For the past year, Hollywood superagent Ari Emanuel has felt his company’s shares were undervalued by Wall Street.
Endeavor Group Holdings Inc.’s biggest business, Ultimate Fighting Championship, was thriving thanks to a lucrative TV rights deal with ESPN. Its original talent-management business, WME, was growing as rivals Creative Artists Agency and United Talent Agency closed deals that valued them at billions of dollars. All told, Emanuel figured Endeavor was worth far more than its $10.7 billion market value.
Unable to convince investors, the 62-year-old chief executive officer went hunting for what he does best: a big deal. Emanuel, who built Endeavor through more than two dozen acquisitions, agreed Monday to buy World Wrestling Entertainment Inc., the most popular wrestling league in the world.
Under the terms, Endeavor’s UFC division will merge with WWE in a transaction that the parties value at $21.4 billion. That includes an assumed $12 billion enterprise value for UFC. Endeavor will control 51% of the combined business, which will trade publicly, while WWE shareholders including Executive Chairman Vince McMahon will hold the rest.
“This is an opportunity to crystallize the true value of UFC,” Endeavor President Mark Shapiro said in an interview. “Inside of Endeavor, the street clearly isn’t giving it enough credit.”
Investors ultimately will decide the true value when the stock begins trading, and initially it looks like they need some convincing. Endeavor shares declined 5.9% to $22.52, while WWE lost 2.2% to $89.30. WWE’s market cap of $6.65 billion suggests a valuation for the new, as-yet unnamed business that’s considerably less than what the two companies say.
The merger of UFC and WWE continues the transformation of Ari Emanuel from Hollywood agent to media mogul. In addition to leading Endeavor, he’ll become CEO of the new fight company, which will trade under the stock symbol TKO. He’ll oversee the largest mixed-martial arts league and the most popular wrestling league at a time when live entertainment has never been more valuable.
Emanuel, Shapiro and Endeavor Chairman Patrick Whitesell have already proved they know how to buy and run a live entertainment business and increase its value. When Endeavor bought UFC for $4 billion, people thought the company had overpaid and taken on too much debt.
But Endeavor convinced Walt Disney Co.’s ESPN to pay $300 million a year for the rights to show the UFC on TV – and then another $150 million for streaming rights. As part of Monday’s announcements, Endeavor put a $9.4 billion value on UFC’s equity, compared with the initial $1.3 billion investment.
“Now he’s going back to the playbook,” said Brandon Ross, an analyst and partner at media research firm LightShed Partners. “Ari likes to get bigger.”
The first order of business will be negotiating WWE’s next media deal. Media rights accounted for 80% of the company’s $1.3 billion in sales last year. Under its current deals, Comcast Corp.’s USA Network and Fox Corp.’s namesake network collectively pay $400 million to $500 million a year for the TV rights. Comcast pays an extra $200 million a year for the streaming rights that lapse at a later date.
Investors expects WWE to boost the annual value of those rights by about 80%, Ross said. That will only happen if Emanuel and Shapiro can create a competitive process for the weekly shows Smackdown Live and Raw.
Though the TV ratings for the shows have fallen in recent years, WWE is still the rare form of entertainment that delivers a large live audience. Comcast and Fox will want to keep the packages, but boosting the price will depend on attracting new bidders, such as ESPN, Amazon.com Inc. and Apple Inc. Endeavor also plans to package WWE and UFC together in some markets.
“WWE international rights have a lot of room to grow,” Shapiro said. “Everyone wants must-see programming.”
The combination of UFC and WWE should also create synergies. UFC makes money selling TV and streaming rights to media companies, staging live events, peddling merchandise and attracting sponsorships. WWE does much the same with its scripted matches. Endeavor cut $70 million from UFC’s costs in the first 18 months, and will find efficiencies in promoting both businesses.
It remains to be seen how investors feel about that the rest of Endeavor, which includes the talent agency, a bull riding league and fashion events. They will remain under the Endeavor name — and under Emanuel’s control.
Investors had been hoping for a deal that would separate UFC from the rest of Endeavor, analyst Ross said.
“It’s not clean,” he said. “Everything is all jumbled together still.”
Endeavor’s rivals have used the company’s growing interest in combat sports to try and sign away clients. Emanuel is no longer really an agent, CAA and UTA say behind closed doors.
That is true in at least one respect. Emanuel started his career representing stars like Mark Wahlberg, and is the one Hollywood talent agent well-known to the outside world, thanks to the HBO series Entourage. The super-agent on that show, the foul-mouthed, domineering Ari Gold, was partially based on Emanuel.
While Emanuel continues to represent clients, he has his eyes on a larger prize — being a media mogul and billionaire. After he and Whitesell swallowed the larger talent agency William Morris, the pair orchestrated deals that turned WME into a media powerhouse. They brought on Shapiro as the company pushed into sports.
With this deal, Emanuel gets a big step closer, even if he still needs to convince investors.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
