Notes from TKO Group’s 2023 Fiscal 4th Quarter & Fiscal Year Report – WWE RAW Broadcast Status for This Fall

TKO Group held an investor’s meeting on Tuesday discussing the results from their fiscal 2023 fourth quarter and fiscal 2023 year report.

It was stated that these results cover the time period of January 1st through December 31st for UFC and September 12th through December 31st for WWE.

In regards to revenues, TKO generated $614 million in net revenues for the fiscal quarter with the split being $282.8 million from UFC and $331.2 million from WWE. Operating income for the fiscal quarter was $62.9 million.

TKO generated a net income of $16.1 million for the fiscal quarter.

In regards to other financial areas, TKO’s Adjusted EIBDA for the fiscal quarter was $223.2 million. WWE’s events revenue for the fiscal quarter was $82.3 million. WWE’s consumer revenue for the fiscal quarter was $21.3 million.

In regards to the 2023 fiscal year, TKO generated $1.7 billion in net revenues for the fiscal year, up 47% compared to the 2022 fiscal year. Net income was stated to be $175.7 million, down compared to the 2022 fiscal year’s net revenues of $213.3 million that was stated to be due to increased operating costs incurred. Adjusted EIBDA was stated to be $809.1 million for the fiscal year, up 29% compared to the 2022 fiscal year. Operating income was stated to be $446.7 million, down compared to the 2022 fiscal year’s operating income of $544.4 million.

Official press release:

TKO Transaction Highlights

On September 12, 2023, Endeavor and WWE closed the transaction to combine UFC and WWE to form a new, publicly listed company, TKO Group Holdings, Inc. The reported results presented in this earnings release cover the period from January 1, 2023 through December 31, 2023 for UFC and the period from September 12, 2023 through December 31, 2023 for WWE.

Full Year 2023 Highlights and Recent Developments

The UFC segment delivered record financial results. Revenue increased 13% to $1.3 billion and Adjusted EBITDA1 increased 11% to $756 million

UFC live events revenue increased 34% to a record $168 million, driven by growth in ticket revenues and site fees. UFC held 43 events that generated significant viewership gains and set several all-time records for gross revenue at respective arenas

UFC sponsorship revenue increased 18% to a record $196 million, driven by new brand partners and renewal increases

UFC celebrated its 30th anniversary with a series of events commemorating its history and current standing as the world’s premier mixed martial arts organization

Each WWE premium live event set a viewership record; total WWE domestic viewership and hours viewed on Peacock increased 25% and 22%, respectively, as compared to the prior year

WWE live event average attendance increased 34%

In January 2024, WWE entered into a long-term media rights agreement with Netflix beginning in January 2025 for Raw in the United States and all WWE shows and specials outside the United States

Full Year 2024 Guidance

The Company is targeting revenue of $2.575 billion to $2.650 billion

The Company is targeting Adjusted EBITDA of $1.150 billion to $1.170 billion

The Company is targeting Free Cash Flow Conversion2 in excess of 50%

NEW YORK–(BUSINESS WIRE)– TKO Group Holdings, Inc. (“TKO” or the “Company”) (NYSE: TKO) today announced financial results for its year ended December 31, 2023. The reported results presented in this earnings release cover the period from January 1, 2023 through December 31, 2023 for Ultimate Fighting Championship (“UFC”) and the period from September 12, 2023 through December 31, 2023 for World Wrestling Entertainment, Inc. (“WWE”).

“TKO is off to a strong start following record financial performance in 2023 at both UFC and WWE,” said Ariel Emanuel, CEO of TKO. “We secured Anheuser-Busch as the official beer partner of UFC, delivered a transformative deal to bring WWE’s Raw to Netflix beginning in 2025, and expanded our international footprint in important growth markets. We have more conviction than ever in the combination of these businesses and TKO’s ability to drive topline growth and margin expansion, generate meaningful free cash flow, and deliver sustainable long-term value for shareholders.”

Full Year Consolidated Results

Revenue increased 47%, or $534.9 million, to $1.7 billion. The increase reflected an increase of $152.1 million at UFC, to $1.3 billion, and the contribution of $382.8 million of revenue at WWE associated with the period from September 12, 2023 through December 31, 2023.

Net Income was $175.7 million, a decrease of $213.3 million from $389.0 million in the prior year period. The decrease primarily reflected an increase in operating expenses partially offset by the increase in revenue. The increase in operating expenses primarily reflected an increase in selling, general and administrative expenses of $339.0 million, an increase in direct operating costs of $189.0 million, an increase in depreciation and amortization of $104.6 million, and an increase in interest expense of $99.4 million. To a lesser extent, higher income taxes also contributed to the decrease in net income.

Adjusted EBITDA 1 increased 29%, or $180.4 million, to $809.1 million, due to an increase of $75.1 million at UFC and the contribution of $163.0 million of Adjusted EBITDA at WWE associated with the period from September 12, 2023 through December 31, 2023, partially offset by an increase of $57.7 million in corporate expenses.

Cash flows generated by operating activities were $468.4 million, a decrease of $33.3 million from $501.7 million, primarily due to lower net income.

Free Cash Flow2 was $419.8 million, a decrease of $69.5 million from $489.3 million, primarily due to the decrease in cash flows generated by operating activities and an increase in capital expenditures, which was primarily related to WWE’s new headquarter facility.

Cash and cash equivalents were $235.8 million as of December 31, 2023. Gross debt was $2.761 billion as of December 31, 2023.

UFC

Full Year 2023

Revenue increased 13%, or $152.1 million, to $1.3 billion, primarily driven by a $76.2 million increase in media rights and content fees, a $42.6 million increase in live events revenue and a $29.5 million increase in sponsorship revenue. The increase in media rights and content fees was primarily related to higher domestic and international rights fees resulting from increases in contractual revenues, higher fees associated with international renewals and one additional pay-per-view event in 2023 as compared to the prior year period. The increase in live events revenue was primarily related to 5 additional events with a live audience (26 in 2023 as compared to 21 in the prior year) and higher site fees. The increase in sponsorship revenue was primarily related to new sponsors and increases in fees from renewals.

Adjusted EBITDA increased 11%, or $75.1 million, to $755.7 million, as the increase in revenue (as described above) was partially offset by an increase in expenses. The increase in expenses primarily reflected an increase of $57.8 million in direct operating costs. The increase in direct operating costs was primarily due to an increase of $45.7 million in athlete costs from different matchups as well as higher production costs associated with having one additional pay-per-view event and five additional international events as compared to the prior year. Marketing and venue costs also increased due to five additional events with live audiences in 2023. Selling, general and administrative expenses increased by $16.9 million, primarily driven by higher personnel costs from greater headcount and increased travel and other expenses associated with the additional pay-per-view event and international events.

Adjusted EBITDA margin decreased to 58% from 60%.

WWE

Full Year 2023

Revenue was $382.8 million for the period from September 12, 2023 through December 31, 2023.

Including WWE activity for the periods from January 1, 2023 through September 11, 2023 and for the full year 2022, WWE combined revenue3 was $1.326 billion, as compared to $1.292 billion for the period from January 1, 2022 through December 31, 2022. The increase of 3%, or $34 million, was primarily due to an increase in live events revenue, an increase in media rights and content revenue and an increase in sponsorship revenue partially offset by a decrease in consumer products licensing revenue. The increase in live events revenue was primarily related to an increase in domestic and international ticket sales. The increase in media rights and content fees was primarily related to the contractual escalation of media rights fees for WWE’s flagship weekly programming, Raw and SmackDown, and premium live events, which more than offset a decline in third-party original programming due to the timing of delivery. The decline in consumer products licensing revenue was due to the previously disclosed transition of our digital retail platform and venue merchandise business to Fanatics as well as a decrease in collectibles revenue.

Adjusted EBITDA was $163.0 million for the period from September 12, 2023 through December 31, 2023.

Including WWE activity for the periods from January 1, 2023 through September 11, 2023 and for the full year 2022, WWE combined Adjusted EBITDA3 was $533.1 million, as compared to $512.5 million for the period from January 1, 2022 through December 31, 2022. The increase of 4%, or $20.6 million, was primarily due to the increase in revenue (as described above) partially offset by an increase in expenses. The increase in expenses primarily reflected an increase in content creation costs partially offset by lower expenses related to the timing of third-party original programming and the transition of our digital retail platform and venue merchandise business to Fanatics.

Adjusted EBITDA margin was 43% for the period from September 12, 2023 through December 31, 2023. Including WWE activity for the periods from January 1, 2023 through September 11, 2023 and for full year 2022, WWE combined Adjusted EBITDA margin3 was flat at 40% in both 2023 and 2022.

Corporate

Full Year 2023

Corporate Adjusted EBITDA was a loss of $109.6 million, as compared to a loss of $51.9 million in the prior year period.

Including WWE activity for the periods from January 1, 2023 through September 11, 2023 and for full year 2022, Corporate combined Adjusted EBITDA3 was a loss of $196.3 million, as compared to a loss of $179.8 million for the period from January 1, 2022 through December 31, 2022. The decrease of $16.5 million was primarily due to an increase in personnel costs, including TKO executive compensation, and other general and administrative expenses, including public company expenses, following the formation of TKO in September 2023. The decrease also reflected an increase in service fees paid to Endeavor under the Company’s Services Agreement. These increases more than offset savings associated with restructuring activities following the formation of TKO.

Full Year 2024 Guidance

For the full year 2024, the Company is targeting revenue of $2.575 billion – $2.650 billion and Adjusted EBITDA of $1.150 billion – $1.170 billion. The Company is also targeting full year 2024 Free Cash Flow Conversion in excess of 50%.

Management will provide more detail including key assumptions related to 2024 guidance on today’s earnings call.

Other notable highlights from TKO’s investor’s meeting:

• TKO Group CEO Ari Emanuel stated that the demand for WWE’s live events this past fiscal year were robust. Emanuel also stated that WWE drew over 48,000 fans for the attendance of this past January’s Royal Rumble 2024 event at the Tropicana Field in St. Petersburg, Florida.
• On the topic of WWE’s recent deal with Netflix for their WWE RAW television series, Emanuel stated that he is extremely excited about the relationship and they are very pleased with the financial terms. Emanuel also stated that they currently believe that the benefits of this deal are significant and called it as a “transformative deal” similar to UFC’s deal with ESPN+. Emanual also stated that Netflix’s global reach is extremely important to them and feels that this is a great combination. Emanual also stated that they have one more deal left to lock in for WWE and reveled that this is for WWE’s Premium Live Events.
• On the topic of site fees for WWE Premium Live Events and as a key area of growth for TKO, TKO CFO Andrew Schleimer stated “We believe TKO is well-positioned to benefit from secular tailwinds in both sports, media and entertainment. Live sports and sports entertainment remain important for both traditional linear platform providers as well as streamers and technology entrants. As a result, the value of media rights for unique assets, such as UFC and WWE, have appreciated consistently. We anticipate realizing growth in media rights content agreements upon contract renewals that materialize over the coming years, reflecting the increased value of our premium content to linear and streaming channels, as well as the broader trend of premium live sports and entertainment content rights generally increasing in value across renewal cycles. We believe we can generate more content in various formats to acquire and engage new and existing fans, generate license fees from distribution partners, and drive increased adoption of our direct-to-consumer offerings, UFC FIGHT PASS and WWE Network. TKO drives economic benefits to the cities that host WWE and UFC events, which we believe will lead to growth in site fees as jurisdictions vie to bring premium events to their market. For example, WrestleMania in April 2023 generated $215 million in economic impact for the Los Angeles region, UFC 290’s International Fight Week 2023 in Las Vegas generated over $99 million in economic impact in July 2023 and UFC 284 in Perth, Australia generated over $29 million in February 2023.“
• Schleimer continued stating “We believe we can grow Live Events revenue by increasing ticket sales, expanding premium VIP offerings to drive higher per event revenues, and utilizing our IP to drive monetization across events. Compelling, live and original content is at the core of TKO, driving brand strength and fan engagement. Through our partnership with Endeavor’s On Location business, which curates premium live event experiences, we plan to bring sports and lifestyle events even closer to consumers. Events such as UFC X, which include open workouts, interactive attendee experiences, meet and greets, concerts and parties, and athlete panels, are opportunities to drive growth in site fees as the sport continues to gain in popularity and attract a young and diverse fan base in large cities and countries throughout the world. We have successfully held UFC events in more than 150 cities internationally, most recently in 2023, selling out arenas in Abu Dhabi, London, Perth, and Paris. 2023 was also a successful year for WWE internationally. We produced 23 international WWE events, including Money in the Bank in London, WWE Superstar Spectacle in India, and two events produced through our partnership with the General Entertainment Authority of the Kingdom of Saudi Arabia. Moreover, live events have the potential to drive significant economic output for host cities from new job creation, salaries and wages, taxes, and other economic activity. Consequently, as the popularity of TKO live events grows, we expect to have a greater ability to secure site fees from local governments or tourism organizations in certain jurisdictions.“
• On the topic of WWE RAW’s broadcast status for this Fall period, Schleimer stated “We also intend to renew our license or find an alternate provider to carry Raw in the U.S. for the 90-day period from October 1, 2024 through December 31, 2024 before it moves to Netflix as described below. These domestic licenses together account for a very significant portion of our media segment revenues and profitability. No assurances can be provided as to the outcome of these negotiations and, if we are unable to renew existing agreements or find alternative streaming or distribution partners, our results of operations could be adversely impacted.” Schleimer continued stating “We believe Raw will be aired in the fourth quarter. We have no further information. We feel pretty positive about it.“
• On the topic of the current situation with Vince McMahon as a key stockholder of TKO, TKO President Mark Shapiro stated “Obviously, we’re talking about Vince McMahon, specifically, in terms of cashing stock. He still holds, I believe, 20 million shares. It’s all registered. He’ll do whatever he is going to do and we’re on the sidelines, we’ll have a look, we’ll see, we have no idea on timing. We’re not having a discussion with him. He’s given us no point of view on his motive or if he plans to sell or not sell or if he does, how much. We’re going to wait around and find out, just like you.“
• On the topic of how WWE’s Netflix deal could impact WWE’s international brand extension, WWE President Nick Khan stated “For us, a global localized product has always been a priority. We think Netflix helps us with that. If you look at the premium live event schedule for this calendar year; Perth, Australia this past weekend. Berlin, France, Riyadh, Canada, all over the world. Look for, down the road, more local stars from those markets as we expand our tryouts to international markets so we feel confident over time that will be covered and be part of the Netflix deal.“
• Following Khan’s comments, Shapiro responded stating “Our Netflix deal doesn’t preclude us from creating new content and events and programming on a global basis. We just have some first look rights that they would have a window to essentially evaluate. NXT, across the board, we have an opportunity to create all new material, sell it for an incremental rights fee, but they are going to be first in line to pay that rights fee.”

Source: PWInsider.com 1 & 2, Fightful.com 1, 2, 3, & 4