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TKO, the new company formed after the UFC and WWE merged, has filed their third quarter financial statements with the SEC.
Bloody Elbow has since obtained a copy of their latest filing, with the documents again showing UFC continuing to be an incredibly lucrative business, with revenue and earnings both up as they’re on track for another banner year. BE will have more detailed info on their finances soon, but apart from TKO executives boasting about their good numbers, it’s also interesting to note the few risk factors they’ve added.
More specifically, it’s interesting how it mentions the updates on the UFC antitrust lawsuit and Vince McMahon’s presence in the board as having potential “adverse” effects to their business.
TKO warns UFC antitrust lawsuit could have “adverse effect” on business
TKO’s SEC filing noted the latest update in the on-going antitrust lawsuit, where the fighters were granted class certification and a trial is planned for April 2024.
In the document, they warned shareholders that “unfavorable outcomes in legal proceedings may adversely affect our business and operating results.”
This is how they described the potential impact of the lawsuit that has fighters asking for over a billion in damages, and possible major changes to how the sport is currently:
“Unfavorable rulings in our legal proceedings could result in material liability to us or have a negative impact on our reputation or relations with our employees or third parties. The outcome of litigation, including class action lawsuits, is difficult to assess or quantify,” the document read.
“Plaintiffs in class action lawsuits may seek recovery of very large or indeterminate amounts and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. We are currently named in five related class-action lawsuits filed against us alleging that we violated Section 2 of the Sherman Act by monopolizing an alleged market for the promotion of elite professional MMA bouts and monopsonizing an alleged market for the services of elite professional MMA athletes. On August 9, 2023, the plaintiffs in the class-action lawsuits were certified as a class. If we are unable to resolve these or other matters favorably, our business, operating results, and our financial condition may be adversely affected.”
They also warned that should things not go their way, “we may be required to pay monetary damages or may be subject to fines, penalties, injunctions, or other censure.”
Apart from huge damages that could amount to billions potentially, UFC is also facing possible injunctive relief, which would make them be forced to changed how they operate as a business.
For a quick and detailed explainer on the on-going case, everything you need to know about the antitrust lawsuit is here.
TKO says Vince McMahon’s board seat could hurt public image
While Dana White heaped praise and credited Vince McMahon for brokering a UFC deal with Saudi Arabia, interestingly enough, TKO explicitly listed the controversial WWE executive’s position as a risk to their business.
“Mr. McMahon’s membership on our Board could expose us to negative publicity and/or have other adverse financial and operational impacts on our business. His membership also may result in additional scrutiny or otherwise exacerbate the other risks described herein. Any of these outcomes could directly or indirectly have adverse financial and operational impacts on our business.”
TKO details Vince McMahon’s legal issues, hush money, and WWE investigation
The company also detailed the legal issues surrounding Vince McMahon, who has been repeatedly accused of sexual misconduct and paid off millions of dollars in alleged hush-money.
“On July 17, 2023, federal law enforcement agents executed a search warrant and served a federal grand jury subpoena on Mr. McMahon. No charges have been brought in these investigations. WWE has received voluntary and compulsory legal demands for documents, including from federal law enforcement and regulatory agencies, concerning the investigation and related subject matters.”
TKO also documented their internal investigation on this financial statement meant for their shareholders and the US Government.
“On June 17, 2022, WWE and its then Board of Directors announced that a special committee of independent members of its Board of Directors (the “Special Committee”) was formed to investigate alleged misconduct by WWE’s then-Chief Executive Officer, Vincent K. McMahon. On July 22, 2022, Mr. McMahon resigned from all positions held with WWE but remained a stockholder with a controlling interest. On January 9, 2023, WWE’s Board of Directors elected Mr. McMahon as Executive Chairman thereto, and Mr. McMahon subsequently returned to WWE.
On July 25, 2022, based on the findings of the Special Committee investigation, WWE announced that it had determined that certain payments that Mr. McMahon agreed to make during the period from 2006 through 2022 (including amounts paid and payable in the future totaling $14.6 million) were not appropriately recorded as expenses in WWE’s consolidated financial statements
WWE subsequently identified two additional payments totaling $5.0 million unrelated to the alleged misconduct by Mr. McMahon that led to the Special Committee investigation, that Mr. McMahon made in 2007 and 2009 that were not appropriately recorded as expenses in the WWE’s consolidated financial statements. Together, these unrecorded expenses total $19.6 million.”
TKO: Vince McMahon will pay and reimburse the company personally
The document also noted how the settlement money, along with the costs of the WWE’s internal investigation will all be paid for by Vince McMahon.
“All payments underlying the Unrecorded Expenses have been or will be paid by Mr. McMahon personally,” the document read. “… In light of the Unrecorded Expenses and related facts, WWE concluded that its internal control over financial reporting was not effective as a result of one or more material weaknesses.
“… Subsequent to WWE’s restatement for the Unrecorded Expenses, WWE was informed of certain additional claims, which have been settled by Mr. McMahon. When the amounts became probable and estimable in the fourth quarter of 2022, including consideration of events that occurred subsequent to December 31, 2022, WWE recorded an additional $7.4 million of expenses. Mr. McMahon has made or will make all related payments personally.”
The document noted “significant” costs from the internal investigation, and also warned shareholders again of possible negative impact of the investigation and McMahon’s actions.
“Professional costs resulting from WWE’s Special Committee’s investigation have been significant and are expected to continue to be significant as the Company continues to incur costs arising from ongoing and/or potentially new regulatory, investigative and enforcement inquiries, subpoenas and demands and claims. We expect Mr. McMahon to reimburse the Company for reasonable expenses incurred in connection with the investigation.
“…it is possible that a change in the perceptions of our business partners could occur as a result of the investigation or other matters described above. In addition, as a result of the investigation or other matters described above, certain other operational changes, including without limitation other personnel changes, have occurred and may continue to occur in the future, which may have adverse financial and operational impacts on our business. Any adverse impacts as a result of the investigation and related matters, and any further allegations or investigations, could exacerbate any of the risks described herein.”
Vince McMahon had multiple sexual assault accusations
Vince McMahon has been repeatedly accused of sexual assault, abuse and misconduct by numerous parties through the years. As TKO noted above, this has led to several multi-million dollar payouts and non-disclosure agreements from 2006 to 2022.
McMahon supposedly stepped down as WWE CEO and “retired” in 2022, only for him to return to the company soon after. After UFC and WWE merged, Endeavor and TKO CEO Ari Emanuel named McMahon as the executive chairman of the board.
Emanuel recently praised McMahon and White publicly as he wanted them to still be the face of both WWE and UFC.
“I’m the luckiest guy in the world,” Emanuel said about the UFC and WWE merger. “Because I’ve got Vince McMahon, a visionary that sees around corners. I’ve got Dana White and what we’ve built. That’s pretty unstoppable. Combined, it’s rarefied air, the two of us. I think the analysts will see it’s good for the shareholders of WWE and it’s good for the shareholders of Endeavor.”
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