ESPN+ is the strongest component of Disney+ when one considers ESPN+’s subscriber growth and average monthly revenue per paid subscriber. ESPN+’s “anchor tenant” is the UFC (Disney signed a 5-year, $1.5 billion deal with Endeavor-owned UFC that became effective January 2019). Disney will want to renew its UFC deal. Therefore, why not acquire the asset rather than pay ever-escalating sports licensing fees?
Disney (DIS), reportedly balked at acquiring the UFC in 2016. It was reported that Disney considered acquiring the UFC for $4.3 billion before CEO Bob Iger decided against the deal considering the UFC too bloody for the Disney brand.
Disney-owned ESPN subsequently signed the UFC broadcast deal in 2018. The ESPN+ streaming service has benefited greatly from its exclusive UFC broadcast rights for UFC pay-per-view events (viewers who wish to watch a UFC pay-per-view event must first become ESPN+ subscribers), as well as UFC “fight nights”.
From a Return on Invested Capital perspective, Disney would have been better off to have paid the $4.3 billion to acquire the UFC in 2016 versus licensing UFC content. The $4.3 billion purchase price would have been a rounding error which Disney could have paid for with stock while avoiding the $1.5 billion cash outlay for the broadcast rights. Further, an acquisition would have provided Disney with more control over the UFC both in terms of capturing the UFC’s other revenue streams, to say nothing of creating additional cross promotional and content-generation opportunities.
The UFC will likely command significantly more than $1.5 billion for its next 5-year broadcast rights deal given the premium broadcasters and streaming services are willing to pay for live sports content (The NFL by proxy signed a $2 billion per year deal with YouTube in December 2022 that allows the Google unit to broadcast NFL Sunday Ticket. The UFC is in more countries than the NFL, has more YouTube subscribers, yet only generated 2022 revenue of approximately $1.1 billion compared low double-digit billions for the NFL).
Given that Endeavor now has a deal in place to acquire WWE, Disney would be in position to add the WWE brand to its ESPN+ offering should it acquire Endeavor. Endeavor’s acquisition of WWE is expected to close toward the end of 2023, around the time that the WWE’s and UFC’s rights deals are due to expire. Endeavor founder and CEO Ari Emanuel will lead the UFC’s broadcast rights negotiations as well as the WWE’s. Given the pending merger, Emanuel will obviously negotiate the two brands as a combined asset (UFC and WWE will form a NewCo once the deal is closed that will be 51% controlled by Endeavor) and be an advocate for what a combined UFC/WWE may bring to a broadcast network(s) or streaming service in terms of an audience/subscribers.
ESPN Chairman Jimmy Pitaro is well aware of the power of the UFC brand and how it has benefited ESPN+. In addition, ESPN has covered the WWE and has increased its coverage in recent months. One would imagine that Pitaro would be an advocate for acquiring the combined UFC/WWE. Pitaro is a candidate to succeed Disney CEO Bob Iger.
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