April 21, 2017
Alliance MMA has announced that it has retained the law firm of King & Spalding to defend the company against a lawsuit filed against it on Monday. The announcement was made via company press release.
Via Alliance MMA press release:
NEW YORK, NY – April 21, 2017 – Alliance MMA, Inc. (“Alliance MMA” or the “Company”) (NASDAQ: AMMA), a professional mixed martial arts (MMA) company, announced today that a shareholder has filed a lawsuit against the Company and two of its current officers in the United States District Court for the District of New Jersey, under the caption Shapiro v. Alliance MMA, Inc., No. 1:17-cv-2583 (D.N.J.). The lawsuit alleges violations of the federal securities laws and purports to seek damages on behalf of a class of all shareholders who purchased the Company’s common stock pursuant or traceable to the Company’s initial public offering. The Company believes that the lawsuit is without merit and intends to vigorously defend against it. “Securities claims like this are often pursued by opportunistic lawyers when there is a drop in stock price,” stated CEO Paul K. Danner, III. “The law firm of King & Spalding LLP has been engaged to help us fight back, and we plan to file a motion to dismiss this lawsuit.”
Danner provided a comment to MMA Payout on the lawsuit earlier this week.
Below is a copy of the lawsuit.
Rarely do we get the legal strategy of a party but it’s clear that Alliance MMA believes there is no merit in this lawsuit and will seek a dismissal. The company believes that attorneys are driving the lawsuit. There are law firms out there that do seek out companies where there is a drop in stock price or issues in financial reporting. Notably, Alliance MMA traded at a 52 week low earlier this week after the lawsuit was announced. The lawsuit occurred after an 8-K was issued prior to its annual 10-K report. MMA Payout will keep you updated.
April 19, 2017
The World Series of Fighting is being repackaged as the Professional Fighters League. The league will begin in January 2018 according to a press release sent out on Wednesday.
The inaugural season will run for 10 months and will feature seven different weight classes. Similar to league play, fighters will compete in three regular season fights with the best records moving to a playoff and then a championship round. There will be $10 million in prize money with $1 million going to each winner of the 7 divisions. The remaining 3 divisions will go to regular season and playoff competitors.
The Washington Post have announced that a group led by several D.C.-area businessman are spearheading the re-launch effort. Russ Ramsey, an investment banker and hedge fund manager along with venture capitalists Donn Davis and Mark Leschly are the co-founders of the Professional Fighters League. Sports franchise owner Ted Leonsis is also an investor. Leonsis owns the Washington Capitals, Mystics and Wizards. Also, members of the Lerner family who own the Washington Nationals are investors.
There is no current television deal as the NBCSN TV deal expires at the end of 2017 although according to MMA Fighting, talks are underway with several media outlets. MMA Fighting obtained an email to fighters from Ray Sefo stating the change. It also noted that every fighter will have regular fights (no less than 3 per year), they will receive a monthly paycheck and have the opportunity to be champion.
The announcement was a surprise for fighters as none knew of the details of the new venture. Of course, there are still more questions to ask. First, are the fighters now employers? Second, with the mandate that every fighter have at least three fights, how many former WSOF fighters be included on its roster. Third, will fighters receive insurance. Of course, what happens if a fighter is injured and cannot fight the rest of the year. Will they continue to receive a monthly paycheck.
Obviously, the infusion of cash from the investors seems to be the reason for the newfound promises. Of course, the big need is for a media rights distributor that will pay for the content with the hope that it can find key sponsorships to carry it through the inaugural season. We shall see what happens.
April 19, 2017
An investor has filed a lawsuit against Alliance MMA for alleged violations of securities law and is seeking class action status. The Complaint was filed in the U.S. District Court of New Jersey on Monday.
The lawsuit was filed just days after Alliance MMA issued an 8-K which reports to investors of specific events which may impact the company. Alliance MMA is a publicly traded stock company on the NASDAQ exchange. It had its initial public offering this past October.
The 8-K issued on April 7, 2017 states:
On April 7, 2017, the Board of Directors of Alliance MMA, Inc. (the “Company”) concluded that the condensed consolidated financial statements for thenine months ended September 30, 2016 included in the Company’s Form 10-Q for the quarter ended September 30, 2016 and for the three and six months ended June 30, 2016 should no longer be relied upon because of an error in recognizing as compensation transfers of common stock by an affiliate of the Company to individuals who were at the time of transfer, or subsequently became, officers, directors or consultants of the Company. The Company plans to include in its annual report on Form 10-K for the year ended December 31, 2016 revised financial information for the nine months ended September 30, 2016 and for the three and six months ended June 30, 2016. The Company’s chief financial officer has discussed the determination to restate these financial statements with its independent accounting firm.
As a result, the financial information previously provided to investors was not correct. A lawsuit was filed 10 days later.
Plaintiff is seeking class action status as they believe that there is potential other plaintiffs were affected by the information. Law firms are now seeking to sign up potential plaintiffs allegedly affected.
This is an interesting lawsuit and is a look into the intricacies of securities law. The stock is down as of this writing, trading at a 52-week-low, on the day it announced its 2016 financial results. The lawsuit could be seen as investors attempting to garner money from the company for its error. Whether or not there was reliance on the company’s will be key and plaintiffs (and potential plaintiffs) will likely argue that they reviewed Alliance MMA’s financial information prior to investing their money. Since the 8-K refuted the previous information, it certainly is a tough spot for the company.
April 18, 2017
A lawsuit filed against Alliance MMA by an investor in the company for violations of securities regulations law was filed on Monday. MMA Payout has obtained a response from the company’s CEO, Paul Danner.
“The matter of the stock-based compensation matter has no impact on 2017 financial performance and no negative affect on our ability to execute our business plan going forward. On April 12, after notifying the Securities and Exchange Commission, we filed a Form 8-K that stated the need for revisions to our second and third quarter results to include compensation in the form of shares of our common stock received by certain service providers, as well as individuals who later served as Alliance officers and directors. These revisions did not adversely affect our cash position, our balance sheet, the number of shares of our common stock outstanding, or the previously stated beneficial ownership of the officers and directors of the Company. Moreover, the stock-based compensation charge is a one-time, non-recurring item that will not be reflected in any periods subsequent to December 31, 2016. Operationally, we are off to a remarkable start since we completed the initial public offering of our common stock in October 2016, and there is absolutely no intention of slowing down with plans to expand our operations aggressively in the coming months. We will continue working towards our stated goal of creating and sustaining a continuous regional MMA presence in each of the top 20 domestic media markets, and reaching our ultimate objective of producing more than 125 events per year.”
April 17, 2017
S&P Global Ratings reaffirmed UFC Holding’s first lien “B+” rating after news of seeking $100 million in additional loans. Due to its high leverage, S&P rated UFC Holdings, LLC as having a negative outlook.
For a definition of S&P’s ratings, look here. A “B” rating is characterized as, “more vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.”
The UFC plans to use the additional loans for “earn-outs” and other payments to the Fertitta brothers and Flash Entertainment, the previous owners of the UFC, if the UFC achieves certain benchmarks with its EBITDA “sometime this year.” As indicated last year, the company must achieve $275 million EBITDA within 12 months. In the following 12 months, it must achieve $350 million EBITDA to achieve a monetary benchmark.
S&P noted that through 2018, it expects an adjusted leverage above 9x which is “pro-forma” for the additional $100 million term loan add-on. But, it adds that the company has a “plausible and robust growth path.” Thus, S&P affirmed its “B” corporate credit rating on UFC Holdings, LLC and “B+” issue-level rating on the company’s $1.475 billion first-lien term loan due 2023.
In July 2016, UFC Holding’s LLC was given a “B” rating and a negative outlook on a $1.45 billion first lien loan to acquire Zuffa, LLC. As we wrote back in July, “the financing for the deal to acquire the UFC will consist of the $1.45 billion credit facility which will consist of a $150 million revolver due 2021 and a $1.3 billion term loan B due 2023.”
According to the S&P report, it affirmed its “CCC” rating for the second-lien term loan of $425 million due in 2024.
Also of note, WME-IMG will receive $25 million in an annually management fee. It also states that an upgrade in rating will not occur prior to a new domestic media rights contract is renegotiated.
The report notes that while the UFC has a strong appeal to the 18-34 demo, “it needs to continue to develop fighters” that appeal to this target demo.
Prior to the acquisition by WME-IMG, in November 2015 Zuffa, LLC had a company corporate rating of BB and its outlook was stable. This was an upgrade in outlook which was previously negative.
The report from S&P Global Ratings came out on April 4th.
As in July, S&P seems optimistic on UFC Holdings, LLC and its ability to repay the debt (at least for the first-term loan). The report notes that the WME-IMG and its other investors may provide “temporary” financial support in the event of unexpected financial difficulty. This may attribute to the rating in comparison to previous ratings for Zuffa, LLC. Despite the additional loan capacity, UFC Holdings, LLC’s rating did not slide and it still projects a negative outlook for the holding company. Obviously, with the increase in debt capacity the negative outlook seems warranted. Then there is the issue, or nonissue, of the company’s EBITDA. Federal regulators announced concerns with the “add-backs” included in its EBITDA forecast. The projected EBITDA forecast appears to be linked to the belief that it will increase its media rights deal. WME-IMG has reduced costs since taking over which was highlighted by the reduction of the UFC work force which should please investors looking to scoop up its debt. The S&P report seems bullish on its EBITDA noting a “plausible and robust growth path.” B
April 10, 2017
The UFC is seeking to raise $100 million in incremental loans to repay the previous owners (i.e. Frank and Lorenzo Fertitta and Flash Entertainment) in the case of a potential earnings-based payout according to a report from Reuters.
The payouts of $175M and $75M are due in the event of EBITDA milestones. According to the Reuters report, the first payout could be due in the latter part of 2017.
KKR Capital, which took over from Goldman Sachs in January as the lead financier, is leading the process for this new loan. Federal regulators took issue with Goldman Sachs due to its add-backs in projecting the company’s EBITDA. KKR is not subject to the federal leverage lending guidance.
According to an investor presentation, with the addition of the $100 million loan, the UFC will be at 5.8 times whereas the first lien net leverage will be 4.8 times.
The UFC is marketing the company at $320M EBITDA which is an increase from an estimated $226M EBITDA from 2016 and $192M from 2015. The numbers come from an investor presentation although there is skepticism about the vast jump from $226M to $320M. Additionally, it is said that the company’s cuts once it took over in July has achieved cost savings of $10 million and it is projected to save $55 million by the end of 2017.
H/t: Front Row Brian
The money is intended to payout the prior owners assuming that the WME-IMG owned company meets its financial milestones which may or may not occur. Borrowing to payout previous owners, appears to the outsider, as a company living on leverage. The good news for those seeking to purchase the debt is the cost cutting it has done and the increasing earnings. Plus, there is a market for this debt and the company is bullish on its financial future so we shall see where this goes.
February 13, 2017
WWE set a 52 week record for stock price as it announced its end of year earnings for 2016 this past Thursday.
According to its earnings call, WWE Network subscribers grew 14% to 1.41 million paid subscribers. Revenue increased 11% to a company record $729.2 million.
Per a company press release, “[T]he Company reported Net income of $8.0 million, or $0.10 per share, as compared to a Net loss of $1.2 million, or a $0.02 loss per share, in the prior year quarter. Operating income increased to $13.9 million from an Operating loss of $1.5 million.”
Notably, television rights fees saw a big year-to-year increase (i.e., 2015-2016). The television division ended the 4th quarter with $68.6 million as opposed to $55.6 million in 2015. The network was up $43.7 million to $40.8 million. Overall, revenue was up across all business divisions except PPV which is likely since the Network is taking over this segment.
As of this writing, the stock is up at $22.37 which is slightly below its 52 week high of $22.56.
The earnings reflect that business is good for the WWE. It is capitalizing on television rights fees while its Network continues to grow according to the numbers.
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.
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.
October 7, 2016
Bloomberg.com reports that the Federal Reserve bank cautioned Goldman Sachs Group, Inc. over debt risks in a deal it arranged to fund the $4 billion purchase of the UFC.
Goldman Sachs was hired to market the debt to purchase the UFC this past July. Regulators have criticized deals that push a company’s debt load to more than six times its earnings.
“Add-backs,” which estimate a company’s future profitability after an acquisition or buyout were used to double projected cash flow for the UFC. The concern is that the projections may be too optimistic for the companies that are purchased. This could lead to a default which is the reason why the Federal Reserve cautions deals where the debt load looks to be more than the projected earnings.
According to the Bloomberg story, prospective investors were shown estimates that EBITDA would more than double from $142M to $298M. Per the article, the adjustments had the effect of lowering UFC’s leverage to 6 times EBITDA.
The UFC raised a total of $1.8 billion of debt which included $1.4 billion in first lien loans and another $425 million in second lien loans. Based on the current EBITDA of $142M this would have the company leveraged at approximately 12x EBITDA.
Notably, the Bloomberg report states that the UFC’s EBITDA as of June 30th was $142 million. A previous SBJ report had the EBITDA at $180 million although that did not have “as of” date. The obvious goal of the Fed is to reduce the risk of default in acquisitions. While the deal may never reach critical mass in terms of a default on the debt, the deal is considered high risk.
October 6, 2016
CNN Money reports that Alliance MMA, a self-described “premier developmental league for aspiring mixed martial arts fighters” is now a publicly traded company on the NASDAQ. It went live on the NASDAQ on Thursday.
The company’s investor page is sparse with financials but it indicates that it wants to develop the next generation of UFC fighters other premier MMA promotion champions.
In an interview with CNN Money, its CEO Paul Danner outlined a plan in which it would sponsor fights across the country through regional promotions. Its revenues will be drawn from the attendance, live fight access and attraction of national sponsorships.
More information on the stock can be found on Nasdaq.com. Its stock symbol is (AMMA).
According to its company financials, its net income is -$223,941 and its total assets is $56,766. Its total liabilities are $661,874.
Its initial share price is $4.50 per share.
Will this stock take off? One has to think that this IPO is capitalizing off of the UFC’s monstrous sale of $4 billion this past summer. But will investors think that regional/developmental MMA is a good investment. Certainly, the niche audience for sports has a certain attraction (e.g. FloSports) and can generate revenue. We shall see if investors believe in this business model.