Vince McMahon is betting that WWE and UFC can make money together. McMahon’s World Wrestling Entertainment, Inc. (NYSE: WWE) is merging with Endeavor Group Holdings, Inc. (NYSE: EDR).
Endeavor is the owner of the Ultimate Fighting Championship (UFC). The two companies will form one publicly traded corporation. They announced the merger on 3 April 2023.
Endeavor CEO Ariel Emanuel will serve as Chief Executive Officer of the new company and Endeavor, a press release announces. WWE boss McMahon will serve as Chairman of the new business. Mark Shapiro will serve as President and Chief Operating Officer. Dana White will serve as President of UFC and Nick Khan will serve as president of WWE.
They have not named the new company. However, its stock will trade under the ticker symbol TKO, The Hollywood Reporter claims. They don’t say which exchange will trade TKO shares.
Endeavor also owns the WME talent agency which could get it into trouble with antitrust regulators. Particularly, if WME represents any wrestlers working for rival promotions, such as AEW, New Japan, and Impact.
What Value Does Endeavor bring to WWE?
McMahon claims the new company is worth $21 billion and has over a billion fans worldwide. Obviously, I don’t believe anything Vincent K. McMahon Jr. says.
Conversely, both companies offer value. The UFC was the eighth most valuable sports brand in the world in 2019, Statista estimates. Statista estimates the UFC’s 2019 value at $2.5 billion.
The UFC brand is worth $2 billion, Statista estimates. Statista estimates the UFC generated $609 million in total revenue and $492 million from content in 2022.
Endeavor is losing value
In contrast, the WWE had a $6.995 billion enterprise value on 4 April 2023, ycharts estimates. WWE’s enterprise value rose by $4.466 billion between 4 April 2022 and 4 April 2023. I estimate, WWE’s enterprise value grew by $2.529 billion in a year.
In contrast, Endeavor Group had a $20.36 billion enterprise value on 5 April 2023, Macroaxis reports. Endeavor’s enterprise value rose from $18.2 billion in September 2022 but fell from $28.3 billion in December 2022. Hence, Endeavor is losing value which explains the merger.
To explain, Endeavor needs to add value because it lost $10.1 billion in enterprise value in 2022. Yet WWE is adding value, which is why Ariel wants to merge with it.
It’s all about the Television
I think the principal attraction at WWE (WWE) is television. For example, WWE’s flagship show RAW attracted 2.26 million American viewers on the USA cable network on 3 April 2023, Wrestling Attitude estimates. Similarly, WWE’s SmackDown attracted 2.484 billion viewers on the Fox broadcast network on 31 March 2023.
WWE’s ratings were up because of the giant Wrestlemania 39 pay-per-view on 1 and 2 April 2023. In contrast, SmackDown attracted 2.219 million viewers on 24 March 2023 and RAW attracted 1.843 million viewers on 27 March 2023.
Television is the Value at WWE
Hence, two WWE (WWE) shows are attracting 4.062 million US viewers in a typical week. These ratings are huge because America’s number one TV show, NBC’s Chicago Fire, attracted 6.993 million in the week of February 20 to 26, 2023, Nielsen estimates.
Moreover, Raw has been the number one rated Monday evening show in the critical 18-to-49-year-old demographic for three years, TVLine reports. To elaborate, advertisers pay more for 18-to-49-year-old viewers. Thus WWE is a ratings powerhouse in a dying TV market.
Thus, WWE can bring television and advertising values to Endeavor. Television can add revenue to a company. For example, in 2019, Fox paid WWE $1 billion for five years of SmackDown, The Hollywood Reporter claims.
The WWE earns around $470 million a year in annual TV rights, Wrestlenomics’ Brandon Thurston estimates. Thurston thinks WWE’s TV rights earnings could grow 1.5 times to $675 million a year when they negotiate new television deals in 2024. In contrast, WWE’s closest US competitor, Tony Khan’s All Elite Wrestling (AEW) is earning $44 million from its TV deal with WarnerBros Discovery (WBD), Thurston estimates.
Hence, one reason Endeavor is combining with WWE is to add annual television rights income to its bottom line. That income can grow as the streaming wars heat up.
Will WWE win the Streaming Wars?
Plus, WWE can attract many streaming viewers. For instance, Peacock’s streaming hours viewed grew by 29% during Wrestlemania 39, TVLine estimates. Comcast’s Peacock streaming service is the exclusive US home of Wrestlemania.
In particular, companies such as Amazon (AMZN) and Paramount Global (PARA) will need programming for their free ad supported television (FAST) streaming services. I think WWE’s natural home in today’s TV market is Paramount’s Pluto or Amazon’s FreeVee.
FASTs can attract an enormous audience. For instance, Statisa estimates Pluto attracted 72 million monthly active users (MAU) worldwide in the third quarter of 2023. Pluto’s MAU grew from 54 million in the third quarter of 2022.
Like traditional television, FASTs make money by selling advertising in shows. The difference is viewers choose what shows to watch and when. Most FASTs offer dozens of choices, usually reruns. WWE can add seven to nine of hours of original content to a FAST such as Pluto each week, which can attract many advertising dollars.
I predict a FAST could bid on Raw, SmackDown, and WWE Next next year. That could add more money to the new company’s bottom line as TV rights income.
How Much Money does Endeavor Make?
Endeavor (EDR) only makes a small amount of money. For example, Endeavor reported a $94.08 million quarterly operating income on 31 December 2022.
The quarterly operating income rose from $53.49 million on 31 December 2021. In contrast, Endeavor reported a $796.21 million quarterly gross profit on 31 December 2021. The quarterly gross income rose from $698.94 million on 31 December 2022.
It is easy to see why Endeavor is entering the wrestling business. Its revenues are falling. For instance, the quarterly revenues fell from $1.506 billion on 31 December 2021 to $1.26 billion on 31 December 2022.
Moreover, Endeavor has experienced two straight quarters of double-digit revenue growth. The revenue growth rate was -12.21% in the quarter ending on 30 September 2022 and -16.28% in the quarter ending on 30 December 2022, Stockrow reports.
How Much Cash and Debt does Endeavor Have?
Endeavor is generating less cash. For instance, the quarterly operating cash flow fell from $145.53 million on 31 December 2021 to $97.7 million on 31 December 2022.
Similarly, the quarterly ending cash flow fell from $514.21 million on 31 December 2021 to -$218.99 million on 31 December 2022. However, Endeavor can generate enormous amounts of cash. It reported a quarterly ending cash flow of $2.290 billion on 31 March 2022.
Interestingly, Endeavor’s total debt shrank from $5.714 billion on 31 December 2021 to $5.169 billion on December 2022. Endeavor is paying off debts, it reported a quarterly financing cash flow of -$281.74 million on 31 December 2022.
What Value Does Endeavor Group (EDR) Offer?
Endeavor Group (EDR) offers some value. For example, it had $1.046 billion in cash and short-term investments and $12.504 billion in total assets on 31 December 2022.
Endeavor added some value in 2022. The total assets grew from $11.435 billion on 31 December 2021. However, the cash and short-term investments fell from $1.973 billion on 31 December 2021.
Consequently, I think Mr. Market priced Endeavor fairly at $22.84 on 6 April 2023. My final assessment of Endeavor is cheap but not a value even with WWE.
What Value Does WWE offer?
Like Endeavor, WWE (WWE) is not making much money. For example, WWE reported a quarterly operating income of $62.63 million on 31 December 2022. The quarterly operating income fell from $80.67 million on 31 December 2021.
In contrast, WWE’s quarterly gross profit fell from $139.27 million on 31 December 2021 to $138.87 million on 31 December 2022. Conversely, WWE’s quarterly revenues grew from $310.26 million on 31 December 2021 to $325.30 million on 31 December 2022.
WWE experienced significant revenue growth in 2022. For example, it started the year with a 30.25% quarterly revenue growth rate on 31 December 2021. The quarterly revenue growth rate fell to 26.53% on 31 March 2022, 23.57% on 30 June 2022, 19.07% on 30 September 2022, and a 4.85% on 31 December 2022.
WWE is generating more cash
Intriguingly, WWE (WWE) is generating more cash. For instance, its quarterly operating cash flow grew from $45.57 million on 31 December 2021 to $123.03 million on 31 December 2022.
Similarly, the quarterly ending cash flow rose from -$136.21 on 31 December 2021 to $38.54 million on 31 December 2022. Plus, the cash and short-term investments rose from $414.79 million on 31 December 2021 to $478.72 million on 31 December 2022. WWE’s debts are stable, the total debt rose from $597.49 million on 31 December 2021 to $600.30 million on 31 December 2022.
I think Mr. Market terribly valued WWE at $100.38 on 6 April 2023. I consider Mr. Market overvalued because it had just $1.356 billion in Total Assets on 31 December 2022. The Total Assets grew from $1.204 million on 31 December 2021.
What Value Could WWE and Endeavor Have?
I estimate a combined WWE/Endeavor will have $3.329 billion in total assets, $1.159 billion in cash and short-term investments, and $5.77 billion in total debts.
In conclusion, I think Endeavor/WWE (TKO) will not be a value investment. Instead, it will be an overpriced company with few assets. I advise investors to avoid Endeavor/WWE because I think this company is an attempt to save a failing enterprise (Endeavor/UFC) by merging it with a successful business (WWE).
My prediction is the Endeavor/WWE merger will fail and create a worthless stock and a lot of bad wrestling. Smart investors will avoid Endeavor/WWE if they want to keep their money.
