(LR) Conor McGregor of Ireland beats Dustin Poirier in a lightweight bout during the UFC 257 event at the Etihad Arena at UFC Fight Island on January 23, 2021 in Abu Dhabi, United Arab Emirates.
Chris Unger | UFC | Getty Images
In 2016, before Ultimate Fighting Championship was sold to what would later become Endeavor Group for $4 billion, the mixed martial arts league was nearly acquired by Disney for a little more.
Disney and UFC had negotiated broad terms for a deal that would see the entertainment giant acquire the martial arts company for around $4.3 billion, according to people familiar with the matter.
Disney, which owns the majority of sports network ESPN, has toyed with the idea of buying sports leagues for years, one of the people said. Disney CEO at the time, Bob Iger, was the model manager for brilliant intellectual property acquisitions, buying Pixar, Lucasfilm and Marvel.
Ultimately, Iger nixed the UFC deal. He feels the gory and violent UFC brand is at odds with family-friendly Disney, said the people, who asked not to be named because the negotiations were private. A Disney spokesman did not immediately comment.
Two years later, Disney’s ESPN paid $1.5 billion for UFC TV rights under a five-year deal. This deal immediately increased the value of UFC to $7 billion, according to UFC CEO Dana White. Disney’s ESPN+ also signed a $150 million-a-year deal to stream UFC fights in an agreement that expires in 2025.
If ESPN renews the UFC rights, Disney will pay much more royalties than the $4.3 billion it would have paid in 2016. Fees for the rights to popular sports broadcasts continue to rise rapidly as they offer advertisers unique opportunities to broadcast live and attract relatively large audiences.
This calculus has made professional sports and entertainment leagues like UFC, NASCAR, Formula 1, and WWE potentially attractive targets for streaming companies looking to control the ever-rising rights fees for valuable live programs that still require advertising dollars.
“Disney would have been far wiser to buy UFC than spend so much on licensing,” said LightShed analyst Rich Greenfield. “Now the costs are going up a lot. Owning a league makes a lot of sense.”
While there’s rarely anything for sale, the streaming era has likely made sports leagues more desirable acquisition targets as rivals seek exclusive content to gain competitive advantage. Owning a league instead of relying on multi-year license renewals that result in recurring bidding wars can solidify branding and reduce subscriber churn.
Mercedes AMG Petronas Motorsport driver Lewis Hamilton (44) of Great Britain celebrates winning the 2019 FIA Formula One World Championship after the F1 US Grand Prix race at Circuit of The Americas on November 3, 2019 in Austin, Texas.
Ken Murray | Sportswire icon | Getty Images
While Disney shied away from UFC’s image, it’s easy to imagine WWE or Formula 1 branded roller coasters and rides for the media companies that own them. There are clear product ties for Amazon. Netflix can use its own IP for its burgeoning video game division.
Formula One, WWE and UFC are all language-agnostic properties with global appeal. Formula 1 in particular prides itself on being an international sport with races all over the world. The league announced last week that it will be adding a third US Grand Prix in Las Vegas beginning in 2023.
That could tip the scales for streaming services that need global subscriber growth, like Netflix and Disney, to keep investors happy.
“Streaming companies are global,” said Sean Bratches, former Formula 1 chief commercial operations executive. He created and oversaw production of Drive to Survive, the hit Netflix docu-series detailing every Formula 1 season describes. “When you are a sport like F1, one of your primary strategic goals is to improve your global media rights.”
There are no known talks to acquire Formula 1, UFC or WWE.
Economical stock
While buying sports and entertainment leagues could be attractive targets for the big streamers, there simply aren’t many of them available. The biggest professional sports leagues — the National Football League, Major League Baseball, the National Basketball Association — aren’t viable buyout targets. That leaves a smorgasbord of smaller leagues that may or may not be for sale at any given time.
World Wrestling Entertainment Inc. chairman Vince McMahon (L) and wrestler Triple H perform in the ring during the WWE Monday Night Raw show at the Thomas & Mack Center August 24, 2009
Ethan Mueller | Getty Images Entertainment | Getty Images
WWE, with a market cap of $4.6 billion, stands out as a potential takeover candidate because it’s a public company with an aging majority shareholder. Vince McMahon owns more than 80% of the voting rights and is 76 years old. At some point, he and his family must decide whether to retain control of the company or sell it to the highest bidder. McMahon’s daughter, Stephanie, also serves as the company’s chief brand officer.
“We’re open to business,” WWE President Nick Khan said on The Ringer’s The Town podcast last month.
A buyer could be a legacy media company like Disney, Fox, Paramount Global, or Comcast’s NBCUniversal, which last year inked a five-year deal with WWE for more than $1 billion to own WWE’s exclusive direct-to-consumer home will.
“If you look at what NBCU/Comcast needs, and I think it’s a factual statement, they don’t have the intellectual property that some other companies have,” Khan said. “I think they see us as one entity that has a lot of intellectual property. Much of it was not used. Now it’s up to us to monetize it properly and show the community exactly what we have.”
NBCUniversal declined to comment.
If a potential buyer makes an offer to McMahon, it could do so ahead of the company’s next rights renewal, which is expected to be announced in mid-2023. That’s likely when McMahon will have to make the decision to sign another multi-year deal or sell.
While Disney and NBCUniversal own theme parks, big tech companies Apple and Amazon have also emerged as potentially interested parties to acquire sports and entertainment IP. Both have signed multi-year deals to broadcast MLB games on their streaming services. Amazon also acquired the exclusive rights to Thursday Night Football starting this season. Even Netflix, which has so far steered clear of live sports, is open to buying Formula 1 rights after its docuseries Drive to Survive erupted as a worldwide hit, co-CEO Reed Hastings said last year.
Possible disadvantages
While Disney has proven it can leverage and expand on existing Marvel and Lucasfilm intellectual property, creating new characters is a different skill, WWE’s Khan said. It’s not clear that any streaming service or major entertainment company would have the same capabilities as McMahon.
The Undertaker, Top, and Brock Lesnar wrestle during Wrestlemania XXX at the Mercedes-Benz Super Dome in New Orleans on Sunday April 6, 2014.
AP
The content of smaller sports companies can also get lost in a big streaming service that can’t offer its users everything. While Star Wars and Marvel spin-offs often get top billing at Disney+, other intellectual property can get lost. The McMahons must decide whether WWE can expand their universe as part of a larger venture or risk losing Cache without family attention.
Buying a minor sports league may not interest a major streamer enough to make a multibillion-dollar acquisition, said Bratches, the former Formula 1 executive who also worked for ESPN for 27 years.
Liberty Media, controlled by billionaire John Malone, acquired Formula 1 in 2016 for $4.4 billion. Liberty has spent the last five years investing in Formula 1 and generating revenue by playing different media companies against each other, by sharing rights worldwide and by auctioning licensing rights.
This business model would disappear if a media party owns the league. Any seller who cares about the future of their products wants to be confident in the overall health of the acquiring streaming service, Bratches said. When consumers are mad at a streaming service and that company owns a league exclusively, viewership can suffer regardless of the quality of the league.
“These are nice-to-have properties, but it’s not like buying the NFL,” Bratches said. “There is not enough content to move the needle.”
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
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