Opinion: Endeavor Keeping the UFC from Reaching New Heights

Editor’s note: The views and opinions expressed below are those of the author and do not necessarily reflect the views of Sherdog.com, its affiliates and sponsors or its parent company, Evolve Media.

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The New York Post on Feb. 13 reported that the Ultimate Fighting Championship had paid out a whopping $300 million dividend to investors, including actors such as Charlize Theron, Ben Affleck and Mark Wahlberg and superstar athletes like Venus and Serena Williams. Half of the dividend went to Endeavor itself, and minority shareholding companies Silverlake and KKR also received a cut of the payout. As noted in the report, this is the first time the UFC has issued a dividend payment since Endeavor bought a majority stake in the company back in 2016.

Despite many pundits and fans’ reaction at the massive size of the remittance, this isn’t the first time the promotion has paid out such a substantial sum to investors. The company back in 2009 paid out an even bigger dividend to the tune of $305 million to various owners of the organization. In 2007, Zuffa reportedly used around $200 million of a $325 million loan from Deutsche Bank to pay a special dividend to UFC President Dana White and majority owners Lorenzo and Frank Fertitta; and by 2012, it had used nearly $270 million of the $485 million in loans it had acquired to pay out various stakeholders.

The big difference between those payouts, however, is where the money was flowing. While dividends from the UFC under Zuffa went to major players and owners, most likely as a bonus for how well they had led the company, the promotion’s most recent distributions may have been sent to Endeavor as much-needed aid. In September, the talent media conglomerate pulled its initial public offering just hours before it was set to hit the market after Wall Street made it clear that it did not have an appetite for another IPO that lacked enticing financials. Although Endeavor’s revenue is certainly nothing to discount, the organization has around $5 billion of debt on its books, making it a risky option for any investor looking to jump in. The organization had originally planned to raise around $600 million from the offering, presumably using some of the money to pay down its outstanding liabilities, but after losing out on the fundraising, it may have found itself reaching some of the limits of its loans’ debt covenants.

While Endeavor President Mark Shapiro has stated that the $300 million payout from its subsidiary had nothing to do with the talent agency’s failed IPO, according to the New York Post’s sources, that’s not the case. The organization has apparently been swapping cash bonuses with stock options for its talent agents in recent years, and those agents were expecting to have the option to sell those shares once the company went public. This has led to discontent among Endeavor’s workforce, and Shapiro has even admitted that part of the money the company receives from the UFC dividend will be used to satisfy disgruntled employees in the form of a stock buyback program. Shapiro has also mentioned that a portion of the payout will be used for acquisitions—something the conglomerate would be unlikely to finance with debt, given the amount it has already borrowed.

Whether you believe Shapiro or not, it’s difficult to imagine a world where Endeavor doesn’t use the UFC as a lifeline, at least in the short-term. In WME-IMG’s ever-growing portfolio of businesses, the MMA promotion has proven to be the crown jewel, yielding increasing revenue while implementing effective cost-cutting measures over the last several years. Unless Endeavor can find another way to get rid of some of the enormous debt it has accrued, the organization will need the UFC’s profits to help keep it afloat in the company’s quest to one day go public.

That quest could have serious ramifications for the UFC. As it stands, fighter costs are reportedly less than 16 percent of the promotion’s revenue—far less than the 40-50 percent found in other sports leagues and MMA organizations—and athletes under contract with the company have launched a class-action lawsuit claiming violation of United States antitrust law. Should that litigation not go the way UFC hopes, the promotion may have to pay out a substantial amount of damages or take a big hit in revenue from restructuring fighter contracts. If Endeavor takes the majority of the UFC’s profits for its own difficulties without leaving the promotion a reserve to pay such issues, the MMA behemoth could find itself in a bad situation.

Endeavor’s failed IPO also means that a separate public offering for the UFC is now highly unlikely. Documents filed in anticipation of Endeavor going public revealed that there was a real possibility of the promotion having its own IPO, especially after 2022. Given that the UFC is now arguably the most critical piece to Endeavor keeping its head above water, there is little chance that the talent agency would risk spinning off the promotion until it turned things around.

Any way you look at it, there is no denying that the UFC and Endeavor are tied at the hip for the foreseeable future. With more guaranteed revenue coming into the UFC than ever before, Endeavor can rest assured that it has a rainy-day fund in the MMA organization, even if the company would rather not have to use it. As both firms continue to look for new ways to increase profit and grow, the next few years will be pivotal for the UFC-Endeavor partnership, but if it comes down to a win-lose situation between the companies, the winner is clear. The UFC is a subsidiary for a reason.