Fed gives second reprimand to Goldman over UFC deal

December 2, 2016

Bloomberg reports that Goldman Sachs Group Inc. (Goldman Sachs) has been reprimanded by Federal Reserve regulators for the second time due to its debt deal to purchase the UFC for $4 billion.  Regulators consider the loans as “substandard.”

In addition to Goldman Sachs, Deutsche Bank AG, which was the lead underwriter for the junior portion of the deal also has been notified by regulators.

Goldman Sachs had appealed an earlier warning about its deal structure which included add-backs to increase the earnings before interest, taxes, depreciation and amortization (EBITDA).  The EBITDA for the UFC was placed at $170 million but then rose to an estimated $300 million when presented to debt investors to finance the sale.  The higher EBITDA allowed for WME-IMG to borrow $1.8 billion for the deal.  According to a Wall Street Journal article, future “step up payments” for future television contracts and other licensing agreements were factored into bringing the EBITDA up to $300 million.  Notably, the UFC has made it public that they will be seeking a $450 million per year television contract once its current agreement with FOX ends in 2018.

With yields for the UFC loans at 8.5%, investors were eager to purchase the debt.  The demand was so high, that the UFC lowered the interest rate on the junior debt twice the week the loans went to market.

Payout Perspective:

The concern with the sale is the “add-backs” which were factored into the profitability of the company.  If the balance sheet provides too much of a flowery outlook, investors might be led astray.  A company inflating their cash flow projections would appear to be able to take on more debt due to its liquidity.  But, if the projections are not realistic, there is the concern for a default.  Investors are looking for high yields to make money and this deal, with its yield on loans, is enticing despite the fed warnings.  We shall see with a new administration coming in January, if these type of deal structures will continue to be pursued.

22 Responses to “Fed gives second reprimand to Goldman over UFC deal”

  1. tops E on December 2nd, 2016 7:27 PM

    Hahahahaha…just keeps getting better…i hope they investigate all the hype numbers of the ufc….hahahaha….

  2. Fight Fan on December 2nd, 2016 8:41 PM

    Wow not good

  3. tops E on December 3rd, 2016 3:49 AM

    Some.points from the article…good thing feds are not gullible hahahahaha

    The rebuke came after the bank appealed an earlier risk warning from the regulators, according to people with knowledge of the matter who asked not to be identified as it is private. The regulator now considers it a substandard loan, the people said. That’s a lower rating than the Fed’s prior classification of the deal as a so-called special mention, which was based on its concerns over accounting adjustments that inflated cash flow projections for the mixed martial arts promoter.

    After its first review of the UFC buyout loan, the Fed was focused on accounting adjustments that more than doubled the company’s cash-flow projections

    . What regulators have been reviewing is whether they are too optimistic, making companies appear more creditworthy than they are.

  4. tops E on December 3rd, 2016 3:50 AM

    Ufc bubble about to burst

  5. Fight Fan on December 3rd, 2016 9:54 AM

    Very true tops, we will see

  6. d on December 3rd, 2016 9:58 AM

    Hahaha. You two are beyond delusional.

  7. Fight Fan on December 3rd, 2016 10:39 AM

    The money says otherwise d

  8. Wil on December 3rd, 2016 11:17 AM

    Hmmm……this here……it would seem that at the very least the Fed is throwing up warning signs about inflated earnings, which would appear to be deceptive. It will be interesting to see what happens with this, coupled with the possibility of mma being included in the Muhammad Ali act as it should. 2017 may be a fork in the road for what direction UFC will take in the future.

  9. Etops on December 3rd, 2016 1:20 PM

    Meanwhile, Ari and Dana having dinner with President Trump.

  10. d on December 3rd, 2016 3:29 PM

    FF, the money shows that the sport here to stay is mma, boxing on the other hand…..

  11. turd on December 4th, 2016 8:52 AM

    i am not delusional the ufc could very well be in financial trouble there interest payment per year are 120 million dollars, all it takes is a down year in ppv sales and boom. also highly doubt they will get 450 million a year for a tv deal

  12. Fight Fan on December 4th, 2016 4:14 PM

    Very good point turd

  13. turd on December 4th, 2016 4:43 PM

    i also beleive the sports tv contracts bubble is over, with both espn and fs1 losing a ton of subscribers every month i doubt they will be giving out big contracts like they were.

    i dont think the guys who bought the ufc knew what they were getting into.

  14. Fight Fan on December 4th, 2016 5:38 PM

    True turd, it’s not bringing them in. Also my local Buffalo Wild Wings even stopped having UFC’s due to the fact that people go in there and hog the tables up for hours.

  15. Wil on December 4th, 2016 8:01 PM

    and hence the downturn in combat sports viewership altogether, and lets not stop there…NFL is down as well. If people truly think that its because of Kaepernick they are easily fooled…..there is something to be said about the quality of sports product all around these days

  16. Fight Fan on December 4th, 2016 9:37 PM

    Wil it is painful to watch a football game if your team isn’t playing. Non stop commercials and flags have ruined it.

  17. Wil on December 5th, 2016 4:25 AM

    People pay to see McGregor because he is entertaining, they don’t care if he loses or not, they want to see the spectacle. If he is serious about boxing, a match between he and Broner would be highly entertaining….strictly for the trash talking

  18. turd on December 5th, 2016 5:58 AM

    im a realist, if not for connor mcgregor the ufc would have had a horrible year this year for pp sales

    there was a time when they had 5 to 6 guys they knew could draw 4 to 600 k in ppv sales.

    not now, that has to be alarming for them.

  19. Fight Fan on December 5th, 2016 7:29 AM

    Based on my independent research there is no way McTapper can get a legit fight against any big name fighter. There is no way that the commission will sanction the fight with McTapper having no boxing experience. This is all just a show to keep the talk going. Like I said before, the most populat mma fighter is Floyd mayweather lol.

  20. turd on December 5th, 2016 10:03 AM

    what i find comical is the discusioon of floyd vs mcclown

    connor would get destroyed under boxing rules. i cant even believe the main stream media talks about this , and no way the ufc and there lawyers would let connor take this fight.

  21. d on December 5th, 2016 4:41 PM

    FF, your error was saying “based on MY independent research”, which means based on your opinion.

    They don’t need a commission to put on a boxing match. You act like those commissions control the entire world. Nevada probably wouldn’t, but there are probably commissions that would or states where there is no commission, possibly an Indian Reservation, etc. The issue isn’t the commission, it is the fact that McGregor is in a contract that will not allow him to fight.

  22. Random Dude on December 6th, 2016 12:55 AM

    Uh d, Fight Fan is right, if you think Broner or Mayweather is going to have a fight happen in some shitty little building on a reservation you are joking. Why would a boxer with a name fight in a crappy location when such a fight would make a lot more money in a better location? If McGregor were to fight one of those guys, either someone is going to have to get the commission to bend on the experience-gap or the fight doesn’t happen.

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