Summary
- Back in 2016, KKR was part of the group, led by Endeavor, that acquired the Ultimate Fighting Championship (UFC) for around $4 billion.
- The UFC growth has kept a great pace, and the S-1 form filing from Endeavor reveals that the organisation could soon spin off and initiate its own IPO.
- When that happens, KKR investment should provide a remarkable payday for the company.
Thesis
In 2016, WME|IMG, now Endeavor (EDR), made headlines of major sport journals due to its impressive 4 billion acquisition of the Ultimate Fighting Championship (UFC hereafter). While it is Endeavor that occupied the headlines, global investment firms Silver Lake and KKR (KKR) also participated in the deal, both receiving 22.9% of UFC's common equity.
The deal valuation of 4.025 billion makes KKR investment to be worth approximately $920 million. For a company like KKR, which has 15 billion in book value, the investment is quite significant. However, KKR has yet to show a justifiable return on the over $900 million invested. Endeavor, now majority shareholder of the UFC, recently filed an S-1 form which reveals that KKR will have the power to single-handedly initiate a spin off of the UFC. I believe that due to the growth of the UFC in these years, its IPO will bring about a remarkable ROI for KKR.
The UFC Growth
KKR's return on its investment depends majorly on the UFC growth from the investment date in early 2016. More than 3 years after the deal, the organisation doesn't look to have stopped growing, and it even looks feasible now for MMA as a sport to take the crown of combat sport popularity off boxing.
Acquired by the Fertitta brothers in 2001 for $2 million, it is obvious that, with the $4 billion sale in 2016, the company had made an astonishing increase in value over the years. The value of the organisation increased as the sport became more regulated and gained traction in more states and countries around the world. In fact, new doors keep opening for the sport, as it brushes off the negative reputation of being too violent. Straight after KKR investment, the sport was also legalised by the state of New York, which opened the door to the temple of combat sports, Madison Square Garden, for UFC events.
The growth in following can be clearly seen in the PPV buys numbers. The record is held by 2018 event UFC 229, with 4 of the 5 highest numbers occurring in events over the last 3 years. The organisation is growing in popularity at a significant pace, and right now, it is the pioneer organisation of what is probably the fastest-growing sport in the world. This positive trend can also be seen in the martial arts that compose MMA, as people's interest worldwide is steadily increasing year over year.
