UFC 249 Postponed; ESPN Contract, Debt Obligations Explain Why UFC Pushed To Make Event Happen

JohnWallStreet

UFC 249 will not go on as scheduled next Saturday night after Disney (DIS) and ESPN ordered Dana White "to stand down and not do [the] event." The fight promoter agreed to postpone the April 18th show - along with all other UFC events indefinitely. The news comes just three days after Jeff Sherwood (founder of sherdog.com) reported the PPV event and the next three shows would all take place at the Tachi Palace Casino, on the Santa Rosa Indian Reservation, sans fans (the tribal casino is not subject to California's executive order banning mass gatherings). White also claimed earlier in the week that UFC Holdings, LLC had secured a private island to ensure the promotion had a location to continue staging fights (one that wouldn't require government or sanctioning body approval). Public pressure (see: Senator Dianne Feinstein issued a statement earlier in the day on Thursday saying she was "concerned" about the event, the NYT piece about the UFC skirting Coronavirus limits) and a call from Governor Gavin Newsom forced DIS' hand - and the UFC to ultimately fall in line - but a close look at the MMA outfit’s finances helps to explain why the Ultimate Fighting Championship was willing to bend over backwards to put the fights on in the first place. 

Howie Long-Short: KKR, Silver Lake Partners, and the company now known as Endeavor bought the UFC back in 2016 in a highly leveraged deal (the fight promotion took on $2.3 million in debt). That’s not necessarily a bad thing - the UFC is wildly profitable even after making nine-figure debt payments annually - but it does mean that the company needs to regularly put on events so that it can fulfill its obligations by 2026 when the loans come to term. It’s certainly no coincidence that the UFC’s lucrative rights deal with ESPN and Dana White’s employment contract are set to expire at the same time.

If the UFC doesn’t hold events, the company is not going to fall into bankruptcy. As MMA observer ‘Fight Oracle’ explained “KKR and Silver Lake - which are both sitting on piles of cash - are backstopping the business.” But canceling upcoming fight cards and forcing the investment firms to cover operational costs (since no money comes in the door if fights don't take place) poses a significant risk to Endeavor (the controlling stakeholder). If KKR and Silver Lake “invest any new liquidity [into the UFC], they’re going to be looking for equity in return and as was disclosed on the S-1 (of Endeavor’s failed IPO), the company really doesn’t make money on anything except representation and the UFC.” Endeavor certainly doesn’t want to lose control over a business (currently maintains 50.1% stake) that it relies so heavily on to achieve profitability.

Disney has guaranteed the UFC +/- $750 million for the exclusive broadcast rights to 42 events (including PPVs) in 2020. With that contract representing upwards of 75% of the promotion’s annual revenue and the UFC having held just seven events to date this year, one could understand why Dana White has been insistent that the show must go on. With 40 weeks left in 2020 and no timetable for a return, it’s not too early for Endeavor to start worrying about whether the UFC will be able to fulfill its obligations. Of course, it's possible - if not likely (since the decision came at their behest) - that DIS has agreed to provide the UFC with some working capital during the stoppage to ensure that all of their operating costs remain covered.

It’s fair to wonder if DIS and ESPN's decision to put the kibosh on UFC 249 had anything to do with Justin Gaethje replacing Khabib Nurmagomedov at the last minute. Considering Khabib is among the promotion’s biggest draws, it's fair to assume that the PPV's buy totals would have been lower with Gaethje fighting Tony Ferguson than if ‘The Eagle’ had headlined. The 'Fight Oracle' doesn’t think that is the case. “Disney is not looking at their deal with the UFC in a vacuum and trying to maximize revenues on an individual event basis. For them, it’s all about building scale for ESPN+ (remember, to buy the PPV the viewer needs to subscribe to ESPN+ first). It’s been announcements about subscriber growth that have moved the stock price” (see: ESPN+ reached 7 million users). 

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