Stock Analysis: Endeavor Group Holdings acquires World Wrestling Entertainment
A new entertainment giant for martial arts fans will soon emerge on the stock exchange: Endeavor Group Holdings, the owner of the mixed martial arts league UFC (for “Ultimate Fighting Championship”), will take over World Wrestling Entertainment (WWE), one of the largest organizers of wrestling shows. Mixed martial arts (MMA) is a full-contact martial art that combines different fighting styles and takes place in an octagonal cage, the octagon. In the USA and also in Germany, MMA is increasingly taking over from classic boxing.
WWE will be valued at $9.3 billion and UFC at $12.1 billion, Endeavor said. The wrestling leader and the UFC are set to be merged into a sports and entertainment giant worth more than $21 billion.
The deal is not only exciting for martial arts fans, but also for investors. Because the takeover affects two stocks that could benefit more or less strongly. The first: WWE stock (ISIN: US98156Q1085). The wrestling promoter is currently listed on the New York Stock Exchange. In the wake of the takeover announcement, the stock rose close to the $100 mark, up around 180 percent in three years (see grafic).
WWE is to be merged into a new company in the coming months, in which the UFC will also be bundled. The IPO of this company, also in New York, is planned for the second half of the year. The name has not yet been decided, the ticker abbreviation should read TKO (as in “technical knock-out”).
The second stock affected is Endeavor (ISIN: US29260Y1091). The company only went public about two years ago – and hasn’t done particularly well there so far. A first IPO attempt in 2019 failed due to weak investor demand. On the second attempt, the issue price of $24 per share was at the upper end of the targeted range. For almost a year, however, the price has been bobbing well below it.
From Charlie Chaplin to Hulk Hogan
Endeavor has an illustrious history. The company was formed in 2009 from the merger of two talent agencies: The Endeavor Talent Agency, founded by Ariel Emanuel. She represented actors Matt Damon and Ben Affleck, among others. And the William Morris Agency. In its more than 100-year history, it has represented stars such as Charlie Chaplin and the Rolling Stones.
In 2016, Endeavor acquired a majority stake in the MMA organization UFC for around $4 billion. Five years later, the company bought out investors KKR and Silverlake for $1.6 billion and completely took over the UFC.
The deal with WWE now provides that Endeavor will get 51 percent of the newly founded martial arts giant. The remaining 49 percent is owned by current WWE shareholders, which will be transferred to the new company. It is to be led by Ariel Emanuel and WWE boss Vince McMahon, among others. McMahon had left his posts after rape allegations and alleged hush money payments and only returned to the top of the WWE at the beginning of the year.
Wall Street analysts are positive about the merger. Investors, on the other hand, are apparently not yet sure what to make of it. Both WWE and Endeavor stocks plummeted earlier in the week after the merger was announced, but then recovered.
WWE’s disappointment is understandable: McMahon hinted at the merger earlier in the year. Shareholders had then probably speculated on a cash settlement. Although Endeavor WWE rated significantly higher than the current stock market value. The company is paying $106 per share on paper — a premium of 16 percent over the last price before the deal was announced. However, this surcharge is purely virtual due to the construction of the deal: WWE shareholders only receive a fraction in cash, the majority in shares of the newly founded company.
Rising license fees
For WWE shareholders, a bet is now on whether the new martial arts giant will be successful. There’s a lot to be said for it. Both the UFC and WWE are currently on the road to success. The WrestleMania event, WWE’s flagship event and the premier wrestling event of the year, took place this year on April 1st and 2nd in California.
Which skills are important in sports and in a career
“Competitive athletes learn discipline from scratch. They learn how to use their time optimally,” explains Moritz Anderten, a qualified sports scientist and sports psychologist. Athletes can concentrate very well in a goal-oriented manner. In addition, competitive athletes often have a physical advantage: It is well known that good physical condition has a positive effect on the ability to concentrate, explains Anderten.
Hundreds of hours of training a week, regular training camps, competitions, hardly any free weekends, toiling and toiling until the body can’t take it anymore – all this is a matter of course for top athletes. Competitive athletes have learned to “roll up their sleeves,” explains Ralf Holtmeyer, Germany eight’s national coach. “They are used to putting their leisure interests on the back burner.” Perhaps that would make them more successful at work if they weren’t always thinking about the end of the day, the success coach suspects.
What is actually true of the thesis that high-performance athletes are more successful in their studies or at work than non-athletes? A study that was carried out in cooperation with the German Sports Aid suggests a connection. The researchers examined professional success based on income. The result: Depending on the analysis, the approximately 260 former competitive athletes surveyed have a monthly income that is 600 to 900 euros higher than non-athletes. Former team athletes earn even more.
The scientists cannot find a clear explanation for this. But one assumption is obvious: They believe that sport promotes character traits such as ambition, perseverance and willingness to perform, which are also advantageous at work.
“You have to clearly define your goals – in sport and at work. The success is all the greater,” says former hockey player Michael Green, who now works as an orthopaedist. Organizational skills are one of the most important factors. While others dabbled and listened to music on the train rides to the venues, Green opened his medicine books. “And I also celebrated normally”, only there was no time for a part-time job. He therefore points out how important the financial support from the German Sports Aid Foundation was.
According to WWE, the event was the highest-grossing WrestleMania of all time, surpassing the previous record by 27 percent with box office earnings of more than $21 million. The sponsorship income of more than 20 million dollars exceeded the previous record by more than twice.
Things are also going well at the UFC. The cage fighting organizer reported record sales for the past year and was instrumental in parent company Endeavor reporting $1.3 billion in esports sales in 2022, up 20 percent from the previous year. In addition to sponsorship income, this was mainly due to higher license fees.
A merger of the UFC and WWE could further increase broadcast rights revenues: if these are reallocated, for scripted show and real-life cage fights together, and in the process be priced higher. At the same time, Endeavor predicts that synergies could result in cost savings of between $50 million and $100 million annually. For example, by exclusively using the Endeavor back office.
In fact, there could be synergy effects on several levels. Stars keep switching back and forth between the sometimes bloody real fights of the UFC and the show fights of the WWE. Ex-UFC star Ronda Rousey is currently under contract with WWE.
So WWE shareholders and investors investing in the new company can be optimistic. The same goes for Endeavor shareholders. However, Endeavor’s shares were also penalized when the deal became known. Unlike WWE stocks, they haven’t recovered yet. That seems irrational.
German investors have a hard time
Anyone who wants to use the discount to get started will have a hard time as a German investor. Unlike many other major US stocks, Endeavor shares are not traded on German stock exchanges. With some brokers, such as Comdirect or Scalable, the title cannot be bought. ING, for example, has the share in its program – you can trade it on the New York Stock Exchange. It costs extra, but it can still be worth it.
Because the company has significantly increased its sales in the past year, to around 5.3 billion dollars. Despite higher costs, the bottom line was a good 320 million dollars as net profit. For the current year, Endeavor is forecasting an increase in sales of twelve percent.
Because WWE shareholders are paid exclusively in shares, Endeavor does not have to go into debt to buy WWE: Good for the stability of the balance sheet. And since the company will control the new martial arts giant, it will benefit if it does well. If this insight catches on in the market, it could – in the words of UFC announcer Michael Buffer – mean: Let’s get ready to rumble!
Also read: Fitness chains are experiencing an upswing after the pandemic
