Standard & Poor’s downgrades Zuffa, LLC from BB to BB-

October 10, 2014

Standard & Poor’s has downgraded Zuffa, LLC’s credit rating from a “BB” to a “BB-“ this week as a result of what it calls “greater EBITDA volatility.”  However, the analyst report states that the outlook for company is stable.

Standard & Poor’s issues credit ratings for the debt of public and private companies.  It is one of several credit-rating agencies that has been designated a nationally recognized statistical rating organization by the Securities and Exchange Commission.

In its overview, S&P concluded that Zuffa “will experience a 30% decline in EBITDA (Earnings Before Income Tax, Depreciation and Amortization) in 2014 and greater EBITDA volatility over time than we previously had anticipated.”  Despite the gloomy outlook, it stated that Zuffa’s outlook is stable and 2015 will be a recovery year for the company.  This is based on the belief that injured fighters return and PPV buys and ticket prices increase.

For those wondering, as I have in the past, EBITDA is an accounting measure calculated using a company’s net earnings, before interest expenses, taxes, depreciation and amortization are subtracted as a proxy for a company’s current operating profitability.

The report identifies Zuffa having $535 million in credit with $60 million in “senior secured revolving credit facility due 2018 and a $475 million senior secured term loan due 2020.”

Zuffa’s credit rating had maintained a “BB rating” since December 2010.  It was previously downgraded in November 2007 from BB to BB-.

Other notes:

– In 2013, the revenues for Zuffa were split 58% event-based (i.e., PPV and ticket sales) and 42% from TV, sponsorships, merchandising, licensing and content distribution agreements.

We note that last year’s S&P report had the company’s 2012 revenue at 55% event-based (including PPV and live gate) with the other 45% dedicated to TV revenue, sponsorships, merchandise, licensing and content distribution agreements.  Thus, a slight increase in revenue geared toward events rather than other streams.  This is interesting considering the report finds the broadcast deals to be a more stable revenue provider than PPVs and live event gates.

– There’s an expectation that debt to EBITDA will increase to the high-4x area compared to the low 3x area previously.

We should also note that there was no mention of how Fight Pass impacts its revenue unless you consider it falls under content distribution agreements.

Payout Perspective:

There’s nothing earth-shattering in the report despite the downgrade in credit rating.  The silver lining for Zuffa is the S&P report believes that 2015 should be a recovery year dependent on key fighters coming back which the report suggests will mean higher PPV buys and gates.  The report lists the international expansion and the broadcast deals as positives for the company and even suggests a more stable form of revenue than the PPV model.  Still, the company is based on its events and fighters and the report indicates that injuries and juggling of events due to key injuries to fighters is directly related to the downturn in its business.  I should also note that the report never suggests that there is an oversaturation of the product that contributes to its current business climate.  One might argue that fighter injuries/juggling of events is related to too many events too close together but the report does not address this possibility.

It is ironic that there are reports that the UFC office in China is closing when the S&P report identifies international expansion as a key to produce additional revenue for the company.  Also, the report stresses the need for more fighters that will appeal to its core youth demo the same week that the Sports Business Journal comes out with a report that the company is in search for more stars.

What a week for the UFC.  The UFC’s credit rating is downgraded, Cung Le will appeal the UFC’s suspension which could reveal a rather shaky drug testing policy, the UFC reportedly closes its office in China and a former UFC fighter live-tweets a standoff with a SWAT team.  What a week.

38 Responses to “Standard & Poor’s downgrades Zuffa, LLC from BB to BB-”

  1. TheMoneyTeam on October 10th, 2014 1:09 PM

    This is a disaster! What happens when Pettis and Velasquez pull out of their fights, what happens if GSP doesn’t return, what if Silva gets injured, what if McGregor loses? This things are all very possible but UFC don’t have back up plans if it does happen

  2. tops E on October 10th, 2014 1:18 PM

    The ship is sinking….hahahaha

  3. Saldathief on October 10th, 2014 1:20 PM

    This is definitely boxings fault bahahahaha

  4. Jake on October 10th, 2014 1:27 PM

    Props to MMApayout for putting it back up.

    A lot of good insight and the China offices closing down is a whole other story.

  5. d on October 10th, 2014 1:58 PM

    Sal with more of his gay innuendos.

    According to Sal, no one knows Zuffa’s finances, yet when a report comes out downgrading their credit to BB- he is sold. Haha. What a boxing paid fag.

  6. d on October 10th, 2014 2:00 PM

    “Jake”, congratulations, you solved the puzzle and forced the conspirators at mmapayout to reissue the article. You are a regular Nancy Drew. HAHAHA!

  7. Pink Pig on October 10th, 2014 2:21 PM

    This is great to see… Karma at it’s finest. Pink Pig Dana asked for it.

    Maybe he should PAY more celebrities to show up at these events to pretend to enjoy it?

  8. Saldathief on October 10th, 2014 5:20 PM

    What will D do know. Who can he blame. D is so stupid he thinks this article is a leagle financial statment. Bahaha. What a moron amatuer school kid bahaha

  9. d on October 10th, 2014 6:54 PM

    “D is so stupid he thinks this article is a leagle financial statment. Bahaha. What a moron amatuer school kid bahaha”

    HAHAHAHAHA!! Good rule of thumb, whenever you call someone stupid, you may want to spell correctly you moron. What is your education level fucking dummy? 2nd grade? You spell like an elementary school kid. Every other word is misspelled. God you are retarded.

  10. tops E on October 10th, 2014 8:41 PM

    Since zuffa pays peanuts to.fighters…where did majority of 500 mil loan and more go? marketing and building the bubble? Very expensive overhead hahaha…top rank and golden boy etc….are making profits without huge loans hahahaha…

  11. tops E on October 10th, 2014 8:42 PM

    There should be more detailed story on china offices closing shop hahahaha

  12. d on October 10th, 2014 9:52 PM

    Topps shit his pants.

  13. Saldathief on October 10th, 2014 10:36 PM

    China closing but dont worry they have a huge office in mexico now mexico is the new new york bahahahah pardon my spelling the bosses at the boxing promotion dont proof read my work bahahahah Dan is writing a new book I hear, titled how to blow a half billion dollars and have nothing to show for it bahahahhaha I would love to see what they actually carelessly spent that on. D must be pissed the ufc pisses away 500 million and D gets old t shirts that no one bought and free fight pass as his payment bahahahahahya

  14. d on October 10th, 2014 10:56 PM

    Na Sal you idiot, your spelling is so bad it is to the point where your comments are incoherent and it is a reflection of how much of a moron you are.

    Isn’t it diaper changing time, you old dirty fuck?

  15. Jack on October 10th, 2014 10:59 PM

    I’m curious as to why this article was removed after it was originally posted on Thursday.

    And why has it been reposted 2 more times since then, each time with changes.

  16. Jack on October 10th, 2014 11:23 PM

    I’m curious as to why this article was removed after it was originally posted on Thursday.

    And why has it been reposted 2 more times since then, each time with changes.

  17. MMAtruth on October 11th, 2014 4:13 AM

    Looking at Ds last 10 posts the 3 most frequently used words are cock, shit, and fag. Have u ever watched the trapped in the closet episode on South Park? Are you Tom Cruise or R Kelly?

  18. d on October 11th, 2014 6:33 AM

    HAHAHAHA!! Pretty sure anyone who watches South Park is an anti social derelict. You just gave away your hand, you freak. By the way, I must be in your head if you are sitting there analyzing a collection of my comments. That last comment to you must have stung, huh?

  19. MMAtruth on October 11th, 2014 10:13 AM

    Thats funny considering South Park shits on every TUF rating out there thanks for the laugh D. Maybe the ufc could learn a thing or 2 from them so there credit rating doesn’t keep downgrading. D should change his letter to F for fail

  20. tops E on October 11th, 2014 11:43 AM

    Any new info on ufc china office closing?its an important news on the business of mma…as a “globAl” business hahaha…and its asian branch key officers resigning is big news after all the appointment of the ufc asia was one big media hype…being an ex nba asia head etc……

  21. LeonThePro on October 11th, 2014 1:59 PM

    UFC leaving SportsNet in Canada! No home in Canada (yet) for 2015:

    “The final three months of 2014 will be pivotal ones in regards to how Canadian MMA fans are able to consume the sport they love going forward.

    At present, Sportsnet is the exclusive home of UFC programming in Canada, but that television deal expires at the end of the year and right now, no one is certain where that programming will end up in 2015.

    R.I.P. UFC Central – April 20, 2009 – October 01, 2014

    After being on the air for over 5 1/2 years, my pride and joy, “UFC Central”, is no more.

    The final airing on October 01st, was a heart breaking one to record, but I am proud of the work that the team was able to accomplish over the years.”

    http://blogs.theprovince.com/2014/10/09/winds-of-change-blowing-through-canadian-mma-coverage/

  22. Pink Pig on October 11th, 2014 4:26 PM

    Ahahahahahahahahahahaha.

    No Canada TV deal…Ahahahahahahahaha

    Good job Pink PIG Dana! You iz tired!

  23. Saldathief on October 11th, 2014 5:22 PM

    Who needs a television deal in Canada when the UFC sold out in Mexico bahahahaha

  24. d on October 11th, 2014 6:13 PM

    The funny thing is only people who shoot up malls and play Magic the Gathering watch South Park. It is dork tv you loser.

  25. d on October 11th, 2014 6:14 PM

    Sal smells like dirty diapers.

  26. mmaguru on October 12th, 2014 8:15 AM

    $535 million in credit, that seems like a lot of liability when revenues and profits are decreasing. I can see why the credit rating has dropped to a BB-. For those that don’t know, a drop in credit rating = higher cost to borrow. Since risk is higher, the interest rate on any new loans or loans coming to term for refinance will cost the company more money. So this isn’t just a simple drop in credit rating, it means costs will go up for the UFC. I suspect they will need to raise PPV fees to make up the shortfall and/or do some more downsizing.

  27. Pink Pig on October 12th, 2014 12:33 PM

    Word has it that the UFC TV deal in the UK is about to get dropped due to lack of interested advertisers. This is great stuff!

  28. anti trolls on October 12th, 2014 12:52 PM

    Funny you anti UFC fucks follow ufc so much

  29. Pink Pig on October 12th, 2014 2:37 PM

    It’s great to see my dad, Pink Pig Sr. (Dana White) screw up so bad. I LOVE it!!!

    🙂

  30. saldathief on October 12th, 2014 3:29 PM

    Funny how all the bullshit propaganda and lies comes to attrition. But its not like they fooled any one, oh wait they fooled D bahahahhahahaha

  31. d on October 13th, 2014 12:16 AM

    Saldaqueef spews boxing propaganda because he is a whore for Bob Arum. What a fruitcake.

  32. Detailed analysis of S&P’s credit report on Zuffa | Awkward Suplex on October 13th, 2014 4:35 AM

    […] MMA Payout notes that in 2013, revenues for Zuffa were 58% event based (pay per view and ticket sales) and 42% from TV, sponsorships, merchandising, licensing and content distribution agreements. In 2012, revenues were 55% event-based and 45% dedicated to the other above-listed revenue streams. Thus from 2012 to 2013, more revenue was attained from pay per view buys and ticket sales. […]

  33. S&P financial downgrades UFC’s credit rating as over saturation & lack of star power causes a rough 2014 – COMBAT SPORTS NEWS, MMA, TOP MMA NEWS, UFC – KocoSports: Where the World Comes To Kick Ass! on October 13th, 2014 12:59 PM

    […] to MMA Payout Reports, Standard and Poor’s (S&P) has officially downgraded Zuffa’s credit from BB to BB-, a […]

  34. UFC lays an egg in 2014, forces Standard & Poor’s to downgrade ZUFFA credit rating – My Buffalo Sports on October 14th, 2014 10:53 AM

    […] MMA Payout has some perspective: […]

  35. mmaguru on October 15th, 2014 6:01 AM

    Any drop in ratings is a major business concern. As of now, the UFC has entered an investment grade similar to a Country like Nigeria. Not good. This rating suggests that the UFC faces “major ongoing uncertainties to adverse business, financial and economic conditions”.

    I suspect that in 2015/16, UFC will be on the market for sale as Zuffa will find it difficult to sustain cash flow required to keep operations going and to refinance their liabilities at favorable rates. We’ll see what someone is willing to pay. Zuffa has all but tapped out any chances of expanding capitalization at this point, hence the downsizing operations in places like China and Europe, where there should still be some market potential for the brand.

    Has there been any indication of current cash on hand? This would reveal a lot of what we should expect from the company in fiscal 2015. A couple of good big PPV events (1 million + buys) can help sustain positive cash flow, but who knows.

  36. Jason Cruz on October 16th, 2014 6:38 AM

    @Jack – it was our error. If you were wondering, no one told us to take it down.

  37. Detailed analysis of S&P’s credit report on Zuffa | MMA Chronicle on October 17th, 2014 4:19 AM

    […] MMA Payout notes that in 2013, revenues for Zuffa were 58% event based (pay per view and ticket sales) and 42% from TV, sponsorships, merchandising, licensing and content distribution agreements. In 2012, revenues were 55% event-based and 45% dedicated to the other above-listed revenue streams. Thus from 2012 to 2013, more revenue was attained from pay per view buys and ticket sales. […]

  38. Even with Champions Healthy, 2015 Shapes Up as Make-or-Break Year for UFC - Distinct Athlete on October 21st, 2014 1:12 PM

    […] Even worse, the SBJ article—which laments the company’s slumping pay-per-view numbers and apparent difficulty forging new, bankable stars—comes immediately on the heels of a fairly disquieting flurry of other UFC news. During the last few weeks, MMA fans had already heard about office closings, departing executives and downgraded credit ratings. […]

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