WSJ article notes UFC sale as example of questionable buyout-loan strategy

October 17, 2016

The Wall Street Journal reports on the UFC sale and how the structure of the deal is being seen as too liberal with adjustments to earnings which enables more borrowing for transactions.

The Federal Reserve had warned Goldman Sachs (Deutsche Bank AG is also a lender) the entity that marketed the debt to investors, of the abuse in inflating the earnings before interest, taxes, depreciation and amortization.  The EBITDA for the UFC was pegged at $170 million but then was estimated up to $300 million when presented to debt investors helping finance the sale.  The higher EBITDA allowed WME borrow $1.8 billion for the deal without running afoul of the guidelines which prevent borrowing for more than 6x a company’s EBITDA.

According to the article, $48 million in expected “future step up payments to television contracts and other licensing agreements,” helped bring the EBITDA up to $300 million.

Payout Perspective:

The UFC deal is an example brought to light by the WSJ article.  The story also writes about the acquisition of event-management software firm Cvent and IT firm SolarWinds as other examples in which EBITDA climbed.  The issue that banks and regulators are concerned with is that the forecasted EBITDA may not be a realistic estimate.  Nevertheless, debt investors were bullish with the UFC debt despite the caution.

14 Responses to “WSJ article notes UFC sale as example of questionable buyout-loan strategy”

  1. Diego on October 17th, 2016 1:20 PM

    Good for Zuffa and Dana, bad for the folks financing the sale. We’ll see what happens going forward.

  2. Wil on October 17th, 2016 1:42 PM

    I am very curious which direction this is going to go in the long run. Obviously those who sold made out like bandits, but the fear of losses by the bag men seems to be very real. This is a clear down side of having a virtual monopoly…if the UFC fails, mma in the USA may go with it.

  3. Sergio on October 17th, 2016 2:14 PM

    In a related new article…did anyone read this article from Forbs a few days ago..Im curious to know what they mean by “a very diffrent company by January” Usually big company purchases involve some shakeup n loosing key people n being replaced by hired guns..this article has a fear monger feel to it n ads onto the the intriguing transitions going on with the UFC right now along with fighters wanting out of their contracts..Jason can you guys do a small write up on this or give comments??

    http://www.forbes.com/sites/mattconnolly/2016/10/15/report-ufc-will-lose-more-big-name-as-wme-img-looks-to-bring-in-their-own-people/#2b4751b258d6

  4. d on October 17th, 2016 5:17 PM

    When the new tv deal with FOX or whoever goes through, and the international tv contracts start popping up in China, India, etc, plus all of the licensing deals WME brings in, they will easily be at 300m. This will work out most likely for all involved. Zuffa did not have the contact that WME does, but they were paid out a massive some for the potential for WME.

    The only thing they do have to watch out for is if that Ali Act or modified version is passed, you are going to have ppv stars like McGregor and Rousey making the lion’s share of the money which will be Floyd Mayweather money, if not more.

  5. fight fan on October 17th, 2016 6:11 PM

    Yeah since there’s been a UFC which made 4OO mil lol, Mctapper will never make floyd money especially with his 3 losses.

  6. d on October 17th, 2016 9:59 PM

    Conor’s made more money than Floyd did at his age. What does 3 losses have to do with anything? He’s about to do his biggest ppv at MSG that will likely go over 2m buys with a low drawing opponent. Boxing fans are struggling.

  7. Fight Fan on October 18th, 2016 6:40 AM

    No ufc has ever done 2m buys d, keep dreaming. Even mayweather de la Hoya did that 10 years ago lol

  8. d on October 18th, 2016 7:04 AM

    You are going to be very disappointed when this MSG show hits that figure.

    What’s funny is they needed two ppv stars to hit that figure, a long build up, they don’t do all of the ppvs the UFC does, and they put a huge amount of money into promoting it, all the UFC is going to need for this show is Conor McGregor fighting the next guy in line.

  9. Diego on October 18th, 2016 7:12 AM

    “Even mayweather de la Hoya did that 10 years ago lol”

    Yeah, 10 years ago. The good old days. And just look at the where the sport is today.

  10. Sergio on October 18th, 2016 11:44 AM

    Looks like mmajunkie.com is confirming the above Forbes article..typical happenings when a company takes over another

    http://mmajunkie.com/2016/10/wme-img-to-lay-off-under-15-percent-of-ufcs-total-staff

  11. Fight Fan on October 18th, 2016 12:09 PM

    Yah 4 mil last year Diego lol, and that’s just stateside

    http://mmajunkie.com/2016/10/wme-img-to-lay-off-under-15-percent-of-ufcs-total-staff

    More good news

  12. Payout Moderator on October 18th, 2016 1:20 PM

    Just a friendly reminder to keep it clean guys. We’re starting to get some complaints on trolling and instigation. Cheers!

  13. d on October 18th, 2016 8:28 PM

    Fight Fan, 10 years from now, you are going to have to keep bringing that up. Because that 4m will be more than they do in the next 10 years at the rate they are going now.

  14. Fight Fan on October 21st, 2016 4:37 PM

    D just keeps trolling

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