Q3 2024 TKO Group Holdings Inc Earnings Call
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Speaker Change: Good afternoon.
Speaker Change: and thank you for joining today's Q3 2024 KKO earnings call.
Reagan: My name is Reagan and I'll be your moderator today.
On-Lives will be muted during the presentation portion of this call with an opportunity for questions and answers at the end. If you like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Seth Zaslow, head of Investor Relations. Seth, you may now proceed.
Speaker Change: will also be available via our website for at least 30 days.
Seth Zaslow: After prepared remarks from Ari Emanuel, TKO's executive chair and chief executive officer, and Andrew Schleimer, TKO's chief financial officer will open the call for questions.
Speaker Change: Mark Shapiro, our president and chief operating officer, and Andrew will be handling the Q&A.
Speaker Change: The purpose of this call is to provide you with the information regarding our third quarter 2024 performance.
Speaker Change: I want to remind everyone that the information discussed will include forward-looking statements and or projections that involve risks, uncertainties, and assumptions.
Speaker Change: Please see our filings with the Securities and Exchange Commission for further detail.
Speaker Change: If these risks or uncertainties were to materialize, or any assumptions prove incorrect, our results may differ materially from those expressed or implied on this call.
Speaker Change: Forward-looking statements speak only as of the date they are made and we undertake no obligation to update them in light of new information or future events except as legally required.
Speaker Change: Our commentary today will also include non-GAAP financial measures, which we believe provide an additional tool for investors to use in evaluating ongoing operating results and trends.
Speaker Change: These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.
Speaker Change: Reconciliations between gap and non-gap metrics can be found in our press release issued today as well as the information posted on our IR website.
Speaker Change: With that, I'll now turn the call over to Ari.
Ari: Thanks, Seth.
Ari: Just over a year since UFC and WWE came together to form TKO, our conviction in this business is as strong as ever. We're executing on our strategy and delivering record results, while realizing greater integration and synergy opportunities than initially expected.
Ari: On the heels of TKO's solid third quarter performance and with our visibility through year end, we're now expecting to come in at the upper end of our full year guidance range for both revenue and adjusted EBITDA.
Ari: Additionally, two weeks ago we made two announcements that we believe reinforce our commitment to creating long-term value for shareholders.
Ari: First, we authorized a capital return program featuring a $2 billion share repurchase program and a quarterly cash dividend program of $75 million.
Ari: Second, TKO announced an agreement to acquire industry-leading sports assets, professional bull riders or PBR, premium sports hospitality provider on location, and global sports rights and production powerhouse IMG.
Ari: I cannot impress enough how bullish we are about this deal.
Ari: which aligns with the pure play sports strategy TKO will execute and be known for. This acquisition strengthens our global position in sports rights, experiences, and hospitality, and it adds PBR to our portfolio as another valuable and growing sports league.
Ari: These assets will power our profile, give us greater scale, strengthen our position in the sports marketplace, and accelerate returns for shareholders.
Ari: We're also proud and pleased to share that On Location has extended its partnership with the NFL through 2036, ensuring it remains the official hospitality provider at premier events including the Super Bowl, NFL Draft, and NFL International Games for years to come.
Ari: Turning to the quarter, our results highlight sustained demand for UFC and WWE live events and underscore our business's ability to reach new heights and attract fans globally.
Ari: UFC 306 at Sphere Las Vegas is a prime example. The sold-out event not only set the record for UFC's highest-grossing live event but also became Sphere's highest-grossing single event and achieved UFC's highest event merchandise and sponsorship sales.
Ari: Notably, 89% of ticket buyers came from outside Nevada, one of the highest out-of-town attendance rates for any UFC or SPHERE event. This turnout underscores UFC's appeal as a destination event, drawing fans from across regions and delivering economic benefits to host cities.
Ari: Beyond these impressive metrics, this event also showcases what TKO is truly all about. Innovating and revolutionizing the way fans consume and engage with live sports.
Ari: Internationally, UFC events also delivered. UFC 304 in Manchester became the highest-grossing event at Co-op Live and drew the largest attendance for a UFC event in the UK.
Ari: In Perth, UFC 305 marked a successful start to our multi-year partnership with the Western Australian government, setting the record for RAC Arena's highest-grossing event. And in Paris, our September fight night became a core arena's highest-grossing event to date.
Ari: At WWE, live events outperformed in the third quarter and set 42 individual market records for ticket sales, evidence that the strategies we have been implementing around ticket pricing and event routing are bearing fruit.
Ari: While the U.S. remains strong, momentum is increasingly evident in international markets, where WWE continues to sell out venues and draw record crowds.
Ari: In the third quarter, WWE held 18 shows outside the U.S., up from 11 in the same period last year.
Ari: Highlights included a highly anticipated return to Japan after a five-year hiatus, selling out in Tokyo with a record gate, and Germany's first-ever premium live event, which became WWE's highest-grossing arena event, a record that we have broken three times this year.
Ari: Meanwhile, in Cleveland, SummerSlam achieved record-breaking results, becoming WWE's highest-grossing non-wrestlemania event in history.
Ari: WWE also had successful debuts on USA Network for SmackDown and the CW Network for NXT. In fact, through the first five weeks, NXT is up 12% in viewership versus USA last year.
Ari: Meanwhile, SmackDown's return to USA Network under our five-year domestic media rights agreement with NBCUniversal has already driven strong and sustained viewership.
Ari: Without a doubt, this partnership further strengthens our long-standing relationship with NBCU and we're anticipating a strong draw for the upcoming debut of quarterly primetime specials starting December 14th with Saturday night's main event on NBC.
Ari: And with Raw's launch on Netflix nearing, both WWE and Netflix are actively preparing for an impactful debut on January 6th, which will expand the reach of WWE and deliver our flagship content to a global audience.
Ari: As we close out the year and look to 2025, we're confident in the strength of our iconic properties and the momentum we're building towards significant milestones.
Ari: From an exciting lineup of live events that include UFC 309 at Madison Square Garden later this month, WrestleMania in Las Vegas, and the first ever two-night SummerSlam at MetLife Stadium, to closing our acquisition of PBR, On Location, and IMG, all of which fuel further growth.
Speaker Change: With that, I'll turn the call over to Andrew.
Speaker Change: Good afternoon.
Andrew Schleimer: As we previously disclosed, on September 26th, we reached a revised agreement to settle all claims asserted in the Lee UFC antitrust lawsuit for $375 million.
Speaker Change: In the third quarter, we recorded an incremental $40 million charge to bring the aggregate expense on our books to $375 million.
Speaker Change: On October 22nd, the court granted preliminary approval of the settlement.
Ari: As a result, we made the first of three payments for $125 million into escrow in late October.
Speaker Change: We expect to pay the remaining $250 million in 2025, $125 million in the first quarter, and $125 million by the end of Q2.
Speaker Change: As we've mentioned, the settlement is anticipated to be deductible for tax purposes as and when paid. As a result, our tax distributions to members in the third quarter were reduced to reflect the settlement payment such that we didn't realize an adverse dollar-for-dollar impact to cash on hand.
Speaker Change: Third quarter reported results included three months of activity for both UFC and WWE.
Speaker Change: The reported results for the third quarter of 2023 include WWE activity for the period from September 12th through September 30th, 2023.
Speaker Change: To assist with comparability
Speaker Change: We've presented supplemental financial information in our press release and IR website that includes WWE activity and the portion of WWE related to the corporate group.
Speaker Change: for the period from July 1st through September 11th, 2023, as well as each quarterly period from January 1st, 2022 through September 11th, 2023.
Speaker Change: For the third quarter of 2024, we generated revenue of $681 million, net income was $58 million, adjusted EBITDA was $310 million, and our adjusted EBITDA margin was 46%.
Speaker Change: Including WWE activity for July 1st through September 11, 2023, combined revenue for the third quarter was $685 million, combined adjusted EBITDA was $298 million, and our combined adjusted EBITDA margin was 44%.
Speaker Change: Inclusive of these amounts, Revenue decreased 1%, Adjusted EBITDA increased 4%, and Adjusted EBITDA Margin increased 2 percentage points.
Speaker Change: Our UFC segment generated revenue of $355 million in the quarter, a decrease of 11%, or $43 million.
Speaker Change: Adjusted EBITDA was $196 million, a decrease of 18% or $43 million.
Speaker Change: UFC's adjusted EBITDA margin was 55%, down from 60% in the prior year period.
Speaker Change: As expected, revenue was impacted by the timing of the events calendar.
Speaker Change: UFC had 10 total events in the third quarter of this year, compared to 13 total events in the prior year period.
Speaker Change: As Ari mentioned, the health of the business remains extremely strong, and UFC continues to benefit from the meaningful tailwinds of the experienced economy.
Speaker Change: Media rights and content revenue decreased 19% to $216 million.
Speaker Change: The decrease was driven by one less number of men and two fewer fight nights as compared to the prior year period.
Speaker Change: The contractual escalation of media rights partially offset the decrease from the timing of the events calendar.
Speaker Change: Live events revenue decreased 1% to $51 million.
Speaker Change: Ticket sales reflected the decline in the number of total events in the third quarter as compared to the prior year.
Speaker Change: This headwind was essentially offset by strong underlying trends in pricing and attendance for high-profile events such as UFC 306 at Sphere as well as an increase in site fees.
Speaker Change: Results in the quarter included a site fee related to our fight night in Abu Dhabi.
Speaker Change: Sponsorship revenue increased 16% to $74 million.
Speaker Change: Despite the unfavorable mix of events in the quarter, new partnerships and renewals drove the increase.
Speaker Change: UFC 306 was the highest grossing event in UFC's history and the first event to feature a title partner sponsor which we sold to Riyadh Season
Speaker Change: Adjusted EBITDA reflected the decrease in revenue.
Speaker Change: Expenses were essentially flat year over year.
Speaker Change: Direct operating expenses decreased primarily due to lower marketing, athlete costs, and direct costs of revenue due to one less numbered event and two fewer fight nights.
Speaker Change: These decreases were partially offset by higher production costs, primarily related to UFC 306.
Speaker Change: Given the unique nature of the venue and production elements associated therewith, we incurred production costs for UFC 306 that were meaningfully higher than our historical norm for a numbered event, which resulted in reduced adjusted EBITDA and reduced adjusted EBITDA margin in the quarter.
Speaker Change: However, as Ari highlighted,
Speaker Change: UFC 306 was a once-in-a-lifetime experience and a highly successful event for UFC.
Speaker Change: SG&A increased primarily due to higher cost of personnel as compared to the prior year period.
Speaker Change: Thank you for watching!
Speaker Change: WWE delivered strong quarterly revenue and adjusted EBITDA.
Speaker Change: The financial results continue to reflect healthy creative momentum in the business, as well as the benefits to both the top and bottom line from the initiatives we implemented since the formation of TKO.
Speaker Change: Our WWE segment generated revenue of $326 million in the quarter. Adjusted EBITDA was $175 million and adjusted EBITDA margin was 54%.
Speaker Change: The following commentary on the third quarter includes comparisons to activity for the period from July 1st through September 30th, 2023.
Speaker Change: In the third quarter of 23, revenue was $287 million, adjusted EBITDA was $102 million and adjusted EBITDA margin was 36%.
Speaker Change: Revenue increased 14% or $39 million.
Speaker Change: Adjusted EBITDA increased 72% or 73 million and adjusted EBITDA margin increased 18 percentage points.
Speaker Change: Revenue growth was led by continued strong performance for live events.
Speaker Change: Live event revenue increased 31% to $51 million.
Speaker Change: The increase was primarily related to an increase in ticket sales.
Speaker Change: Since the formation of TKO, we've been focused on increasing ticket yield, and this strategy favorably impacted our results in the quarter, not only in connection with the premium live events, such as SummerSlam, which was the highest-grossing non-WrestleMania event of all time, but for the balance of WWE's live events in the aggregate.
Speaker Change: Meteorites and content revenue increased 8% to $227 million.
Speaker Change: The increase was primarily related to the contractual escalation of media rights fees as well as the timing of our weekly programming, which resulted in one additional episode of RAW in the quarter compared to the prior year.
Speaker Change: Sponsorship revenue increased 54% to 22 million due to new partnerships and renewals across multiple categories including beverage, QSR, spirits, entertainment, and communications.
Speaker Change: Of note, SummerSlam was highly successful and included for the first time three in-ring sponsors as well as a record number of partners.
Speaker Change: It's early days, but we have, and expect to continue to, realize benefits from the unified global partnerships team we put in place at the beginning of the year.
Speaker Change: Adjusted EBITDA reflected the increase in revenue and a decrease in expenses.
Speaker Change: The decrease in expenses primarily reflected lower personnel costs and production costs related to our planned cost reduction initiatives implemented following the formation of TKO.
Speaker Change: Corporate expenses were $61 million for the third quarter of 2024.
Speaker Change: On a combined basis, corporate expenses were $42 million for the third quarter of 2023.
Speaker Change: The increase was primarily due to higher personnel costs, including executive compensation and other G&A expenses following the formation of TKO in September of last year.
Speaker Change: The increase also reflected the impact of the services fee that UFC and WWE paid to Endeavor, which commenced for WWE in March of 2024.
Speaker Change: Now moving to our capital structure.
Speaker Change: We define free cash flow as net cash provided by operating activities less capital expenditures.
Speaker Change: Free cash flow excludes the majority of the mandatory tax distributions to our owners, but does include the portion of cash taxes paid by TKO PubCo.
Speaker Change: For the quarter, we generated $226 million of free cash flow.
Speaker Change: This includes $11 million of capital expenditures, approximately $3 million of which related to WWE's new headquarters.
Speaker Change: The quarter was favorably impacted by the timing of working capital, most notably the collection of the site fee associated with our WWE Saudi event, King and Queen of the Ring, that was held in May.
Speaker Change: We ended the quarter with $2.736 billion in debt and $457 million in cash and cash equivalents.
Speaker Change: As we announced on October 24th, our Board of Directors authorized the share purchase program of up to $2 billion of our Class A common stock.
Speaker Change: We expect the program to commence following the close of the acquisition of PBR On Location and IMG in the first half of 2025, but is not conditioned on the closure of this transaction.
Speaker Change: Once the program does commence, we anticipate that the pace of the repurchase activity will be fairly linear and expect to complete the program within a period of three to four years.
Speaker Change: We also announced that our board authorized a $75 million quarterly cash dividend program.
Speaker Change: The Dividend Program will involve a quarterly distribution by TKO-OPCO, and holders of TKO Class A common stock will receive their pro rata share of distributions.
Speaker Change: We intend to make the first dividend payment on March 31st, 2025.
Speaker Change: As with the share of purchase program, the dividend is not conditioned on the close of the PBR on location and IMG transaction.
Speaker Change: Earlier today, we announced the refinancing of our credit facility, seeking a new 7-year, $2.75 billion term loan and a new 5-year, $205 million revolver, which are approximately the same balances as we currently have.
Speaker Change: The facility will continue to include significant capacity for incremental term loan add-ons, which we anticipate will be a source of funding the share repurchase program.
Speaker Change: As we've previously articulated, our target for net leverage remains up to three times.
Speaker Change: Given our strong balance sheet, expected growth, and adjusted EBITDA and free cash flow generation, we expect to have additional financial capacity.
Speaker Change: However, our primary focus continues to be driving value at UFC and WWE while also planning for the integration of PBR, On Location, and IMG into TKO.
Speaker Change: As we noted when we announced the transaction, PBR, On Location, and IMG are the only assets that TKO will acquire from Endeavor.
Speaker Change: As we've discussed in the past, we manage the business with a focus on full year performance.
Speaker Change: Therefore, we believe our results are best evaluated on a full-year basis given the quarterly fluctuations that are inherent in our operations related to the timing of our events and content deliveries among other items.
Speaker Change: As we noted on October 24th and in our press release today, we are revising our full year 24 guidance for revenue and adjusted EBITDA.
Speaker Change: We are now targeting the upper end of the previously provided ranges for both revenue of $2.67 to $2.745 billion and adjusted EBITDA of $1.22 to $1.24 billion.
Speaker Change: The increase is related primarily to strong operating performance on a year-to-date basis, particularly in live events and sponsorship at both of our businesses, and visibility through the end of the year.
Speaker Change: On our last call, we noted that we expected the third quarter to be the most challenging quarter of the year for UFC given the unfavorable timing of events, and it was.
Speaker Change: As we look to the fourth quarter of 2024, we want to highlight a few notable items.
Speaker Change: At UFC, results are expected to improve as the current calendar includes an additional event and two additional events with live audiences compared to the prior year period.
Speaker Change: At WWE, as we've previously discussed, results will reflect the short-term domestic rights deal we reached earlier this year with USA Network for Raw for the fourth quarter.
Speaker Change: This will have an unfavorable impact of approximately $50 million to both revenue and adjusted EBITDA as compared to Q4 2023.
Speaker Change: As a reminder, and for the avoidance of doubt, this is purely timing-related. In January 2025, our long-term agreement with Netflix to distribute Raw commences.
Speaker Change: In terms of expenses, we expect results to continue to reflect the benefit of the initiatives we've implemented to take costs out of the business.
Speaker Change: Today we also reaffirmed our expectation for full year 2024 free cash flow conversion to be in excess of 40% of adjusted EBITDA.
Speaker Change: Our outlook includes the payment of $125 million for the UFC lawsuit settlement and transaction costs related to the strategic acquisition of Endeavor assets, both of which are included in operating cash flow.
Speaker Change: In conclusion, we generated solid third quarter results that reflected continued strength at both of our businesses. We are extremely excited about the road ahead and our prospects for 2024 and beyond. With that, I'll turn it back to Seth.
Seth Zaslow: Thanks, Andrew. Operator, we're ready to open the call for questions.
Speaker Change: Thank you so much. We will now be moving into our Q&A session, so if you would like to ask a question, please press star followed by 1 on your telephone keypad.
Speaker Change: To remove your question, press star followed by 2. Again, to ask your question, that is star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. Our first question comes from Ben Swinburne of Morgan Stanley.
Speaker Change: Ben, your line is now open.
Speaker Change: and Seth Zaslow.
Ben Swinburne: Great. Hey, good afternoon, everybody. Thanks for taking the question. Maybe I'd like to start with Mark on sort of the UFC, which is right around the corner with the domestic rights. I think you've made some comments recently about, you know, potentially splitting up the rights, taking back pay-per-views.
Speaker Change: I think as a public company you certainly benefit from sort of their predictability of licensing out those pay-per-view fights to ESPN but I'm wondering how you think about that relative to the potential upside of distributing those yourself.
Speaker Change: And then I'd love to hear, Andrew, the WWE margins this quarter were particularly impressive. I think your expenses were down like 20%, even though revenues were up 13%.
Speaker Change: You mentioned merger synergies. Anything else you'd flag? Because even live events, I think the event count was up, I think, at least internationally. So I'm surprised how strong of a margin you had in Q3. I'd love any more details you might share. Thanks so much.
Speaker Change: And thanks, Ben. Good to hear from you. Andrew will start since it's just fresh off your long second part of the question, and then I'll come back in the third one.
Speaker Change: raw event.
Speaker Change: in the quarter, so almost like-for-like from an event calendar perspective on WWE.
Speaker Change: But what I think you're seeing here is just the continued cost savings measures and initiatives.
Speaker Change: that we set out to put in place when we launched TKO. Really, you know, flowing through us just being more efficient top to bottom, getting a bit more on the production side as Nick and Lee fitting.
Speaker Change: are laser focused on execution there. And really, you know, I like to focus on growth in the ad sales and sponsorship department, 54% growth over prior year Q3.
Speaker Change: and those deals are being structured at higher margins than they had been in the past. So you're seeing just growth from high margin revenue contributors and even more so than they were contributing Q3 in 2023.
Speaker Change: You know early innings on the south side, but really encouraged by what we're seeing
Speaker Change: Yeah, and I would just say, just to add to that, I mean...
Speaker Change: You can just expect more margin accretion as we flow through. I'd like to remind folks, we're still in at least mid-innings, if not early innings, on the integration of these two assets of WWE and UFC. I mean, we're
Speaker Change: Of course, already guiding to the fact that we'll beat our net cost synergies of $100 million. But as we succeed with our strategy of having these events on the same week, or same weekend, or subsequent weekends,
Speaker Change: now with PBR as well.
Speaker Change: Our margins are only going to be better because we're going to save on that cost side. We'll sell triple header sponsorships as we like to call them. Somebody that comes in and sponsors all three events, that'll be huge for us and it'll drive local ad sales. But on the cost side, we're going to benefit there. And I can tell you that
Speaker Change: to Andrew's point, Nick Kahn and Pete Tropic, who runs all of our ticket operations, and Lauren Sepstein. I mean, they're working on this night and day, city by city, region by region, country by country. Where can we bring all three to town? There's that as well. So on the first part, look, here's what I would tell you.
Speaker Change: in terms of what
Speaker Change: really benefits, to your point, what benefits us and our shareholders is maximizing value on these.
Speaker Change: That's the bottom line. So we're not looking to upend or change for change's sake or unorthodox models. We are looking to maximize change.
Speaker Change: our rights, end of story. UFC is mainstream, incredibly popular. I see some of the struggles going on with other leagues right now, both linear and digital leagues that have started new seasons and are not off to a rocket start, like we're accustomed to. That's not the case with UFC.
Speaker Change: We're still driving subs on ESPN+. When we're on ESPN, ESPN2, or ABC, we're a ratings winner and driving more advertising for those platforms. And on the WWE side, as Andrew talked about and Ari talked about in the prepared comments,
Speaker Change: from CW to, of course, Comcast,
Speaker Change: you know a stalwart so
Speaker Change: We're flying and if we have to be creative to help potential partners or bring other suitors in the door so that we get a higher price or live up to the
Speaker Change: guide that the street has been giving us on the renewals, not the one we're giving them, but the one they're giving us, then we're going to do it. And that's all we're trying to signal to our shareholders and all we're trying to signal to the media suitors, the platforms, the companies that are going to be chasing us relatively soon.
Speaker Change: Thanks so much.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Brandon.
Speaker Change: Thank you for watching!
Speaker Change: I'm so sorry, say it one more time?
Speaker Change: and Seth Zaslow.
Speaker Change: Go ahead.
Speaker Change: No problem. Our next question comes from Brandon Ross of LightShed. Brandon, your line is now open.
Speaker Change: and Seth Zaslow.
Brandon Ross: Thanks very much. And for the record, that faux pas was not my fault this time.
Speaker Change: Maybe just to start with a follow-up on Ben's UFT renewal question.
Speaker Change: I've been thinking a lot about how different the approach to distributing your top content is between WWE and UFC right now. For WWE, the PLEs,
Speaker Change: You're going with the broadest possible reach on Netflix and T-Cock. There's no discrete transaction to watch your content.
Speaker Change: we're on
Speaker Change: UFC, you're in this high-cost pay-per-view model, and you've said, and I think maybe alluded to it with the last answer, you don't want to shake anything up, really, and you prefer to re-up your deal with Disney. Why is the continuation of a pay-per-view model the best path, especially given how MMA is still in its relative infancy compared to wrestling?
Speaker Change: Yeah, look, I would just tell you, Brandon, I mean, just a reminder, obviously, internationally, we sell pay-per-view for the UFC.
Speaker Change: But we do not sell the pay-per-view domestically. That's ESPN's job. And what I can tell you as we enter into these negotiations, at the end of the day, it's what the market will bear. That's really what it is.
Speaker Change: We're next up. We're the next big thing on the block, if you will. We have a proven track record. Our demos are insane. I mean, really, just across TKO, 50% of our audience is 18 to 34, which is...
Speaker Change: what most platforms and companies are chasing so we're in good stead there we're we have terrific diversification and we drive a very strong Hispanic audience when it comes
Speaker Change: and we're gender neutral.
Speaker Change: It's worked for us internationally. We've got great history with it. DirecTV and DISH may be coming together, so who knows the kind of opportunity there. Paramount and CBS are obviously getting there.
Speaker Change: They're acting together, they'll be closing next year, you know, I believe they'll be at the table if and when it comes to them because they've already signaled both Jeff Schell and David Ellison that sports will be a
Speaker Change: You know, a banner vehicle of content for them. So, we will not have a shortage of suitors. We feel great. But we love Disney. I can't underscore it enough. And Jimmy Pataro and Bob Iger get UFC in very much. We're architects.
Speaker Change: in our deal. Kevin Mayer was still at the time, but they were very much part of the
Speaker Change: us crafting how we were going to do that deal. Things change. Models change. Viewing patterns change. Broadcast is now kind of back in, if you will. Cable is obviously having its struggles, but still nothing to frown at. And streaming is
Speaker Change: on fire and new platforms and fast channels are coming all the time. So it's really just demonstrating and signaling to the market that we have flexibility and a willingness to play ball on a myriad of business models. And Ari and I in particular are very focused on
Speaker Change: not just communicating that, but actively discussing those potential models with all of the partners and then some.
Speaker Change: Okay, and then Dana White recently talked about getting into boxing.
Speaker Change: and said that it would be with, quote, guns blazing. Can you expand on that?
Speaker Change: just wondering how this can be done in a way that's in sync with your current margin profile and will this be happen organically by perhaps letting UFC fighters box under your banner or is this one of those instances where we could see some M&A at play?
Speaker Change: David Carvonausky, David Carvonausky,
Speaker Change: Yeah, no, look, first of all, some off-the-cuff comments from Dana White do not translate into a strategy that we're communicating to the street.
Speaker Change: Dana says a lot of things and has a lot of passions.
Speaker Change: and that's why we love him. He's also the best promoter this sport of MMA and frankly if it was boxing has or will ever see. What I can tell you is boxing at its best is confused and fragmented at its worst is broken and we think the sport presents an interesting growth opportunity for us.
Speaker Change: Dana White, and I should mention Nick Kahn, have deep expertise and long-standing relationships in what they call the sweet science, otherwise known as boxing, and if we were to get involved in boxing...
Speaker Change: We would expect to do so in an organic way, not an M&A way. So, i.e., we're not writing a check.
Speaker Change: And if we launch the vertical at any time, we kind of see it as doing it with a partner who would fund it and pay us to operate.
Speaker Change: So, nothing to announce today, but this is one area we're going to continue to explore. You know, we've talked about the dearth of leagues that are out there. Obviously, we're acquiring PBR. There's not much else. We don't necessarily need to add anything to our model. But...
Speaker Change: boxing is is ripe it is ripe for a fix and we're we're blessed to have two experts in the field and if an opportunity presents itself or we can chase one down that does not
Speaker Change: put much risk or any risk for that matter on us financially, then we're going to pursue it. And in terms of models and league and how we structure it and et cetera, et cetera, that's way down the road. And once we have something, if we have something, you'll be the first to know.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from David Karnosky of J.P. Morgan.
Speaker Change: David, your line is now open.
David Karnosky: Hey, thank you for the question. Maybe just following up on the on the UFC renewal. Mark, interested to know how you're positioning UFC Fight Pass potentially as part of negotiations. You know, last time that was kept separate. Is that the intention this time around? Or is there kind of an opportunity to roll the service or content into a partner platform and receive better economics? And then just staying with UFC, wanted to know what you're thinking about title sponsorship as potential inventory with this to your kind of a unique one off? Or can you make more use of the pay-per-views ahead?
Speaker Change: Yeah, thanks David. Look, I'll tell you, as we sit here today,
Speaker Change: We're really pleased with the growth of UFC Fight Pass. In fact, internationally we're really seeing subs tick up, especially in Brazil where we finally got our act together after a slow start. We see keeping that separate. I'll tell you that there is...
Speaker Change: truly untapped potential when it comes to UFC Fight Pass. And the secret to driving subs on UFC Fight Pass is just, quite simply, more live events. Period. End of story.
Speaker Change: and so in any renewal you know we're going to explore the ability for us to potentially have exclusive fights on UFC Fight Fest but then also lean further into the combat space with regard to
Speaker Change: Karate, Jiu-Jitsu, Wrestling itself, Boxing potentially, more live events that we can program around the clock that really drive demand.
Speaker Change: in terms of sub-acquisition and fan base. So to answer your question, we expect to keep that as a proprietary asset that we control. It's not for sale, but it will have more original content, less taped programming, and more live events.
Speaker Change: That's it. Thank you.
Speaker Change: the first part. As regard to the second, the title sponsors, look, yes, that was a tremendous deal we did with Riyadh Season and the Saudis to sponsor the Sphere event. I think everybody got a good deal out of that one because that was...
Speaker Change: such a spectacle for them and for us.
Speaker Change: And if there are opportunities to sell more title sponsors, we're going to pursue them. And I can tell you in the bag of inventory that Grant Norris-Jones, who runs our
Speaker Change: Global Partnerships team and his lieutenant Lukasz Kowalys as they go to the street door-to-door brand-to-brand category and category knocking down business which I'll remind you is is almost kicking the door of 300 million dollars this year between UFC and WWE so
Speaker Change: We're heading north fast. They will absolutely deploy
Speaker Change: title sponsorship inventory if it makes sense. It has to be authentic, it has to be seamless, and we certainly don't want to over commercialize the UFC, but I think it was a pretty good suit and a good fit as it relates to the Sphere event.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Stephen Lejczyk of Golden Facts. Stephen, your line is now open.
Speaker Change: David Carvonausky, David Carvonausky, David Carvonausky, David Carvonausky,
Stephen Lejczyk: And then second, on location, Ari called out the NFL deal through 2036, I think. I was curious if you could just talk a little bit more about the financial profile of that deal, the extent to which there might be operating leverage if you outperform on selling NFL premium hospitality, and if you think a deal like the NFL one could be a good template for similar deals going forward with sports leagues. Thank you.
Speaker Change: Great. So, first off, I just want to remind everyone that we do not intend to do another event at the Sphere. That was a one and done. I think we've signaled that to the market.
Speaker Change: Of course, anything can change, just like rock bands do their farewell tours and seem to stick around for another 20 years. But Dana is pretty intent that this was a one and done, that's why we spent so much, that's why we made so much out of it. By the way, it took a lot out of us.
Stephen Lejczyk: in terms of focus to pull it off in the way we did. But in terms of creating more spectacles, that's our job, period. And globally, that's our job. And frankly, much of that responsibility to create those spectacles falls to Lawrence Epstein, who's
Stephen Lejczyk: is running the UFC business with Dana day to day. Lawrence happens to be in the room and I'd like him to opine on and comment on your first part of the question, Lawrence. Thanks Mark. Just a couple of things to add to what Mark just had to say. First of all,
Stephen Lejczyk: Huge achievement. It certainly was a challenge, as Mark indicated, but a huge achievement for our UFC team to put on that. What we view as really a seminal event in the history of sports and entertainment. It's the first time anything like this has ever been done.
Stephen Lejczyk: and the world of sport, the world of entertainment, and the entire world was really looking at this event. So, huge achievement, huge success for our entire team. You know, it's really, I think, part of our Be First mentality. We're the first group to ever do this. Maybe we'll be the only one, but we're certainly the first so far.
Stephen Lejczyk: And, you know, we're really proud of the achievement and, of course, the leadership that we showed. And, as I said, you know, this event was a game changer. I think as we look at future events and as arenas.
Stephen Lejczyk: and I'll coin this term, spherize themselves, add more LED, add more technology to their facilities.
Stephen Lejczyk: but we're going to continue to up the game with respect to our production. The first facility that has really done this outside the sphere, of course, is the Intuit Dome in California where the Clippers are going to be playing, and you can expect to see us there very soon taking advantage of that great technology there.
Stephen Lejczyk: By the way
Stephen Lejczyk: Last time I checked, the Sphere is launching in Abu Dhabi. Dana did say no more events at the Sphere in Vegas, but that doesn't mean we can't go to Abu Dhabi. So, I'm looking forward to pursuing that when that gets built.
Speaker Change: of the acquisition endeavor is responsible for extensions with their current customer and on location in the NFL. But us at TKO, the acquirer of this business, are obviously thrilled with the extension of that agreement through 2036. You know, obviously NFL.
Stephen Lejczyk: best-in-class sports brand and the opportunity to continue that relationship.
Stephen Lejczyk: is obviously extraordinarily beneficial for us at On Location, TKO, and will benefit us through the balance of work.
Stephen Lejczyk: We're not going to comment on the economics.
Stephen Lejczyk: of the deal, those are not public.
Stephen Lejczyk: nor will they be in the future. But that being said, I do want to pivot the conversation for a moment just to visibility and what we discussed last week when we announced the acquisition of these assets.
Stephen Lejczyk: We are going to go to extraordinary lengths to ensure that both
Stephen Lejczyk: Our external and internal constituents have as much information and tools to understand the revenue and profitability profiles of these businesses.
Stephen Lejczyk: Whether they be on a standalone basis or within our portfolio, it's important to understand not only how they grow, but how they benefit the other assets in our portfolio. So, rest assured, we'll be able to give you information as time goes on, and the NFL relationship is core to OLE and its future revenue and growth prospects.
Speaker Change: Yeah, I would just underscore that.
Speaker Change: Andrew and I have too much experience here at Endeavor with the lumpiness of on location and how difficult that was for the street to model. The transparency and visibility is going to be significant. Starting with our investor presentation.
Speaker Change: which in the appendix on page 16, you know, we laid out.
Speaker Change: specifically the Olympics, what we expect to make year over year.
Stephen Lejczyk: year after year, over a four-year span, and then also World Cup FIFA. So you're going to get more of that and then some. We don't want any confusion. We don't want to muddy this. We don't want to clutter it.
Stephen Lejczyk: we want clarity. As far as the NFL, just the relationship, I would just say, because we're fresh off of meetings with the commissioner and Brian Rolak, who's their Chief Revenue Officer this week. I mean, I can't say enough about this partnership.
Stephen Lejczyk: Obviously we do better in years when the Super Bowl is in Los Angeles or Las Vegas versus in New Orleans, but nonetheless we do well period. The draft...
Stephen Lejczyk: the Super Bowl, I mean significant properties, big ratings draws, and these international games are quickly becoming bellwethers. I mean the commissioner has already signaled he'd like to get to as many as 18 in the next few years. I recently went out to the game in London and we had a...
Stephen Lejczyk: in a jam-packed house of almost 500 patrons.
Stephen Lejczyk: that flew out with on location to see the Chicago Bears-Jacksonville Jaguars game. Airfare, hotel, F&B, personal services, customized programs. I mean we're just seeing more and more demand for this.
Stephen Lejczyk: So, we're really excited and I will tell you just further quote in the press release.
Stephen Lejczyk: This deal, Ari and I have been working on this for a while, it came to fruition because they were really excited about being in a sports pure play company like TKO.
Stephen Lejczyk: That's great, thank you guys.
Speaker Change: David Carvonausky, David Carvonausky, David Carvonausky,
Stephen Lejczyk: Thank you.
Stephen Lejczyk: Thank you. Our next question comes from Robert Fishman of Moffitt-Nathanson.
Stephen Lejczyk: Robert, your line is now open.
Speaker Change: Look, I'll take the second question first and then defer to Mark.
Speaker Change: But as we've said on countless occasions,
Speaker Change: You know, the best way to look at our business is on a full year basis, and when we articulated our cost savings guide of 50 to 100 million initially, and then articulated the upper end of that range, and then came back and said we're going to exceed the upper end of that range, you should assume that the lion's share of that is implicit in our full year guide in 2021.
Speaker Change: We are knee-deep in our 2025 planning right now and intend to be back to the street with some more.
Speaker Change: Insight into 25. We report our full year results sometime at the end of February. On that call it will be giving further insight and information as to additional efficiencies that we intend to achieve in 25 with months of planning behind us.
Stephen Lejczyk: But rest assured, we are sharpening our pencils, and we are looking for additional means to grow well in excess of $100 million. But to date, our upper end, a little bit in excess of that upper end, are implicit in our 2024 budget.
Stephen Lejczyk: and I'll bet you.
Speaker Change: Great and Robert just on the first part of your question I would say that yeah it's it's actually been pretty amazing
Stephen Lejczyk: as we go to the street. Keep in mind with our UFC deal, we go to the street with ESPN.
Stephen Lejczyk: So we're out there with advertisers.
Stephen Lejczyk: for 360 holistic packages. They're buying in arena, right? They're buying media inventory on ESPN, so on and so forth. Not to mention the ancillary programming we have leading up to the fight like the weigh-in. So those packages allow us to get a higher CPM. Netflix has been terrific out of the gate.
Stephen Lejczyk: Very creative, very innovative, and because they're new at it, they really want to explore. So, we're out there trying to sell combination packages with them, of course, media inventory on Netflix.
Stephen Lejczyk: as well as what it is we do around the event. And just recently, Grant Norris-Jones and his team, second mention to Grant Norris-Jones today, have sold a Minute Maid deal as an example where Minute Maid is a sponsor, comes in as a global partner of
Stephen Lejczyk: WWE, but also are buying inventory in the Netflix.
Stephen Lejczyk: programming like in their wheel if you will and that's a deal we drove not them but it works both ways and I can tell you Nick Kahn who's also sitting here today of course the president of WWE
Stephen Lejczyk: He's knee-deep with the AdSales teams, both Netflix.
Nick Kahn: and our internal team to drive more of these 360 deals and I'll let him make a few comments. Nick? Yes. So, thank you, Mark, very much. If you think about it in perspective, 20 years ago, Monday Night Raw was on National Network, which became the National Network, which became CNN.
Stephen Lejczyk: and Spike, which is now Paramount. Now we're going to Netflix.
Stephen Lejczyk: forget their sub count that they have at this moment it's 650 million potential viewers globally
Stephen Lejczyk: for our product. So the ability to go out, Andrew Schleimer mentioned in his prepared remarks and then slightly after that.
Stephen Lejczyk: the growth year over year in WWE sponsorship, we're expecting even more growth once Netflix kicks in in January because of the global reach and because of the power of Netflix in so many different markets.
Speaker Change: Thanks, Robert.
Stephen Lejczyk: Thank you. Operator, we're ready. Next question.
Stephen Lejczyk: Thank you. Thank you.
Speaker Change: Our next question is from Peter Cepino of Wolf Research.
Speaker Change: Computer, your line is now open.
Peter Cepino: Hi, thank you. A question on cash flow. Your portfolio of businesses is obviously a good cash generator.
Stephen Lejczyk: We think and have made the case that it's a great cash generator and some of the numerical comments you've published on
Stephen Lejczyk: free cash flow conversion.
Stephen Lejczyk: in the 40% range this year.
Stephen Lejczyk: would be normalizing around 60% of my memory service.
Speaker Change: seem really beatable to us. So I'm just wondering if you'd comment on that.
Stephen Lejczyk: that bullish challenge for free cash flow. And then separately, if you just comment on the environment for hiring and retaining talent, it's just amazing. A year ago, we were being asked to model the impact on talent costs of the equity capital raised by one of your competitors, and that doesn't come up anymore. So if you could update us there, it'd be great. Thank you.
Stephen Lejczyk: and Seth Zaslow. Thank you. Thank you.
Seth Zaslow: Thanks, Peter. I think when we initially put a presentation together in April of 23, we showed on a perform a combined basis. I believe it was 22 trailing.
Stephen Lejczyk: north of 60% of adjusted EBITDA conversion to free cash flow.
Stephen Lejczyk: When we initially guided this year, we had a number roughly in the 50% range that was impacted by some timing of working capital.
Stephen Lejczyk: on some additional investments.
Stephen Lejczyk: and the headquarters here, WWE and some other one-time items. And we doubled back Proforma for the antitrust settlement, which obviously are payments that come out of operating cash flow and reduced re-cash flow, albeit having a positive impact on our tax distributions given they're tax deductible, at 40%.
Stephen Lejczyk: Now, candidly, things have moved around because of the one-time nature of some of these large-scale events in our business. But I think we stand by on a normalized basis
Stephen Lejczyk: 60% number and in excess of that 60% number over time. You're not looking at hugely capital intensive businesses here. We will make investments, organic investments to further fuel our growth. But when we look to 2026,
Stephen Lejczyk: And, you know, we've had a lot of questions and commentary around the media rights renewals and the potential step function change in our revenue and profitability.
Stephen Lejczyk: We have a clear path to continued conversion in an excess of the numbers that we've said historically. So look, stay tuned. We'll be back in late February to talk about 25, but know that we also have the 26 rules.
Stephen Lejczyk: which will further impact the profile of this business positive.
Stephen Lejczyk: and then Peter on the talent question.
Stephen Lejczyk: The reason why you don't hear about it a lot, and we say this in all modesty,
Stephen Lejczyk: You don't hear about it because of the work of Paul Levesque, and Dana White, and Nick Kahn, and Lawrence Epstein. That's just fact of the matter. They are experts in storytelling.
Stephen Lejczyk: period. They are experts in creating rivalries, period. They are experts like David Stern was in building and marketing stars. And when your platforms, when your businesses, when your leagues
Stephen Lejczyk: become known for that.
Stephen Lejczyk: Talent aspires to be with those leagues.
Stephen Lejczyk: So, we haven't had those challenges as of late because
Stephen Lejczyk: Frankly, the talent wants to get to the UFC and WWE level.
Stephen Lejczyk: Now, we don't take that for granted, we're not arrogant about it, and we want to incentivize all of our fighters at the UFC and all of our superstars at the WWE to put out their best every day and aim for the top of the mountain.
Stephen Lejczyk: but we're we're prudent about it and we want to keep those costs under control and as long as we do our job of Continuing with that storytelling continuing to build our fan base Continuing or surround ourselves with the right partners
Stephen Lejczyk: then talent will gravitate towards the UFC and the WWE.
Stephen Lejczyk: Thanks so much.
Speaker Change: Thank you, Peter.
Stephen Lejczyk: Thank you. Our next question is from Ryan Gabbitt of UBS.
Stephen Lejczyk: Ryan, your line is now open.
Stephen Lejczyk: Ryan Hairline is now open.
Speaker Change: I think we lost Ryan during Andrew's commentary.
Stephen Lejczyk: I don't know what it is.
Stephen Lejczyk: For the interest of time, we can move on.
Stephen Lejczyk: But, Brian, if you want to queue back in for a question.
Stephen Lejczyk: I'm so sorry, say it one more time. Why don't we go to the next one?
Stephen Lejczyk: Go to the next question.
Speaker Change: sounds good
Speaker Change: Our next question is from Richard Greenfield of LightShed Partners. Richard, your line is now open.
Speaker Change: David Carvonausky, David Carvonausky,
Richard Greenfield: Hey, thanks, guys, for taking the question.
Richard Greenfield: You know, Mark, I know this is a TKO call.
Richard Greenfield: But I actually had an Endeavor question. Endeavor, as part of the transactions a couple of weeks ago, announced that they're looking to sell freeze, Madrid open, Miami open, and OpenBet.
Richard Greenfield: I was actually in a couple conversations earlier this week and we had heard that Ari Emanuel is actually looking at buying these assets.
Speaker Change: Is that with his own money personally, or could that involve any TKO money? And I ask that question because I think there's a lot of investors in TKO who are wondering whether you have any interest in buying or investing in any other non-sports leagues as part of TKO.
Speaker Change: Thanks, Rich. You never shy away from the tough ones. I would just tell you that, you know, I want to stress again that TKL will not bid on any other Endeavor assets, period, none whatsoever. We won't sign an NDA, we won't explore, we won't read materials.
Richard Greenfield: nothing whatsoever to your specific question on Ari I would tell you that Ari in his personal capacity
Richard Greenfield: His personal capacity, yes, he could be a bidder for any of the assets Endeavor is selling.
Richard Greenfield: I would also just remind you that Endeavor.
Richard Greenfield: although it is a GKL, I think.
Speaker Change: call it apropos, Endeavor is only exploring asset sales. So to your point, the sports betting assets, Madrid Open, Miami Open, and the Freeze Art Fair, which they've announced they're exploring potential asset sales, they haven't made any definitive decisions. I assume they'll walk down the process. I say that assume because obviously Silver Lake Partners is playing a big role in that. And they'll decide what to do, you know, if and when the road leads to something. But yes, to your question, Ari, in his personal capacity, could be a bidder for any of the assets Endeavor sells.
Richard Greenfield: And then just on the non-sports piece, no other non-sports assets is in your purview, whether owned by TKO or others.
Richard Greenfield: We are sports, pure play. End of story.
Richard Greenfield: We did, after the announcement of the Endeavor assets that we did, or we are working to close and acquire, you know, it was a question of, hey, are you staying sports pure play? I can't stress enough. These are sports pure play. This does not break away from our model or our strategy. Sports rights?
Richard Greenfield: Ticketing and premium experiences and another sports league. It's right in our wheelhouse, right? We know these properties extremely well because of our because of our history.
Richard Greenfield: The deal was value accretive.
Richard Greenfield: As the business goes, you know, we're still knee-deep in integration, which we've we've talked about today as you can see from the quarter WME had
Richard Greenfield: I mean, excuse me, WWE had 54% EBITDA margins. I mean, that's up 18 percentage points year over year. Our global sponsorships, our partnerships kicking strong. I think what gets lost sometimes is WWE, keep in mind, we came into the year with a little over 20 million in sponsorships.
Richard Greenfield: David Karnovsky, David Carvonausky, David Karnovsky, David Carvonausky, David Carvonausky,
Richard Greenfield: coming into the year because some fell off from last year, and we're now up to 70 million.
Richard Greenfield: or that's where we'll be end of year. So we're making significant progress with the integration, but there's clearly still a lot of wood to chop on the core integration. We see more opportunity and we're laser focused on it. Also, just finally,
Richard Greenfield: just going forward when you look at why we're focused on these two battleships because that's the business. These other PVRs are small obviously but it's a rising sports league and the other two assets are going to fuel these two battleships. 85 to 90 percent of our adjusted EBITDA going forward is UFC and WWE. So our eyes are on the ball. We're going to finish the integration on the two core assets of WWE and UFC. We're going to then move
Richard Greenfield: sort of simultaneously and apparel attract to the integration of the new three assets. We're going to keep our head down. We're going to score numbers. We're going to keep this thing a cash flow gusher, and we're going to be focused on returning capital to shareholders.
Speaker Change: I think that's a good, thanks for taking the question, good wrap for the call. Thanks Rich. I think that's a good wrap the call. Thank you everyone for your interest and for joining us on today's call. Operator, you can conclude the call.
Richard Greenfield: and Seth Zaslow.
Speaker Change: Thank you so much. That concludes today's Q3 2024 TKO earnings call. Thank you for your participation. You may now disconnect your line.