Endeavor IPO delayed until fall

August 2, 2019

The Wall Street Journal reports that Endeavor, the company which owns the UFC, is postponing its IPO until September as it awaits a deal to buy a premium-hospitality and live-events company in hopes of showing investors that it is diversifying its portfolio.

The news comes at a time when the market is hot and little volatility.  The concern, as always, is that headwinds are on the horizon and an imminent market downturn will happen soon.  But, no one knows this as a certainty.

The cause for the delay may be the company’s hope to puff out its fiscal muscle more for investors as it wants to show off its second-quarter results so that it can get a higher public valuation.  According to the WSJ, it is seeking a valuation between $7 billion to $8 billion and raise in excess of $500 million in its IPO.

Earlier this week it was revealed in a Securities and Exchange Commission filing that Endeavor’s CEO Ari Emmanuel received a pay bump and is set to score a financial windfall when the company comes to market.  Endeavor is the primary owner of the UFC with the dominant amount of voting stock of the company.

In an SEC Filing, it revealed that Emmanuel’s salary was raised from $1M to $4M with bonuses reaching near $6M.  Emmanuel could make equity awards near $12.5M if the UFC hits certain financial goals.  He could make $14M if the UFC goes public on its own and those targets are met.

The S-1 Filing by Endeavor markets itself as a global entertainment, sports and content company.  It acquired sports and modeling agency IMG in 2014 and Zuffa in 2014.

It’s S-1 includes Dwayne “The Rock” Johnson as a ‘Talent Case Study’ as to how Endeavor has helped the pro wrestler-turned actor-turned media mogul through different aspects of its divisions.  It lists the UFC as an ‘Owned Asset Case Study.’ The study states, “With more than 300 million fans, including over 80% of fans outside the U.S., and one of the youngest (e.g., 40% millennials in the United States) and most diverse demographics in all of sports, UFC continues to sell out some of the biggest and most prestigious arenas around the glove, while broadcasting over 160 territories to approximately 1 billion households.”

Payout Perspective:

The delay in going to market shouldn’t be seen as a weakness here as its clear that Endeavor wants to bolster its valuation through the acquisition of the New York-based On Location Experiences, LLC.  There has been speculation that the UFC would branch off of Endeavor and launch its own IPO in the future although that does not appear to be the case at this time.  Emmanuel’s salary and financial boon if things go as planned is not shocking although given the debate on fighter pay, the disparity between the CEO and a contracted fighter is one that is hard not to recognize.

UFC Holdings follows market trend of reducing ‘debt cushion’

May 17, 2019

The Wall Street Journal reported late last month that the UFC was paying off its junior loan utilizing a senior one in order to reduce its overall debt load.  The move comes on the heels of an exclusive PPV deal with ESPN and the lack of concern that the Federal Reserve will raise interest rates.  The reduction of ‘debt cushion’ is a market trend by some companies to the chagrin of senior debt holders.

UFC Holdings, the official name of the entity for the UFC, sold $435 million of an add-on to an existing $1.44 billion loan that was due in 2023 and now has been extended to 2026.  The addition to the loan was sold at $99.75 on the dollar which included a discount to where the existing debt traded.  The company also paid existing loan holders a modest fee to allow the transaction.

The new debt will be used to pay off a more junior loan which eliminates a ‘debt cushion’ for senior lenders as junior debt (i.e., bonds and loans) are typically the first pieces of debt to absorb losses in bankruptcy.  Essentially, if the company were to go bankrupt the junior loans would be the most vulnerable in not being paid back as the most senior creditors would have the first chance at the assets which may leave junior debt out of luck in repayment. In this case, the junior loan had a higher interest rate than the senior loan.  The floating interest rate on the junior loan has been the London interbank offered rate plus 7.5%, or 4.25 percentage points higher than the rate on the senior loan.  Thus, the move aids in eliminating interest on the junior debt.

The transaction seems to be a growing trend in debt financing as more companies are reducing ‘debt cushion.’  This occurs in instances of speculative grade loans and instances where the junior loan has a higher interest rate than the senior loan.  To the chagrin of senior debt holders, paying down a junior loan is not favored as one might recognize that paying down a junior debt means that in the worst-case scenario for a senior debt holder, if a bankruptcy were to occur, assets previously used to pay off the junior debt will not be there to pay off the senior debt.

Via WSJ:

Last year, buyers of first-lien loans were paid 0.83 percentage point above the benchmark London interbank offered rate for every multiple the loans exceeded a measure of borrowers’ cash flow, according to LCD. That was the smallest amount since 2007, when lenders were paid just 0.69 percentage point.

Also, according to WSJ, 27% of first-lien loans, mostly held by senior type of debt held by investors were not backed by companies that didn’t have junior outstanding debt.

If you were wondering, this is analogous to using a credit card to pay off one with a higher interest rate.  Using a loan to pay off another might not seem like the most financially secure way to address debt load issues for a company and concerns senior debtholders that hold priority over the junior debtholders.  But a number of factors (as outlined above) likely made this move prudent.  First, Disney’s 7-year agreement to pay a “fixed license fee” to air its PPV fights exclusively in North America was seen as to “dramatically reduce the volatility” of UFC’s business.  Secondly, the market to purchase debt is on an uptick.

Here’s another reason that reducing debt cushion is a thing.  According to Moody’s, the company’s debt to EBITDA would fall to 5.5 times from 7.8 times which is said to potentially put lenders in a stronger position even without a debt cushion.  UFC Holdings’ existing loans in 2016 were said to have an EBITDA of $170 million by one measure and $300 million by another which was based on speculative future TV revenue.  Regardless, it borrowed another $100 million in 2017.

Of course, we may now know a little more about the TV revenue since its deal with ESPN.  Moreover, the deal likely assuages lenders about the debt.  Essentially, the speculative nature of the deal became less speculative.

The move pays off the interest rate of the junior debt but senior debt holders are weary as there is potential for not being made whole at the end.  But, it lowers its overall multiple which would allow it to be more lucid in investing and future debt restructuring.

MPO year in review – UFC takes out loan, cashes out Fertittas

December 23, 2017

In April, the UFC sought to raise $100 million in incremental loans to complete its buyout of the previous owners.  It appears that the UFC received those loans as the Fertittas cashed out the remaining shares they had left in the company in August.

KKR Capital was leading the effort in obtaining the loans for the company.  According to an investor presentation, with the $100 million loan, the UFC will be at 5.8 times whereas the first lien net leverage would 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.

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 (debt leverage) 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.

In August 2017, Forbes reported that the Fertittas sold their remaining stake in the company. They received roughly a 26% premium over last year’s transaction.  The company acquired for $4.2 Billion dollars in July 2016 was valued at $5 Billion over a year later.

WWE announces Q2 2017 financial results

July 27, 2017

The WWE beat profit forecasts as it announced its Q2 (ending June 30, 2017) 2017 results on Thursday.  It announced that revenue increased to a record $214.6 million.  The WWE Network average more than 1.63 million average paid subscribers over the second quarter.

WWE stock was up slightly in after hours trading to $21.94.  The company reported net income of $5.1 million or $0.06 per diluted share as compared to $0.8 million or $0.01 per share in 2016.

The WWE’s shares have climbed 18 percent since the start of 2017.  The revenue for Q2 2016 was $199 million.

The increase in revenue was driven by the monetization of video content across the Company’s Television, Network and Digital Media business segments according to the Company.  Television rights fees appeared to be the main revenue driver in this segment.

As for the network, the subscribers are up from year to year with last year subscribers at 1,560,000.  As of the end of 2016, there were 1,473,000 subscribers.  However, the increase in subscriptions changes when contemplating the actual paid subscriber base.  At the end of Q2 there were 1,568,000 subscribers versus 1,511,000 subscribers at the end of Q2 in 2016.

It also announced that WrestleMania this past April broke the attendance record for the Orlando Citrus Bowl with 75,245 fans and reached 1.95 million global households on the WWE Network.

Second securities lawsuit filed against Alliance MMA

May 9, 2017

A second securities lawsuit has been filed against Alliance MMA for claims that it misled investors.  The new lawsuit filed May 3rd is in the United States District Court for the Southern District of New York and seeks class action status.

The lawsuit arises out of an amendment made by the company which trades on the NASDAQ.  In an 8-K filing made by the company last month, it stated that financial statements previously made for the nine months ended September 30, 2016 included in the Company’s Form 10-Q, three months ending June 30, 2016 and six months ending June 30, 2016 could 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 Complaint filed by plaintiff David Shulman states that Alliance MMA completed its IPO that consisted public sale of 2,222,308 shares of the Company’s common stock at $4.50 per share.  According to a Declaration from the Plaintiff filed with the Complaint, he purchased 100 shares of Alliance MMA on October 16, 2016 for $3.99 per share.

As of this writing on Tuesday, May 9, 2017, the stock is trading around $1.53 per share.

A Second Alliance MMA Lawsuit by JASONCRUZ206 on Scribd

Certification of Plaintiff in Second Alliance MMA Lawsuit by JASONCRUZ206 on Scribd

Payout Perspective:

The lawsuit is similar to the one filed in New Jersey last month.  One might expect a similar response from Alliance MMA in that it has retained a law firm to defend itself against these allegations.  With an issue like this, it is expected that Plaintiff attorneys smell blood in the water and search for investors that may have been harmed from the misstatements made by the Company.  MMA Payout will continue to follow the situation.

Fertittas establish private equity firm

May 1, 2017

The Wall Street Journal reports that former UFC owners Lorenzo and Frank Fertitta have started a $500 million private equity fund, Fertitta Capital.  The company aims to target consumer-facing companies in tech, media and entertainment.

The Fertittas sold the UFC for near $4 Billion this past July and with its newfound liquidity it decided to start the investment company.  The company, which will be based out of Los Angeles, will be run by former UFC Chief Financial Officer Nakisa Bidarian.

The company intends to take minority positions in companies but will not rule out taking controlling stakes and larger deals of up to $500 million.  According to the article, the fund is set to deal in direct-investing for the long-term with flexible as Lorenzo Fertitta notes that the basis of the premise was from his experience with would-be buyers approaching them about acquiring the UFC.

Payout Perspective:

The news is not shocking as Fertitta Capital will likely takes its lessons from the UFC and apply that to its investing strategy.  With the tech, media and entertainment sector continued growth, it can pick and choose where to invest.  As a private equity firm, there is less regulation which gives them some flexibility in how they structure deals.

Alliance MMA retains law firm to defend itself against investor lawsuit

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, 2017Alliance 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.

Alliance MMA lawsuit by JASONCRUZ206 on Scribd

Payout Perspective:

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.

Formerly WSOF, Professional Fighters League announces new structure for fighters

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.

Payout Perspective:

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.

Alliance MMA sued by investor

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.

CEO Paul Danner issued a comment to MMA Payout here.  The lawsuit comes at a time when the company reported its annual financial results.

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.

Payout Perspective:

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.

Alliance MMA CEO responds to lawsuit

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.”

Next Page »