but now’s not the time to get cocky.
A consolidating media bubble combined with forced legal changes to fighter contracts means UFC is going to have to get aggressive in getting backstopped by government agencies. There are three major angles to consider.
Selling to the highest bidder? Three things to consider
1. Attracting more state and federal pension investment money into Endeavor and TKO stock.
How risky would you consider investing your pension fund into TKO stock? Consider that many state and federal pension programs are leveraged to companies deep in speculative Emerging Market portfolios. Investment in China, directly and indirectly through firms like Sequoia Capital, is drawing new-found scrutiny. Many pensions are leveraged to the Golden Dragon. With conflict in geopolitical hot spots like Taiwan and the Philippines, how safe are those pension investments? What happens if there is a kinetic conflict over Taiwan?
Investing in companies that are “China-adjacent” but not entirely reliant on Beijing is drawing more consideration. You might be more comfortable investing in Starbucks or TKO than Alibaba, which has the threat of NYSE delisting always lingering around its neck. UFC floating the trial balloon of running a major show in mainland China is the clearest sign yet that Ari Emanuel’s game of power politics is real and spectacular. He is not going to speak out of turn when it comes to the Chinese government.
When you increase the amount state and federal pension money flowing into TKO, you create more interest and stability for UFC on Wall Street. It’s all about selling access. It’s a big club and you ain’t in it. What price would you pay to join?
2. Increase the amount of access to sponsorship contracts with government agencies.
The appeal of investing money into a company like UFC that has such a dedicated and younger demographic – compared to other sports operations – is especially valued by government agencies looking to promote public programs and policies. Contracts from the Department of Defense, Health and Human Services, the Department of Educations, and hundreds of other alphabet government agencies are potentially worth tens of millions of dollars. In an economic environment where private advertising revenues are falling off a cliff, guaranteed government advertising contracts are a gold mine. In an environment where UFC is pushing Monster energy drink and Manscaped, having government sponsors brings a level of credibility that can’t be beat.
3. Deepen ties with government agencies to broaden the allure of selling UFC to the highest bidder.
Ari Emanuel will sell UFC to the highest bidder. The question is whether it’s sooner rather than later. In a short time span, he took an outrageous valuation of $4 billion dollars and turned it into a $12 billion dollar valuation. He managed to de-risk a business that is infamous for a 99.4% failure rate in combat sports. It’s a monumental achievement. However, the fallout from the antitrust lawsuit could dramatically change the way UFC does business in the future. Does he want to stick around and do business in a completely different environment than the one he invested in?
The biggest challenge – and reward – for Ari Emanuel moving forward is showing the highest bidder that UFC is not simply a sports property. It’s not an entertainment property. It’s a political operation of the highest order. What the Saudi Public Investment Fund thought they would get through LIV Golf or a partnership with the PGA is what they really could get if they bought out the UFC.
The deeper the tentacles of government cash and access to UFC business contracts, the more entrenched lobbyists and big business are to UFC’s success. Ari Emanuel must sell UFC based on the premise that it’s the best way for the highest bidder to become a power player in American culture, politics, and Wall Street. Why pay $6 billion dollars for an NFL franchise when you pay $12 billion dollars and own a whole global industry to yourself? Why buy access to one country’s government when you can buy access to a bunch of global governments?
That is the real value of UFC moving towards a quasi-governmental contractor business model.
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