Kings of the Cage by Michael Thomsen

Author:Michael Thomsen
Language: eng
Format: epub
Publisher: Simon & Schuster
Published: 2023-06-20T00:00:00+00:00

12 FAIR IS DEFINED AS WHERE WE END UP

In early 2016, Ari Emanuel was scrambling to find investors to back his UFC bid. Though new stars like Rousey and McGregor had helped revive the UFC’s flagging pay-per-view business and had generated waves of free publicity for the promotion, with cover stories in the New York Times, Sports Illustrated, and the New Yorker, many investors were still unsure of just how long the UFC’s winning streak would last. Lorenzo had settled on a minimum price of roughly $4 billion and that figure had posed a problem for Emanuel. It was nearly twenty-two times Zuffa’s non-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA)—a common financial metric used to evaluate a company’s overall worth based on its year-to-year profits—which had been $189 million in 2015. It was an unusually high multiple, something that many investors could see as a red flag. And while the UFC’s high profit margins were enticing, many investors had been concerned about the sport’s volatility and how quickly its earnings could potentially be upended by having to pay even higher purses to hold on to star fighters like McGregor and Rousey. (An internal UFC document prepared for the sale would later acknowledge that the most commonly asked question from investors had been about fighter compensation.) While Zuffa had forecast that it would be able to limit fighter pay to 20 percent or less of total revenues each year, the ongoing antitrust lawsuit added uncertainty of Zuffa’s projections, as did efforts from another small group of fighters that had been lobbying Congress to include mixed martial arts fighters in the Muhammad Ali Boxing Reform Act, which had first been enacted in 2000 to protect boxers from predatory or exploitive promoters.

Emanuel had first discussed the idea of a UFC acquisition with Silver Lake Partners, a $10 billion private equity firm that frequently invested in the tech market. Emanuel had befriended one of Silver Lake’s managing partners and co-CEO, Egon Durban, in 2011, just after Emanuel pulled off a high-profile acquisition of rival talent agency William Morris. The newly combined entity, renamed WME (William Morris Endeavor), became the biggest talent agency in the entertainment industry, putting more than three hundred agents under Emanuel’s leadership and increasing annual revenue from $100 million to $365 million. Durban was impressed with Emanuel’s intensity and ambitions, and he agreed to invest $200 million in WME in 2012 to help fund Emanuel’s plans for even bigger acquisitions, in exchange for a 31 percent stake in the agency.

Emanuel had long suspected the talent representation business was inherently limited, dependent on an entertainment industry that had started to stagnate. Though the number of original television series being produced had risen throughout the 2000s—from 182 in 2002 to 288 in 2012—advertising revenue had remained flat, with $41.2 billion raised in the US in 2002, and $40.1 billion generated in 2012. The film industry had also seen its revenues flatten. In 2002, nearly 1.6 billion movie tickets were sold in the US, generating close to $9.

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