UFC's Parent Company Goes Public

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Friends,

After watching WeWork abandon its plan to go public days before its scheduled offering, and Peloton ($PTON) dropping more than 10% on its first-day trading, UFC parent company Endeavor canceled its IPO the day before it was set to price in 2019.

Now, almost two years and one global pandemic later, the sports & entertainment conglomerate has returned to the public market — officially launching an initial public offering yesterday.

Here are the details:

• The stock was priced at $24 per share.

• Endeavor offered 21.3 million shares, raising roughly $511M from the offering.

• Endeavor also sold millions of shares through a private placement to institutional investors.

• Endeavor will trade on the New York Stock Exchange under the ticker “EDR.”

• The stock touched an intra-day high of $28.47 but ended the day at $25.20, representing a 5% gain on the day.

With almost $6 billion of long-term debt and just over $1 billion of cash on its balance sheet, Endeavor is expected to use the $2.3 billion in capital it raised from the IPO and private placement to pay down debt and look at strategic acquisitions.

While complex and confusing at first glance, Endeavor’s business can be broken down into three main categories:

Live Events, Experiences & Rights (43% of 2019 revenue)

• On-Location (NFL)

• Streaming Rights (Olympics, NFL, NHL)

• IMG Events

Talent Representation (36% of 2019 revenue)

• IMG

• William Morris

Owned Sports Properties (20% of 2019 revenue)

• Ultimate Fighting Championship

• Professional Bull Riders

• Euroleague (pro basketball)

With COVID-19 severely impacting businesses that depend on live, in-person attendance, Endeavor saw its revenue breakdown shift more heavily towards owned sports properties in 2020.

Now, they appear to be doubling down on that strategy.

After previously acquiring 50.1% of the UFC for $4 billion in 2016 from Lorenzo and Frank Fertitta, Endeavor has already begun the process of acquiring the remaining minority stake that they don’t already own.

Why?

Here’s what Endeavor president mark Shapiro told Sportico yesterday:

Here’s my take…

Like most other businesses situated within sports, entertainment, and talent representation, the COVID-19 pandemic has served as a brutal reminder that the true value sits within owned & operated sports properties.

Rather than relying on low(er) margin businesses like talent representation or seasonal events that depend heavily on factors outside of your control, Endeavor wants to own assets that have increasing demand, strong secular tailwinds, and have proven over time to be premium, scare properties that appreciate in value.

In my opinion, that’s exactly what professional sports leagues & teams offer.

Here are a few reasons why (Source):

• The global sports market will be worth $626 billion by 2023, up 33% from the $471 billion tracked in 2018.

• From 2011 to 2020, the average franchise across the NFL, NBA, NHL, MLB, and Premier League increased in value by over 500%.

• The rise in streaming is expected to drive global revenue from sports media rights to $85 billion by 2025, a 75% increase compared to 2018.

• Only 27% of the US population currently has access to legal mobile sports betting in their state, which Macquaries believes will move all the way to 96% by 2025.

These are the same reasons why holding companies like Fenway Sports Group — owners of the Boston Red Sox & Liverpool F.C. — continue to expand their empire and why multiple institutional investors have raised funds to acquire minority stakes in NBA teams.

Only time will tell how much value Endeavor will eventually see from full ownership of the UFC. Still, given their current arrangement of assets, it certainly seems enticing from a vertical integration perspective.

Have a great weekend, and we’ll talk on Monday.

If you want to read Endeavor’s S-1, you can check it out here.

Want to Invest In Professional Sports?

Endeavor ($EDR) has officially been added to $MVP, the first ETF that allows you to invest in professional sports teams and leagues.

If you want to learn more about MVP, you can view the investor deck, prospectus, and a full list of holding companies here.

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