Formula 1, WWE and UFC are potential acquisition targets for streaming services

(LR) Ireland’s Conor McGregor beats Dustin Poirier in a lightweight fight during the UFC 257 event inside the Etihad Arena on UFC Fight Island on January 23, 2021 in Abu Dhabi, United Arab Emirates.

Chris Unger | UFC | Getty Images

In 2016, before the Ultimate Fighting Championship was sold for $ 4 billion to the company that was to become the Endeavor Group, the mixed martial arts league was almost picked up by Disney for a little more.

Disney and the UFC had negotiated broad terms for a deal in which the entertainment giant would acquire the martial arts company for about $ 4.3 billion, according to people familiar with the matter.

Disney, which owns most of the sports broadcasting network ESPN, has been toying with the idea of ​​buying sports leagues for years, one of the folks said. The then Disney boss Bob Iger was the model director for brilliant intellectual property acquisitions, buying Pixar, Lucasfilm and Marvel.

In the end, Iger abolished the UFC deal. He felt the bloody and violent UFC brand did not fit in 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 in a five-year deal. That deal instantly increased the value of the 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 a deal that expires in 2025.

If ESPN renews UFC rights, Disney will pay much more in licensing fees than the $ 4.3 billion it would have paid in 2016. Prices for popular sports broadcast rights continue to rise rapidly as they present unique live viewing options to advertisers and attract a relatively large audience.

This calculation has made professional sports and entertainment leagues like the UFC, NASCAR, Formula 1 and WWE potentially appealing targets for streaming companies as a way to control ever-increasing rights fees for valuable live programming that still requires advertising dollars.

“Disney would have been far smarter to buy the UFC than to 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 it’s rare to get something for sale, the streaming era has likely made sports leagues more desirable acquisition targets, as rivals are looking for exclusive content to gain competitive advantage. Owning a league instead of relying on multi-year license renewals that lead to recurring bidding wars can strengthen branding and reduce subscriber departure.

Mercedes AMG Petronas Motorsport driver Lewis Hamilton (44) from Great Britain celebrates his participation in the FIA ​​Formula 1 World Championship 2019 after the F1 – US Grand Prix race at the Circuit of The Americas on November 3, 2019 in Austin, Texas.

Ken Murray | Icon Sportswire | Getty Images

While Disney refused the UFC’s image, it’s easy to imagine WWE or Formula 1 branded roller coasters and amusement parks for media companies that own them. There are clear merchandise ties to Amazon. Netflix can use proprietary IP for its nascent video game division.

Formula 1, WWE and UFC are all language independent properties with global appeal. Formula 1 in particular is proud to be an international sport with races all over the globe. The league announced last week that it has added a third U.S. Grand Prix in Las Vegas, beginning in 2023.

It could tip the scale for streaming services that need global subscriber growth, such as Netflix and Disney, to keep investors happy.

“Streaming companies are global,” said Sean Bratches, former Formula One commercial operations CEO, who created and oversaw the production of “Drive to Survive,” the popular Netflix documentary series describing the entire Formula One season. “If you’re a sport like F1, one of your primary strategic goals is to improve your media rights around the world.”

There are no known negotiations to acquire Formula 1, the UFC or WWE.

Sparse inventory

While buying sports and entertainment leagues could be attractive targets for the big streamers, there are simply not many of them available. The major professional sports leagues – National Football League, Major League Baseball, National Basketball Association – are not feasible buyout targets. That leaves a lot of smaller leagues that may or may not be for sale at any given time.

World Wrestling Entertainment Inc. President Vince McMahon (L) and wrestler Triple H appear in the ring during the WWE Monday Night Raw show at the Thomas & Mack Center on August 24, 2009

Ethan Miller | Getty Images Entertainment | Getty Images

WWE, which has a market capitalization of $ 4.6 billion, stands out as a potential takeover candidate because it is a listed company with an aging controlling shareholder. Vince McMahon owns more than 80% of the vote and is 76 years old. At some point, he and his family will have to decide whether to keep control of the business or sell it to the highest bidder. McMahon’s daughter, Stephanie, also works in the company as chief brand officer.

“We’re open for business,” WWE President Nick Khan said last month on The Ringer’s “The Town” podcast.

A buyer could be an older media company, such as Disney, Fox, Paramount Global or Comcast’s NBCUniversal, which last year signed a five-year deal with WWE for more than $ 1 billion to be WWE’s exclusive direct-to-consumer home.

“If you look at what NBCU / Comcast needs, and I think that’s a factual statement, then they do not have the intellectual property rights that some other companies have,” Khan said. “I think they look at us as a unit that has a lot of intellectual property. A lot of it has not been exploited. Now it’s up to us to make money on it properly and show society exactly what we have. “

NBCUniversal declined to comment.

If a potential acquirer makes an offer to McMahon, it could come before the company’s next rights renewal – likely to be announced in mid-2023. That’s probably when McMahon might have to decide to sign another multi-year deal or sell.

While Disney and NBCUniversal own theme parks, major technology companies Apple and Amazon have also emerged as potentially interested parties in acquiring sports and entertainment IP. Both have entered into multi-year agreements to broadcast MLB games on their streaming services. Amazon also purchased exclusive Thursday Night Football rights from this season. Even Netflix, which has so far stayed away from live sports, is open to buying Formula 1 rights after its documentary series “Drive to Survive” erupted as a global hit, co-CEO Reed Hastings said last year.

Potential disadvantages

While Disney proved it could leverage and expand existing intellectual property from Marvel and Lucasfilm, it’s another skill to create new characters, Khan of WWE said. It is not clear that a streaming service or large entertainment entity would have the same skills as McMahon.

Undertaker, top and Brock Lesnar will fight 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 be buried in a large streaming service that can not show everything to its users. While Star Wars and Marvel spinoffs often get top billing on Disney +, other intellectual property rights may be lost in the shuffle. McMahons must decide whether WWE can expand its universe as part of a larger company, or whether it risks losing cache without family attention.

Buying a smaller sports league may not interest a big enough streamer to make a multi-billion dollar acquisition, said Bratches, the former Formula 1 director who also worked for ESPN for 27 years.

Liberty Media, controlled by billionaire John Malone, bought Formula 1 for $ 4.4 billion in 2016. Liberty has spent the past five years investing in F1 and generating revenue by playing different media devices apart by splitting rights globally and auctioning off. licensing rights.

That business model would disappear if one media party owns the league. Any salesperson who cares about the future of what it sells will want to feel confident about the overall health of the acquiring streaming service, Bratches said. If consumers get angry at a streaming service and that company exclusively owns a league, the viewership may suffer regardless of the quality of the league.

“This is ‘nice to have’ properties, but it’s not like you’re buying the NFL,” Bratches said. “There is not enough content to move the needle.”

Publication: Comcast’s NBCUniversal is the parent company of CNBC.

SE: Liberty Media announces Formula 1 Grand Prix in Las Vegas

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