- S&P warns Endeavor might have to seek distressed debt restructuring because of Covid-19
- UFC’s deal with ESPN worth a minimum of $500m per year, but only if events are delivered
- ESPN pulled plug on UFC event set for tribal lands; commits to show UFC 249 in Florida
As one of the world’s biggest events and talent agencies, Covid-19 is hitting Endeavor particularly hard. Its sport-related holdings – the Ultimate Fighting Championship, IMG, Professional Bull Riders, On Location Experiences – are in almost complete shutdown.
Endeavor also carries substantial debts. In 2018 the company was known to have $4.6bn of long-term debt and $7.2bn of liabilities against $3.6bn of revenue. This doesn’t account for subsequent acquisitions like that of On Location Experiences, which Endeavor bought for $660m in January.
As a result of its predicament, credit ratings agency S&P Global this month downgraded Endeavor’s risk of default from “highly speculative” to “substantial risk”.
“A sizeable portion of Endeavor’s revenue is event- and live entertainment-based, or otherwise sensitive to the health of the leisure and entertainment economy, which is currently disproportionately hurt by restrictions on public gatherings,” the S&P analysis read.
“We believe the level of financial risk could motivate the company to seek a distressed debt restructuring if coronavirus containment does not occur by midyear so that revenue can begin to recover.”
This is why Endeavor is so keen to get the UFC back on the air – even if it risks the long-term reputation of the property.
Plenty at stake
In 2016, Endeavor partnered with investments firms Silver Lake Partners and KKR to acquire the UFC for an initial $3.775bn in 2016, rising to $4.025bn after ebitda targets were reached. The purchase was funded in part by two loans: a secured $1.3bn loan (first lien) and an unsecured $500m loan (unsecured notes). The debt placed against the UFC is understood to have grown to $2.3bn as of March 2020.
In order to earn revenue – and for that debt to be paid off – the UFC needs to be putting on a show. Sources close to the organisation say its media rights deals are structured so that payment is contingent on delivery of events, of which the UFC has promised 42 each year.
Should it meet the 42-event threshold, the UFC is set to earn about $600m in guaranteed global media rights income during 2020, $500m per year of which is paid by sports broadcaster ESPN. The broadcaster pays $300m per year for media rights to 30 non-pay-per-view events, as well as $200m per year to be the exclusive US platform for UFC residential pay-per-views.
The UFC also earns a significant share of revenue from each residential pay-per-view buy, as well as retaining exclusive rights to sell pay-per-view events to commercial establishments. In a particularly good year, the promotion could earn over $800m across media rights and pay-per-view.
The UFC has spent the past decade trying to its hardest to look and behave like mainstream sport.
It solidified its reputation as a major sports property in 2014, securing a six-year kit supply deal with Reebok. And its five-year deal with ESPN, from 2019 to 2023, brought the mixed martial arts promotion within touching distance of the big four US sports leagues.
But Endeavor’s dire straits mean the company is being allowed to diverge from the US sporting mainstream – which has favoured complete shutdown. UFC president Dana White has said that he “doesn’t give a shit about coronavirus” and his actions have backed that up.
Over the past month, White and the UFC have attempted to press ahead with scheduled events by circumventing US state lockdowns.
First, the UFC tried to stage its UFC 249 event at the Tachi Palace Casino Resort, situated on tribal lands in the US state of California. The land belongs to the Santa Rosa Native American community and does not fall under the jurisdiction of either US state or federal laws.
The workaround didn’t work. Things fell through when the location was revealed ten days prior to the event, prompting California governor Gavin Newsom to put a stop to the proceedings. Newsom called ESPN’s parent company, Disney, asking them to withdraw their support.
“We got a call from the highest level you can go at Disney and the highest level of ESPN,” White said in an interview with ESPN. “One thing that I’ve said since we started our relationship and partnership with ESPN – and it’s been an incredible one, it’s been an amazing partnership. ESPN has been very, very good to us, and the powers that be there asked me to stand down and not do this event next Saturday.”
It is unclear whether ESPN originally supported the plan or were made aware of its potentially dangerous nature by Newsom.
More recently, the UFC proposed hosting events on what it has trademarked as ‘Fight Island’ – an undisclosed, non-US location that the promotion hopes to turn into an international base from which to hold events.
In addition, several US states – exhorted by President Trump – are planning to relax lockdowns. White recently joined Trump’s ‘task force to restart the US economy’, providing the UFC with a direct line to the most powerful – and often autonomous – person in the country.
Florida recently declared ‘professional sports with a national audience’ as an essential public service, greenlighting the UFC to hold events there. Meanwhile Las Vegas, the UFC’s spiritual home and the host of all its most lucrative events, is aiming to reopen its hotels and casinos in May.
UFC 249 will take place at the VyStar Veterans Memorial Arena in Jacksonville, Florida on May 9, followed by further events on May 13 and May 16.
Regarding the rescheduled event in Jacksonville on May 9, ESPN said in a statement: “Sports play an important role in people’s lives and can bring moments of escape in challenging times. We look forward to bringing UFC to fans again.”
ESPN has now confirmed to SportBusiness that it will distribute UFC 249 in the US.
Years to build, minutes to destroy
Lorenzo Fertitta spent years cleaning up the UFC’s image before selling onto WME/IMG in 2016. Fertitta, who bought the UFC for $2m in 2001 and installed high school friend White as president, campaigned to legitimise the organisation and change the way regulators and the public viewed mixed martial arts.
Speaking to The Atlantic in 2008 about the effort to transform the UFC’s reputation, Fertitta said: “There was such a bad feeling about it and negative connotations associated with it, particularly among regulators, in general, because of the way [the previous owners] handled things in the early days. They kind of took on these governmental bodies saying: ‘You can’t tell us what to do, we’re gonna do it the way we want, we don’t fall under your regulatory authority.’ Well, who’s gonna win that one? You’re not gonna win that fight.”
Now, in moving ahead of other US sports – and arguably trying to circumvent lockdown rules – White has taken the combative approach his old friend Fertitta counselled against, and in doing so risks severe damage to the UFC’s hard-won reputation.
Certainly, the UFC’s return timescale is against the advice of epidemiologists and healthcare professionals. The Association of Ringside Physicians – which provides medical staff for UFC events – has called for the indefinite suspension of combat sports events.
“This includes any and all events, regardless of the number of people involved,” the ARP statement read. “Any combat sport taking place during this global pandemic places the athletes, officials and anyone else involved in the event under unnecessary risk of infection and transmission of COVID-19.”
Up until its television deal with Fox in 2011, the UFC was able to trade on its edgy, anti-authority image. It has long since moved on from that era, but the public comments of White and the decision to stage events during a global pandemic will leave major partners wondering if the promotion is reverting to type.
For partners like Volkswagen, Air Asia and Kraft Heinz, is this the UFC they thought they were signing up for? The reaction to its attempts to force through events by broadcasters like Veronica in the Netherlands – which said it would not show UFC 249 “for ethical reasons” – indicate how household brands might react.
The UFC might be damned if it goes ahead with its plans; only Endeavor co-chief executives Ari Emanuel and Patrick Whitesell know just how damned they are if it doesn’t.
This article was updated after ESPN confirmed to SportBusiness that it plans to show UFC 249 on May 9 – 27/04/2020, 17:49