Premium combat sports and entertainment company, TKO Group Holdings (NYSE:TKO), was added to the Forager International Shares Fund portfolio at the end of September. TKO was formed from the 2023 merger of World Wrestling Entertainment (WWE) and Ultimate Fighting Championship (UFC), making it a leader in sports entertainment. UFC and WWE reach 1.7 billion fans in more than 200 countries.
Sporting franchises can be fabulous businesses. Years ago we owned Madison Square Garden (NYSE:MSGS) which owned the New York Knicks basketball team and the New York Rangers ice hockey team. Advertisers particularly love live sports because they glue eyeballs in a way no other content can. Digital streamers like Netflix (Nasdaq:NFLX) have also seen the appeal, with prices for premium live content going up (and up).
Recent highlights include WWE’s multi-billion-dollar SmackDown deal with NBCUniversal and its $5 billion, ten-year partnership with Netflix. Both gleaned substantial increases over prior agreements. We think the UFC is a more valuable asset over the long term, and expect similar positive pricing moves when the current ESPN deal expires in 2025. A long-term agreement struck at a higher price will likely provide attractive recurring revenue whilst allowing management to focus on ancillary growth opportunities such as sponsorships, merchandise, and pay-per-view (PPV) events.
In October, TKO further expanded its portfolio with the acquisition of Professional Bull Riders (PBR), On Location, and IMG. The company also announced a $2 billion share buyback program and its first quarterly dividend. While the initial market reaction saw the share price decline by 10%—likely due to concerns about added complexity from the acquisitions—the stock quickly recovered, finishing up 16% for the December quarter.
This is an excerpt from the December 2024 Quarterly Report