Taking Ari Emanuel's Endeavor Group private is good for the WWE and UFC, this analyst says

By Bill Peters

TKO shares expected to benefit, thanks to 'ample pipeline of catalysts over the next several years,' Jefferies analysts say

As Hollywood mogul Ari Emanuel's media, sports and entertainment giant Endeavor Group Holdings Inc. prepares to go private, Jefferies analysts on Tuesday said the move could give more breathing room to TKO Group Holdings - the company that oversees the WWE and the UFC.

Endeavor on Tuesday said that longtime investor Silver Lake was taking the company private in a $13 billion deal expected to close in the first quarter of next year. TKO (TKO) - which was formed last year with Endeavor's help and began trading with Endeavor as a majority owner - will remain a publicly traded company under the deal.

The deal announced by Endeavor (EDR) ends months of speculation over its fate, amid increasing consolidation in the entertainment industry. And now that the announcement is out of the way, Jefferies said investors in TKO will have more opportunity to focus on the business itself.

"With transaction-related uncertainties addressed, we expect TKO shares to benefit as investors focus on fundamental performance and its ample pipeline of catalysts over the next several years," analysts there said in a research note Tuesday.

The analysts also said the UFC's upcoming TV rights renewal, along with more events and cost savings, would benefit TKO's stock.

Shares of TKO finished 5.2% higher on Tuesday. They were down 0.1% after hours.

TKO was formed last year following an agreement with Endeavor, which owned the UFC fighting league and World Wrestling Entertainment, with Endeavor holding majority ownership in the new company. TKO shares began trading in September. But shortly after, Endeavor said it was weighing "strategic alternatives" for its business, while adding that it would "not consider the sale or disposition" of its stake in TKO.

Emanuel, at the time, said the company was weighing alternatives due to what he called a "continued dislocation" between Endeavor's market value and its actual underlying value. Shares of the company are down from their debut in 2021.

The entertainment industry has been cutting costs while facing greater pressure from investors to put up stronger streaming profits, and the rebound in TV production has been slow following last year's Hollywood strikes. Live sports have been a lifeline for traditional TV, although streaming platforms have picked away at those broadcasts as well.

And as the sports-business publication Sportico reported last year, investors were disappointed that WWE, despite hype from its executives, couldn't get more money from one of its TV rights deals.

However, Jefferies analysts in February cited the deal that Netflix (NFLX) struck with WWE - to broadcast "Raw" on the streaming platform starting next year - as evidence that "demand for live sports content is front and center in the media landscape." They also said TKO had greater opportunity to market the WWE to UFC fans and vice-versa.

In January, Vince McMahon stepped down from TKO after a lawsuit accused him of sexual misconduct - allegations he has denied.

-Bill Peters

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04-02-24 1958ET

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