The UFC is being sued in five class action lawsuits by 11 fighters in federal court.
"UFC has five related class-action lawsuits filed against it in the United States District Court for the Northern District of California between December 2014 and March 2015 by a total of eleven former UFC fighters. The complaints in the five lawsuits are substantially identical. Each alleges that UFC violated Section 2 of the Sherman Act by monopolizing the alleged market for the promotion of elite professional MMA bouts and monopolizing the alleged market for elite professional MMA Fighters’ services.”
There have been approximately $6 million in cost saving measures by the UFC.
"including approximately $6 million related to cost reduction initiatives in UFC "
Although Endeavor owns 50.1% of the UFC, they do not control the UFC fully and are at the behest of the private equity “minority” investors. The private equity investors are also allowed to request an IPO for the UFC itself after the IPO of Endeavor.
"We currently own 50.1% of UFC Parent’s common equity." and "Our control of UFC is subject to certain consent rights held by other equityholders of UFC, whose interests in UFC may be different than ours and yours”
Each of the other two main private equity firms, Silver Lake and KKR own 22.9% each. However, they have all the power in the relationship. Silver Lake also is the majority owner of Endeavor, creating a circular ownership structure.
"We own 50.1% of the common equity interests of UFC Parent. Affiliates of the Silver Lake Equityholders own 22.9% of the common equity interests of UFC Parent, and affiliates of KKR own 22.9% of the common equity interests of UFC Parent. The UFC LLC Agreement governs the management of UFC Parent and the rights of UFC Parent’s equityholders. The UFC LLC Agreement provides that the business and affairs of UFC Parent is managed by the directors appointed to its board of directors by Endeavor Operating Company.”
The private equity investors are also allowed to request an IPO for the UFC itself after the IPO of Endeavor.
"(ii) after February 18, 2019 but prior to August 18, 2021, an initial public offering of UFC may be requested or approved by at least one director designated by each of us, Silver Lake Partners and KKR, provided that a request or approval by any two of the directors designated by each of us....” and “(iii) after August 18, 2021, any of us, Silver Lake Partners or KKR, subject to certain ownership requirements, may exercise a demand right with respect to an initial public offering without approval by us or our director designees....”
Endeavor is also not allowed to take dividends out of the UFC because some private equity investors have a special type of stock called cumulative preferred stock that pays at 13%. This means that every year massive amount of cash will flow out of the UFC to the private equity investors. The cumulative part means that in the case that the UFC cannot pay the dividend, it is still owed at a later date. This means that investors in Endeavor stock will never see UFC dividends until a massive capital structure change is initiated. An IPO would be the most logical event.
"As part of the UFC Acquisition in 2016, UFC issued $360 million of preferred equity in the form of Class P Units. The holders of Class P Units are entitled to a cumulative distribution at an annual rate of 13.0%” and “The negative covenants for the Class P Units restrict our ability to make distributions from our UFC subsidiaries to the Company, and therefore limit our ability to receive cash from our UFC operating units to make dividends to the holders of our Class A common stock.”
The preferred stock is worth $494.1 million, implying a $64.2 million dollar payout each year at 13%. It was issued at $360 million which is a $46.8 million dollar annual payment. Usually preferred payouts stay at issue level but this is a very aggressive preferred arrangement so it may be different.
"Includes the UFC Preferred Units, which have a carrying value of $494.1 million as of March 31, 2019"
These preferred shares are owned by the investment vehicle of Michael Dell, the founder of Dell Computers, M.S.D. capital.
"The terms of the preferred units issued by UFC to affiliates of MSD Capital, L.P. as partial financing for the UFC Acquisition limit, among other things, UFC’s ability to issue dividends, repurchase or redeem equity, make certain restricted payments, issue preferred equity, incur indebtedness and enter into affiliate transactions.”
There is an option for Endeavor to re-buy the preferred shares after the third, fourth and fifth year. However, coming up with $500 million could be a problem. There is also potential for the dividend to rise in the future.
"...the holders of the Class P Units have the option after the fifth anniversary to switch the rate of the preferred return from the fixed rate of 13.0% to a floating rate of 10.0% plus the five year treasury rate. The fixed rate of 13.0% and the fixed portion of the floating rate of 10.0% increases incrementally by 1.0% after the seventh anniversary, 1.0% after the eighth anniversary and 0.5% after the ninth anniversary. After the third, fourth and fifth anniversary, the Company may elect to redeem any or all of the outstanding Class P Units at an amount per unit equal to the then current liquidation preference, plus a redemption premium of 105%, 102.5% and 100%, respectively."
Dana White made $70 million in 2017-19 outside his normal compensation structure. He was the sole employee with equity.(i may have misread this one being solely Dana. I thought it was in the UFC section but it was in Endeavor as a whole.)
However Dana White is not mentioned once in the S-1 nor is his massive profit sharing deal with the UFC.
"The decrease for the year ended December 31, 2018 over 2017 is primarily due to approximately $70 million of compensation expense related to a repurchase offered to employees in 2017, which will be paid in cash over three years, and which was not repeated in 2018.”
The UFC gyms are 50% owned by the UFC. They have recorded equity losses of $1.3 million for a six month period in 2016. These are much older numbers than the rest of the report.
"The Company has a 50%-owned joint venture to develop and operate UFC®-branded fitness gyms and manufacture, create, own and market retail home fitness and related products. Zuffa accounts for this investment under the equity method of accounting and recognized equity losses of $1.3 million and made contributions of $0.8 million during the period from January 1, 2016 through August 17, 2016.”
There are $1.9 billion in loans against the UFC. These include loans that were used to pay for the UFC and also for some other acquisitions. This debt also forbids the UFC from paying dividends to Endeavor and allow Endeavor’s investors to receive the profits from the UFC. There is no way that Endeavor can profit from the UFC without spinning the UFC off in its own IPO after Endeavor goes public. The $425 million in second lien term loans is from the Fertitta era. They took that loan to pay themselves a huge dividend. During this same time period they were buying their Station Casino empire out of bankruptcy and hoping to maintain control.
"As of March 31, 2019, we have borrowed an aggregate of $1.9 billion of term loans under the UFC Credit Facilities, consisting of $1.4 billion of first lien term loans and $425.0 million of second lien term loans.” and “Both the 2014 Credit Facilities and the UFC Credit Facilities contain restrictions on our ability to make distributions and other payments from the respective credit groups and which therefore limit our ability to receive cash from our operating units to make dividends to the holders of Class A common stock. “
Frank and Lorenzo received $373 million when they sold their final portion of the UFC to Endeavor.
"Endeavor Operating Company purchased additional common equity interests in UFC Parent for $373 million from certain of the previous owners of UFC Parent that rolled over in the UFC Acquisition, resulting in Endeavor Operating Company’s ownership interest in UFC Parent’s common equity now being 50.1%"
The UFC pays another Endeavor subsidiary $25 million dollars a year for services rendered. This might be all the money Endeavor actually receives from the UFC until a separate IPO for the UFC.
"In connection with the UFC Acquisition, a subsidiary of ours entered into a services agreement with UFC Parent under which such subsidiary provides UFC Parent with certain advisory and support services. Under the terms of the services agreement, UFC Parent pays such subsidiary an annual fee of $25 million in equal monthly installments, plus reimbursements for reasonable out of pocket expenses."
https://www.sec.gov/Archives/edgar/data/1766363/000119312519155034/d681105ds1.htm#tx681105_12
