Endeavor Group Holdings Inc.’s move to go public has revealed the talent agency and content producer’s reliance on a once obscure sports league and the risk that investment may pose.
An estimated 10% of Endeavor’s 2018 revenue was attributed to Ultimate Fighting Championship Ltd., which stages and promotes mixed martial arts fights around the world. Endeavor holds a 50.1% stake in the company, with private firms Silver Lake Partners and KKR & Co. Inc. each owning 22.9%, according to recent Endeavor filings with the Securities and Exchange Commission.
Endeavor’s reliance on revenue from the 28-year-old UFC may grow as entertainment and sports content replaces talent representation as Endeavor’s bread and butter.
Ariel Emanuel, Endeavor’s longtime chief executive, singled out UFC in a May 23 note to prospective shareholders as a critical part of Endeavor’s effort to reshape the “ever-evolving definition of content.”
UFC, however, is facing labor tensions that could have a far-reaching impact.
The league is defending itself in a class-action antitrust lawsuit brought by mixed martial artists who participated in league-sanctioned fights over the past 10 years. The fighters claim UFC suppressed their wages through unlawful, anti-competitive practices.
In Securities and Exchange Commission filings related to its ongoing attempt to register as a publicly traded company, Endeavor said the lawsuit could materially affect its financial position.
Observers said the suit may be a reckoning for the mixed martial arts league, and it represents another key labor dispute for Endeavor, which is already in a battle with Hollywood writers.
“The lawsuit could change UFC’s business and contracting practices, which would result in more revenue sharing and greater freedom for the fighters,” said Andre Barlow, an antitrust lawyer at Doyle Boyle & Mazard in Washington, D.C.
Paul Gift, a sports economist at Pepperdine University specializing in mixed martial arts leagues, estimates that UFC fighters see about 15% to 20% of the sport’s revenue, a figure based on Moody’s and other credit ratings agencies’ reports and lender presentations. An April report from Moody’s Investors Services Inc. credit rating agency pegged UFC’s 2018 revenue at “well over $600 million.”
The revenue percentage for UFC fighters is in major contrast to athletes in other professional sports leagues including Major League Baseball, the National Football League, and the National Basketball Association. Those leagues usually split revenue 50-50 with players, said Gift.
Implementing a similar revenue-sharing model at UFC could add around $100 million in annual personnel costs for Endeavor, based on an estimated $600 million in annual league revenue.
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