TKO - NYSE

Good afternoon, and thank you for joining today's Q3 2024 TKO earnings call. My name is Reagan, and I will be your moderator today. All lines will be muted during the presentation portion of this call, with an opportunity for questions and answers. I would now like to pass the conference over to our host, Seth

Thank you, Reagan. The call will also be available via our website for at least thirty days. After prepared remarks from Ari Emanuel, TKO's Executive Chair and Chief Executive Officer, and Andrew Schleimer, TKO's Chief Financial Officer, we will open the call for questions. Mark Shapiro, our President and Chief Operating Officer, and Andrew will be handling the Q&A. The purpose of this call is to provide you with information regarding our third quarter 2024 performance. I want to remind everyone that the information discussed will include forward-looking statements and/or projections that involve risks, uncertainties, and assumptions. Please see our filings with the Securities and Exchange Commission for further detail. If these risks or uncertainties were to materialize, or any assumptions prove incorrect, our results may differ materially from those expressed or implied on this call. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events except as legally required. Our commentary today will also include non-GAAP financial measures, which we believe provide an additional tool for investors to use in evaluating ongoing operating results and trends. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics can be found in our press release issued today as well as the information posted on our IR website. With that, I'll now turn the call over to Ari.

Thanks, Seth. Just over a year since UFC and WWE came together to form TKO, our conviction in this business is as strong as ever. We are executing on our strategy and delivering record results while realizing greater integration and synergy opportunities than initially expected. On the heels of TKO's solid third-quarter performance and with our visibility through year-end, we are now expecting to come in at the upper end of our full-year guidance range for both revenue and adjusted EBITDA. Additionally, two weeks ago, we made two announcements that we believe reinforce our commitment to creating long-term value for shareholders. First, we authorized a capital return program featuring a $2 billion share repurchase program and a quarterly cash dividend program of $75 million. Second, TKO announced an agreement to acquire industry-leading sports assets: Professional Bull Riders (PBR), premium sports hospitality provider On Location, and global sports rights and production powerhouse, IMG. I cannot impress enough how bullish we are about this deal, which aligns with the pure-play sports strategy TKO will execute and be known for. This acquisition strengthens our global position in sports rights, experiences, and hospitality, and it adds PBR to our portfolio as another valuable and growing sports league. These assets will power our profile, give us greater scale, strengthen our position in the sports marketplace, and accelerate returns for shareholders. We are also proud and pleased to share that On Location has extended its partnership with the NFL through 2036, ensuring it remains the official hospitality provider at premier events including the Super Bowl, NFL Draft, and NFL International Games for years to come. Turning to the quarter, our results highlight sustained demand for UFC and WWE live events and underscore our business's ability to reach new heights and attract fans globally. UFC 306 at Sphere Las Vegas is a prime example. The sold-out event not only set the record for UFC's highest-grossing live event but also became Sphere's highest-grossing single event and achieved UFC's highest event merchandise and sponsorship sales. Notably, 89% of ticket buyers came from outside Nevada, one of the highest out-of-town attendance rates for any UFC or Sphere event. This turnout underscores UFC's appeal as a destination event, drawing fans from across regions and delivering economic benefits to host cities. Beyond these impressive metrics, this event also showcases what TKO is truly all about: innovating and revolutionizing the way fans consume and engage with live sports. Internationally, UFC events also delivered. UFC 304 in Manchester became the highest-grossing event at Coop Live and drew the largest attendance for a UFC event in the UK. In Perth, UFC 305 marked a successful start to our multi-year partnership with the Western Australian government, setting the record for RAC Arena's highest-grossing event. And in Paris, our September Fight Night became Accor Arena's highest-grossing event to date. At WWE, live events outperformed in the third quarter and set 42 individual market records for ticket sales, evidence that the strategies we have been implementing around ticket pricing and event routing are bearing fruit. While the US remains strong, momentum is increasingly evident in international markets, where WWE continues to sell out venues and draw record crowds. In the third quarter, WWE held 18 shows outside the US, up from 11 in the same period last year. Highlights included a highly anticipated return to Japan after a five-year hiatus, selling out in Tokyo with a record gate, and Germany's first-ever premium live event, which became WWE's highest-grossing arena event—a record that we have broken three times this year. Meanwhile, in Cleveland, SummerSlam achieved record-breaking results, becoming WWE's highest-grossing non-WrestleMania event in history. WWE also had successful debuts on USA Network for SmackDown and the CW Network for NXT. In fact, through the first five weeks, NXT is up 12% in viewership versus USA last year. Meanwhile, SmackDown's return to USA Network under our five-year media rights agreement with NBCUniversal has already driven strong and sustained viewership. Without a doubt, this partnership further strengthens our longstanding relationship with NBCU, and we are anticipating a strong draw for the upcoming debut of quarterly prime-time specials, starting December 14th with Saturday Night's Main Event on NBC. And with RAW's launch on Netflix nearing, both WWE and Netflix are actively preparing for an impactful debut on January 6th, which will expand the reach of WWE and deliver our flagship content to a global audience. As we close out the year and look to 2025, we are confident in the strength of our iconic properties and the momentum we are building towards significant milestones. From an exciting lineup of live events that include UFC 309 at Madison Square Garden, WrestleMania in Las Vegas, and the first-ever two-night SummerSlam at MetLife Stadium to closing our acquisition of PBR, On Location, and IMG, all of which fuel further growth. With that, I'll turn the call over to Andrew.

Good afternoon. As we previously disclosed on September 26, we reached a revised agreement to settle all claims asserted in the Lee UFC antitrust lawsuit for $375 million. In the third quarter, we recorded an incremental $40 million charge to bring the aggregate expense on our books to $375 million. On October 22, the court granted preliminary approval of the settlement. As a result, we made the first of three payments for $125 million into escrow in late October. We expect to pay the remaining $250 million in 2025, $125 million in the first quarter, and $125 million by the end of Q2. As we have mentioned, the settlement is anticipated to be deductible for tax purposes as and when paid. As a result, our tax distributions to members in the third quarter were reduced to reflect the settlement payment such that we did not realize an adverse dollar-for-dollar impact on cash on hand. Third-quarter reported results included three months of activity for both UFC and WWE. The reported results for the third quarter of 2023 include WWE activity for the period from September 12 through September 30, 2023. To assist with comparability, we have presented supplemental financial information in our press release and IR website that includes WWE activity and the portion of WWE related to the corporate group for the period from July 1 through September 11, 2023, as well as each quarterly period from January 1, 2022, through September 11, 2023. For the third quarter of 2024, we generated revenue of $681 million. Net income was $58 million. Adjusted EBITDA was $310 million, and our adjusted EBITDA margin was 46%. Including WWE activity for July 1 through September 11, 2023, combined revenue for the third quarter was $685 million. Combined adjusted EBITDA was $298 million, and our combined adjusted EBITDA margin was 44%. Inclusive of these amounts, revenue decreased 1%, adjusted EBITDA increased 4%, and adjusted EBITDA margin increased two percentage points. Our UFC segment generated revenue of $355 million in the quarter, a decrease of 11% or $43 million. Adjusted EBITDA was $196 million, a decrease of 18% or $43 million. UFC's adjusted EBITDA margin was 55%, down from 60% in the prior-year period. As expected, revenue was impacted by the timing of the events calendar. UFC had ten total events in the third quarter of this year, compared to thirteen total events in the prior-year period. As Ari mentioned, the health of the business remains extremely strong, and UFC continues to benefit from the meaningful tailwinds of the experience economy. Media rights and content revenue decreased 19% to $216 million. The decrease was driven by one fewer numbered event and two fewer fight nights as compared to the prior-year period. The contractual escalation of media rights partially offset the decrease from the timing of the events calendar. Live events revenue decreased 1% to $51 million. Ticket sales reflected the decline in the number of total events in the third quarter as compared to the prior year. This headwind was essentially offset by strong underlying trends in pricing and UFC 306 at Sphere, as well as an increase in site fees. Results in the quarter included a site fee related to our Fight Night in Abu Dhabi. Sponsorship revenue increased 16% to $74 million. Despite the unfavorable mix of events in the quarter, new partnerships and renewals drove the increase. UFC 306 was the highest-grossing event in UFC's history and the first event to feature a title partner sponsor, which we sold to Riyadh Season. Adjusted EBITDA reflected the decrease in revenue. Expenses were essentially flat year over year. Direct operating expenses decreased primarily due to lower marketing, AFFE costs, and direct cost of revenue due to one fewer numbered event and two fewer fight nights. These decreases were partially offset by higher production costs, primarily related to UFC 306. Given the unique nature of the venue and production elements associated therewith, we incurred production costs for UFC 306 meaningfully higher than our historical norm for a numbered event, which resulted in reduced adjusted EBITDA and reduced adjusted EBITDA margin in the quarter. However, as Ari highlighted, UFC 306 was a once-in-a-lifetime experience and highly successful for UFC. SG&A increased primarily due to higher cost of personnel as compared to the prior-year period. WWE delivered strong quarterly revenue and adjusted EBITDA. The financial results continue to reflect healthy creative momentum in the business as well as the benefits to both the top and bottom line from the initiatives we implemented since the formation of TKO. Our WWE segment generated revenue of $326 million in the quarter. Adjusted EBITDA was $175 million, and adjusted EBITDA margin was 54%. The following commentary on the third quarter includes comparisons to activity for the period from July 1 through September 30, 2023. In the third quarter of 2023, revenue was $287 million. Adjusted EBITDA was $102 million, and adjusted EBITDA margin was 36%. Revenue increased 14% or $39 million. Adjusted EBITDA increased 72% or $73 million, and adjusted EBITDA margin increased 18 percentage points. Revenue growth was led by continued strong performance for live events. Live events revenue increased 31% to $51 million. The increase was primarily related to an increase in ticket sales. Since the formation of TKO, we have been focused on increasing ticket yield, and this strategy favorably impacted our results in the quarter, not only in connection with the premium live events such as SummerSlam, which was the highest-grossing non-WrestleMania event of all time, but for the balance of WWE's live events in the aggregate. Media rights and content revenue increased 8% to $27 million. The increase was primarily related to the contractual escalation of media rights fees as well as the timing of our weekly programming, which resulted in one additional episode of Raw in the quarter compared to the prior year. Sponsorship revenue increased 54% to $22 million due to new partnerships and renewals across multiple categories, including beverage, QSR, spirits, entertainment, and communications. Of note, SummerSlam was highly successful and included for the first time three interlink sponsors as well as a record number of partners. It's early days, but we have and expect to continue to realize benefits from the unified global partnerships team we put in place at the beginning of the year. Adjusted EBITDA reflected the increase in revenue and a decrease in expenses. The decrease in expenses primarily reflected lower personnel costs and production costs related to our planned cost reduction initiatives implemented following the formation of TKO. Corporate expenses were $61 million for the third quarter of 2024. On a combined basis, corporate expenses were $42 million for the third quarter of 2023. The increase was primarily due to higher personnel costs, including executive compensation, and other G&A expenses following the formation of TKO in September of last year. The increase also reflected the impact of the services fee UFC and WWE paid to Endeavor, which commenced for WWE in March of 2024. Now moving to our capital structure. We define free cash flow as net cash provided by operating activities less capital expenditures. Free cash flow excludes the majority of the mandatory tax distribution to our owners but does include the portion of cash taxes paid by TKO PubCo. For the quarter, we generated $226 million of free cash flow. This includes $11 million of capital expenditures, approximately $3 million of which related to WWE's new headquarters. The quarter was favorably impacted by the timing of working capital, most notably the collection of the site fee associated with our WWE Saudi event, King and Queen of the Ring, that was held in May. We ended the quarter with $2.736 billion in debt and $457 million in cash and cash equivalents. Given the strength of our balance sheet and financial profile, the implementation of a robust and sustained capital return program has and will continue to be a top priority for us. As we announced on October 24, our Board of Directors authorized a share repurchase program of up to $2 billion of our Class A common stock. We expect the program to commence following the close of the acquisition of PBR, On Location, and IMG in the first half of 2025, but it is not conditioned on the closure of this transaction. Once the program does commence, we anticipate that the pace of the repurchase activity will be fairly linear and expect to complete the program within a period of three to four years. We also announced that our board authorized a $75 million quarterly cash dividend program. The dividend program will involve a quarterly distribution by TKO OpCo, and holders of TKO Class A common stock will receive their pro-rata share of distributions. We intend to make the first dividend payment on March 31, 2025. As with the share repurchase program, the dividend is not conditioned on the close of the PBR, On Location, and IMG transaction. Earlier today, we announced the refinancing of our credit facility, seeking a new seven-year $2.75 billion term loan and a new five-year $205 million revolver, which are approximately the same balances as we currently have. The facility will continue to include significant capacity for incremental term loan add-ons, which we anticipate will be a source of funding for the share repurchase program. As we previously articulated, our target for net leverage remains up to three times. Given our strong balance sheet, expected growth in adjusted EBITDA, and free cash flow generation, we expect to have additional financial capacity. However, our primary focus continues to be driving value at UFC and WWE while also planning for the integration of PBR, On Location, and IMG into TKO. As we noted when we announced the transaction, PBR, On Location, and IMG are the only assets that TKO will acquire from Endeavor. As we have discussed in the past, we manage the business with a focus on full-year performance. Therefore, we believe our results are best evaluated on a full-year basis given the quarterly fluctuations that are inherent in our operations related to the timing of our events and content deliveries, among other items. As we noted on October 24 and in our press release today, we are revising our full-year 2024 guidance for revenue and adjusted EBITDA. We are now targeting the upper end of the previously provided ranges for both revenue of $2.67 to $2.745 billion and adjusted EBITDA of $1.22 to $1.24 billion. The increase is related primarily to strong operating performance on a year-to-date basis, particularly in live events and sponsorship at both of our businesses, and visibility through the end of the year. On our last call, we noted that we expected the third quarter to be the most challenging quarter of the year for UFC given the unfavorable timing of events, and it was. As we look to the fourth quarter of 2024, we want to highlight a few notable items. At UFC, results are expected to improve as the current calendar includes an additional event and two additional events with live audiences compared to the prior-year period. At WWE, as we have previously discussed, results will reflect the short-term domestic rights deal we reached earlier this year with USA Network for RAW for the fourth quarter. This will have an unfavorable impact of approximately $50 million to both revenue and adjusted EBITDA as compared to Q4 2023. As a reminder and for the avoidance of doubt, this is purely timing-related. In January 2025, our long-term agreement with Netflix to distribute RAW commences. In terms of expenses, we expect results to continue to reflect the benefit of the initiatives we have implemented to take costs out of the business. Today, we also reaffirmed our expectation for full-year 2024 cash flow conversion to be in excess of 40% of adjusted EBITDA. Our outlook includes the payment of $125 million for the UFC lawsuit settlement and transaction costs related to the strategic acquisition of Endeavor assets, both of which are included in operating cash flow. In conclusion, we generated solid third-quarter results that reflected continued strength in both of our businesses. We are extremely excited about the road ahead and our prospects for 2024 and beyond. With that, I'll turn it back to Seth.

Thanks, Andrew. Operator, we're ready to open the call for questions.

Thank you so much. We will now be moving on to our Q&A session. If you would like to ask a question, our first question comes from Ben Swinburne of Morgan Stanley. Ben, your line is now open.

Great. Hey. Good afternoon, everybody. Thanks for taking the question. Maybe I'd like to start with Mark on sort of the UFC, which is right around the corner with the domestic rights. I think you've made some comments recently about potentially splitting up the rights, taking back pay-per-views. I think as a public company, you certainly benefit from the predictability of licensing out those pay-per-view fights to ESPN. But I'm wondering how you think about that relative to the potential upside of distributing those yourself. And then I'd love to hear, Andrew, the WWE margins this quarter were particularly impressive. I think your expenses were down, like, 20% even though revenues were up 13%. You mentioned merger synergies. Anything else you'd flag? Because even live events, I think the event was up, I think, at least internationally. So surprised to how strong of a margin you had in Q3 above any more details you might share. Thanks so much.

Thanks, Ben. Good to hear from you. Andrew will start since it's just fresh off your long second part of the question. Then I'll come back in the future. I think the most benefit from actually one additional RAW event in the quarter. So almost like for like from an event calendar perspective on WWE, but what I think you're seeing here is just the continued cost savings measures and initiatives that we set out to put in place when we launched TKO really inflowing through us just being more efficient top to bottom. Getting a bit more on the production side as Nick and Lee fitting are laser-focused on execution there. And, really, you know, I like to focus on growth in the ad sales and sponsorship department, 54% growth over prior year Q3. And those deals are being structured at higher margins than they had been in the past. So you're seeing just growth from high-margin revenue contributors and even more so than they were contributing Q3 in 2023. So you know, early innings on the sales side, but really encouraged by what we're seeing.

Yeah. And I would just say, Ben, just to add to that. I mean, you know, you can just expect more margin accretion, you know, as we flow through. I'd like to remind folks you know, we're still in at least mid-innings, if not early innings, on the integration of these two assets of WWE and UFC. I mean, we're of course, already guiding to the fact that we'll beat our net cost synergies of $100 million. But as we succeed with our strategy of having these events on the same week or same weekend or subsequent weekends now with PBR as well, our margins are only going to be better because we're gonna save on that cost side. And we'll sell triple-header sponsorships as we like to call them. Somebody that comes in and sponsors all three events, that'll be huge for us, and it'll drive local ad sales. But on the cost side, gonna benefit there, and I can tell you that to Andrew's point, Nick Khan and Pete Tropic who runs all of our ticket operations, and Lauren Epstein, I mean, they're working on this night and day, city by city, region by region, country by country, where can we bring all three to town? There's that as well.

So on the first part, look, here's what I would tell you. In terms of what really benefits to your point, what benefits us and our shareholders is maximizing value on these renewals. That's the bottom line. So we're not looking to upend or change for change's sake. Or unorthodox models we are looking to maximize our rights. End of story. UFC is mainstream. Incredibly popular. I see some of the struggles going on with other leagues right now, both linear and digital. Leagues that have started new seasons and are not off to a rocket start like we're accustomed to, that's not the case with UFC. We're still driving subs on ESPN Plus. When we're on ESPN, ESPN2, or ABC, we're a ratings winner and driving more advertising for those platforms. And on the WWE side, as Andrew talked about in his and Ari talked about in the prepared comments, you know, across the board from CW to of course, Comcast. WWE is still a stalwart. So we're flying. And if we have to be creative to help potential partners or bring other suitors in the door so that we get a higher price or live up to the guidance that the street has been giving us on the renewals, not the one we're giving them, but the one they're giving us, then we're going to do it. And that's all we're trying to signal to our shareholders and all we're trying to signal to the media suitors, the platforms, the companies that are going to be chasing us relatively soon.

Thanks so much.

Thank you.

Thank you. Our next question comes from Brandon Ross of Lightshed. Brandon, your line is now open.

Thanks very much. And for the record, that faux pas was not my fault this time. Maybe just start with a follow-up on Ben's UFC renewal question. It's still thinking a lot about how different the approach to distributing your top content is between WWE and UFC right now. For WWE, the PLEs you're going with the broadest possible reach on Netflix and Peacock. There's no discrete transaction to watch your content. But on UFC, you're in this high-cost pay-per-view model. And you've said and I think maybe alluded to it with the last answer, you don't want to shake anything up really and you prefer to re-up your deal with Disney. Why is a continuation of a pay-per-view model the best path, especially given how MMA is still in its relative infancy compared to wrestling?

Yeah. Look. I would just tell you, Brandon. I mean, just a reminder, obviously. Internationally, we sell pay-per-view for the UFC. But we do not sell the pay-per-view domestically. That's ESPN's job. And what I can tell you is we enter into these negotiations, at the end of the day, it's what the market will bear. That's really what it is. And we're next up. We're the next big thing on the block, if you will. We have a proven track record. Our demos are insane. I mean, really, just across TKO, we're 50% of our audience is 18 to 34. Is what most platforms and companies are chasing. So we're in good stead there. We've terrific diversification, and we drive a very strong Hispanic audience when it comes to the UFC, and we're gender-neutral. And we're not just talking about women watching women's fights. That's not the case. We have a strong base of women watching all of our fights. So we're sitting in a pretty good position. Pay-per-view is still a strong model. It worked to build ESPN Plus. It's worked for us internationally. We've got great history with it. DIRECTV and DISH may be coming together, so who knows the kind of opportunity there. Paramount and CBS are obviously getting their act together. They'll be closing next year. You know, I believe they'll be at the table if and when it comes to them because they already signaled both Jeff Shell and David Ellison that sports will be a banner vehicle of content for them. So we will not have a shortage of suitors. We feel great. But we love Disney. I can't underscore it enough. And Jimmy Pitaro and Bob Iger get UFC in very much. We're architects in our deal. Kevin Mayer was still at the time, but they were very much part of us crafting how we were going to do that deal. Things change. Models change. Viewing patterns change. Broadcast is now kinda back in if you will, cable is obviously having its struggles, but still nothing to frown at. And streaming is on fire, and new platforms and fast channels are coming all the time. So it's really just demonstrating and signaling to the market that we have flexibility and a willingness to play ball on a myriad of business models. And Ari and I, in particular, are very focused on not just communicating that, but actively discussing those potential models with all of the partners and then some.

Okay. And then, Dana White recently talked about getting into boxing and said that it would be with guns blazing. Could you expand on that? Just wondering how this could be done in a way that's in sync with your current margin profile and will this happen organically by perhaps letting UFC fighters box under your banner, or is this one of those instances where we could see some M&A at play?

Yeah. No. Look. First of all, some off-the-cuff comments from Dana White do not translate into a strategy that we're communicating to The Street. Right? Dana says a lot of things and has a lot of passions. And why we love him. He's also the best promoter the sport of MMA and, frankly, if it was boxing, has or will ever see. What I can tell you is boxing, at its best, is confused and fragmented, at its worst, broken. We think the sport presents an interesting growth opportunity for us. Dana White and I should mention Nick Khan, have deep expertise in long-standing relationships in what they call the sweet science, otherwise known as boxing. And if we were to get involved in boxing, we would expect to do so in an organic way. Not an M&A way. So i.e., we're not writing a check. And if we launch the vertical at any time, we kinda see it as doing it with a partner who would fund it and pay us to operate. So nothing to announce today. But this is one area we're going to continue to explore. You know, we've talked about the dearth of leagues that are out there. Obviously, we're acquiring PBR. There's not much else. Don't necessarily need to add anything to our model. But boxing is ripe. It is ripe for a fix. And we're blessed to have two experts in the field. And if an opportunity presents itself or we can chase one down, it does not put much risk or any risk for that matter on us financially, then we're going to pursue it. And in terms of models and league and how we structure it and etcetera, etcetera, that's way down the road, and once we have something, if we have something, you'll be the first to know.

Thank you very much.

Thank you.

Thank you. Our next question comes from David Karnovsky of JPMorgan. David, your line is now open.

Hey. Thank you for the question. Maybe just following up on the UFC renewal. Mark, interested to know how you're positioning UFC Fight Pass potentially as part of negotiations. You know, last time that was kept separate, is that the intention this time around, or is there an opportunity to roll the service or content into a partner platform and receive better economics? And then just staying with UFC, wanted to know your thinking about title sponsorship as potential inventory. Was this your kind of unique one-off, or can you make more use of the pay-per-views?

Yeah. Thanks, David. Look, I'll tell you, as we sit here today, we're really pleased with the growth of UFC Fight Pass. In fact, internationally, we're really seeing subs tick up, especially in Brazil where we finally got our act together after a slow start. We see keeping that separate. I'll tell you that there is truly untapped potential when it comes to UFC Fight Pass. And the secret to driving subs on UFC Fight Pass is just quite simply more live events. Period. End of story. And so in any renewal, you know, we're going to explore the ability for us to potentially have exclusive fights on UFC Fight Pass, but then also lean further into the combat space. With regard to karate, jujitsu, wrestling itself, boxing potentially, more live events that we can program around the clock, that really drive demand in terms of sub acquisition and fan base. So to answer your question, we expect to keep that as a proprietary asset that we control. It's not for sale, but it will have more original content, less taped programming, and more live events. That's the first part. As in regard to the second, the title sponsors, look, yes. That was a tremendous deal we did with Riyadh Season and the Saudis to sponsor the Sphere event. I think everybody got a good deal out of that one because that was such a spectacle for them and for us. And if there are opportunities to sell more title sponsors, we're going to pursue them. And I can tell you in the bag of inventory that Grant Norris Jones, who runs our global partnerships team, and his lieutenant, Luke Oscovales, as they go to the street, door to door, brand to brand, category to category, knocking down business, which I'll remind you, is almost kicking the door of $300 million this year between UFC and WWE. So we're heading north fast. Will absolutely deploy title sponsorship inventory if it makes sense. It has to be authentic. It has to be seamless. And we certainly don't want to over-commercialize the UFC. But I think it was a pretty good suit and a good fit as it relates to the Sphere event.

Thank you. Our next question comes from Stephen Laszczyk of Goldman Sachs. Stephen, your line is now open.

Hey. Great. Thanks for taking the questions. Mark, in the past, you've spoken about the impact this Sphere event has had on the UFC brand. I'm curious now post-Sphere, you're thinking about the evolution of some of these more key UFC events that you put on, maybe the opportunity to elevate more select pay-per-view sites, perhaps potentially through a Sphere-like event in the future or perhaps even through a stadium-like event that you host on the WWE side similar to WrestleMania. And then second, on On Location, Ari called out the NFL deal through 2036, I think. Just curious to talk a little bit more about the financial profile of that deal and the extent to which you might be operating leverage if you outperform on selling NFL premium hospitality. And if you think a deal like the NFL one could be a good template for similar deals going forward with sports leagues.

Great. So first off, I just want to remind everyone that we do not intend to do another event at the Sphere. That was a one-and-done. I think we've signaled that to the market. Of course, anything can change just like rock bands do their farewell tours and seem to stick around for another twenty years. But Dana is pretty intent that this is a one-and-done. That's why we spent so much. That's why we made so much out of it. By the way, it took a lot out of us in terms of focus to pull it off in the way we did. But in terms of creating more spectacles, like, that's our job. Period. And, globally, that's our job. And, frankly, much of that responsibility to create those spectacles falls to Lawrence Epstein who's, you know, running the UFC business with Dana day-to-day. Lawrence happens to be in the room, and I'd like him to opine on and comment on your first part of the question, Lawrence.

Thanks, Mark. Just a couple of things to add to what Mark just had to say. First of all, huge achievements. Certainly was a challenge, as Mark indicated, but a huge achievement for our team to put on that. What we view is really a seminal event in the history of sports entertainment. The first time anything like this has ever been done. The world of sport, the world of entertainment, the entire world is really looking at this event. So huge achievement, huge success, for our entire team. You know, it's really, I think, part of our be-first mentality. We're the first group to ever do this. They will be the only one, but we're certainly the first so far. And, you know, we're really proud of the achievement and, of course, the leadership that we showed. And as I said, you know, this event was a game-changer. I think, as we look at future events and as arenas, I'll coin this term, spheroize themselves, add more LED, add more technology to their facilities. We're gonna continue to up the game with respect to our production. The first facility that has really done this outside the Sphere, of course, is the Intuit Dome in California where the Clippers are gonna be playing. And you can expect to see us there very soon taking advantage of that great technology there.

By the way, last time I checked, the Sphere is launching in Abu Dhabi. Dana did say no more events at the Sphere in Vegas. But that doesn't mean we can't go to Abu Dhabi. So I'm looking forward to pursuing that when that gets built. Probably two decades from now. Andrew, go ahead.

Yeah. Look. Thanks for the next question, Stephen, on obviously, On Location and the NFL. There was a press release that Endeavor actually issued yesterday as, you know, in advance of the acquisition, Endeavor is responsible for extensions with their current customer and On Location, the NFL. But us at TKO, the acquirer of this business, are obviously thrilled with the extension of that agreement through 2036. You know, obviously, NFL best-in-class sports brand and the opportunity to continue that relationship is obviously extraordinarily beneficial for us at On Location, TKO, and will benefit us through the balance of work. Our portfolio. We're not gonna comment on the economics of the deal. Those were not public. Nor will they be in the future. But that being said, I do want to, you know, pivot the conversation a moment just to the visibility. And, you know, what we discussed last week when we announced the acquisition of these assets. We are going to go to extraordinary lengths to ensure that, you know, both our external and internal constituents have as much information and tools to understand the revenue and profitability profiles of these businesses, whether they be on a standalone basis or within our portfolio. It's important to understand not only how they grow but how they benefit the other assets in our portfolio. So rest assured, we'll be able to give you information as time goes on, and, you know, the NFL relationship is core to On Location and its future revenue and growth prospects.

Yeah. I would just underscore that. Andrew and I have too much experience here at Endeavor with the lumpiness of On Location and how difficult that was for the street to model. The transparency and visibility are going to be significant. Starting with our investor presentation, which in the appendix on page sixteen, you know, we laid out specifically Olympics, what we expect to make year over year, year after year, over a four-year span, and then also World Cup FIFA. So you are going to get more of that and then some. We don't want any confusion. We don't want to muddy this. We don't want to clutter it. We want clarity. As far as the NFL, just the relationship, I would just say, because we're fresh off of meetings with the commissioner and Brian Rollack, who is their chief revenue officer this week, I mean, I can't say enough about this partnership. Obviously, we do better in years when the Super Bowl is in Los Angeles or Las Vegas versus in New Orleans. But nonetheless, we do well, period. The draft, the Super Bowl, I mean, significant properties, big ratings draws, and these international games are quickly becoming bellwethers. I mean, the commissioner has already signaled he'd like to get to as many as eighteen in the next few years. I recently went out to the game in London, and we had a jam-packed house of almost five hundred patrons that flew out with On Location to see the Chicago Bears and Jacksonville Jaguars. Yeah. Airfare, hotel, F&B, personal services, customized programs. I mean, we're just seeing more and more demand for this. So we're really excited. And I will tell you just further quote in the press release, this deal, while Ari and I have been working on this for a while, it came to fruition because they were really excited about being in a sports pure-play company like TKO.

That's great. Thank you, guys.

Thank you.

Thank you. Our next question comes from Robert Fishman of MoffettNathanson. Robert, your line is now open.

Hi. Good afternoon. Two questions for you guys. Mark, with the Netflix deal fast approaching, can you share more about your excitement to drive additional growth in WWE sponsorship dollars in 2025, maybe in the US and internationally? And then, Andrew, if I can follow up on the cost a little earlier, any way you can break out WWE and UFC cost synergies to date? And how you think about the trajectory of each cost bucket thinking about 2025 and beyond. Thank you.

Look. I'll take the second question first and then defer to Mark. But as we've said on kind of countless occasions, you know, the best way to look at our business is on a full-year basis. When we articulated our cost savings guide of $50 to $100 million initially and then articulated the upper end of that range and then came back and said we're gonna exceed the upper end of that range, you should assume that the lion's share of that is implicit in our full-year guide in 2024. We are knee-deep in our 2025 planning right now and intend to be back to the street with some insight into 2025 when we report our full-year results sometime at the end of February. On that call, we'll be giving further insight and information as to additional efficiencies that we intend to achieve in 2025 with months of planning behind us. But rest assured, you know, we are sharpening our pencils and we are looking for additional means to grow well in excess of $100 million. But to date, our, you know, upper end a little bit in excess of that upper end are in our 2024 numbers.

Great. And, Robert, just on the first part of your question, I would say that yeah, it's actually been pretty amazing. As we go to the street. Keep in mind with our UFC deal, we go to the street with ESPN. So we're out there with advertisers for 360 holistic packages. They're buying in-arena, right? They're buying media inventory on ESPN. So on and so forth. Not to mention the ancillary programming we have leading up to the fight like the weigh-in. So those packages allow us to get a higher CPM. Netflix has been terrific out of the gate. Very creative, very innovative, and because they're new at it, they really want to explore. So we're out there trying to sell combination packages with them, of course, media inventory on Netflix, as well as what it is we do around the event. And just recently, Grant Norris Jones and his team, second mention of Grant Norris Jones today, have sold a Minute Maid deal. As an example. Where Minute Maid is a sponsor, comes in as a global partner of WWE, but also are buying inventory in the Netflix programming, like, in their wheel, if you will. And that's a deal we drove, not them. But it works both ways, and I can tell you, Nick Khan, who's also sitting here today, of course, the president of WWE, he's knee-deep with the ad sales teams, both Netflix, and our internal team to drive more of these 360 deals, and I'll let him make a few comments. Nick?

Yes. So thank you, Mark, very much. If you think about it in perspective, twenty years ago, Monday Night Raw was on the National Network, which became the National Network, which became TNN, which became Spike, and is now Paramount. Now we're going to Netflix. So forget their sub count that they have at this moment. It's 650 million potential viewers globally for our product. So the ability to go out, Andrew Schleimer mentioned in his prepared remarks, and then slightly after that, the growth year over year in WWE sponsorship. We're expecting even more growth once Netflix kicks in in January because of the global reach and because of our Netflix, in so many different markets.

Thanks, Robert.

Thank you. Operator, we're ready. Your next question. Our next question is from Peter Supino of Wolfe Research. Peter, your line is now open.

Hi. Thank you. A question on cash flow. Your portfolio of businesses is obviously a good cash generator. We think and have made the case that it's a great cash generator. And some of the numerical comments you've published on free cash flow conversion in the 40% range this year and maybe normalizing around 60% if my memory serves. Seem really beatable to us. So I'm just wondering if you'd comment on that bullish challenge for free cash flow and then separately, if you just comment on the environment for hiring and retaining talent. It's just amazing. A year ago, we were being asked to model the impact on talent costs of equity capital raised by one of your competitors, and that doesn't come up anymore. So if you could update it there, it would be great.

Thanks, Peter. I think when we initially put a presentation together in April of 2023, we showed on a pro forma combined basis, I believe it was 2022 trailing, it's north of 60% of EBITDA adjusted EBITDA conversion to free cash flow. When we initially guided this year, we had a number roughly in the 50% range that was impacted by some timing of working capital. Some additional investments in the headquarters here, WWE, and some other one-time items. And we've doubled back pro forma for the antitrust settlement, which obviously are payments that come out of operating cash flow and reduce free cash flow. Albeit having a positive impact on our tax distributions given their tax deductible. At 40%. Now, you know, candidly, things have moved around because of the one-time nature of some of these large-scale events in our business. But I think we stand by on a normalized basis 60% number. And in excess of that 60% number over time. You're not looking at hugely capital-intensive businesses here. We will make investments, organic investments to further fuel our growth. But when we look to 2026, and, you know, we've had a lot of questions and commentary around the media rights renewals and the potential step change in our revenue and profitability, we have a clear path to continued conversion in excess of the numbers that we've said, you know, historically. So, look, stay tuned. We'll be back in February, late February to talk about 2025. But know that we also have, you know, sort of 2026 goals which will further impact the profile of this business positively.

Okay. And then Peter on the talent question. Which just hits us briefly, the reason why you don't hear about it a lot and we say this in all modesty, don't hear about it because of the work of Paul Levesque, Dana White, and Nick Khan and Lawrence Epstein. That's just fact of the matter. They are experts in storytelling. Period. They are experts in creating rivalries. Period. They are experts like David Stern was in building and marketing stars. And when your platforms, when your businesses, your leagues become known for that? Talent aspires to be with those leagues. So we haven't had those challenges as of late. Because frankly, the talent wants to get to the UFC and WWE level. Now we don't take that for granted. We're not arrogant about it. And we want to incentivize all of our fighters at UFC and all of our superstars at the WWE to put out their best every day, you know, and aim for the top of the mountain. But we're prudent about it. We want to keep those costs under control. And as long as we do our job of continuing with that storytelling, continuing to build our fan base, continuing to surround ourselves with the right partners, then talent will gravitate towards the UFC and the WWE.

Thanks so much. Thank you, Peter.

Thank you. Next question is from Ryan Gravett of UBS. Ryan, your line is now open. Ryan, your line is now open.

I think we lost Ryan during Andrew's commentary.

For the interest of time, we can move on. But, Ryan, if you wanted to ask a question, I'm so sorry. Say it one more time.

Why don't we go to the next question.

Sounds good. Our next question is from Richard Greenfield of Lightshed Partners. Richard, your line is now open.

Hey. Thanks, guys, for taking the question. You know, Mark, I know this is a TKO call. I actually had an Endeavor question. Endeavor as part of the transactions, a couple of weeks ago, announced that they're looking to sell Freeze, Madrid Open, Miami Open, and OpenBet. And I was actually in a couple of conversations earlier this week, and we had heard that Ari Emanuel's actually looking at buying these assets. Is that with his own money personally, or could that involve any TKO money? And I ask that question because I think there's a lot of investors in TKO who are wondering whether you have any interest in buying or investing in any other non-sports leagues as part of TKO.

Thanks, Rich. You never shy away from the tough ones. I would just tell you that, you know, I want to stress again. That TKO will not bid on any other Endeavor assets. Period. None whatsoever. We won't sign an NDA. We won't explore. We won't read materials. Nothing. Whatsoever. To your specific question on Ari, I would tell you that Ari, in his personal capacity, his personal capacity, yes, he could be a bidder for any of the assets Endeavor is selling. I would also just remind you that Endeavor, although it is a TKO, I think call it's apropos. Endeavor is only exploring asset sales. So to your point, the sports betting assets, Madrid Open, Miami Open, and the Freeze Archer, which they've announced they're exploring potential asset sales. They haven't made any definitive decisions. I assume they'll walk down the process. I say that assume because obviously Silver Lake Partners is playing a big role in that. And they'll decide what to do, you know, if and when the road leads to something. But, yes, to your question, Ari and his personal capacity could be a bidder for any of the assets Endeavor sell.

And then just on the non-sports piece, no other non-sports assets is in your purview whether owned by TKO or others?

We are sports pure play. End of story. And I'm glad you said that because we did after the announcement of the Endeavor assets that we did or we are working to close and acquire. It's a question of hey. Are you staying sports pure play? I can't stress enough. These are sports pure play. This does not break away from our model or our strategy. Sports rights, ticketing, and premium experiences in another sports league. It's right in our wheelhouse. Right? We know these properties extremely well because of our history. The deal was value accretive. As the business goes, we're still knee-deep in integration, which we've talked about today as you can see from the quarter. WWE had 54% EBITDA margins. I mean, that's up 18 percentage points year over year. Global sponsorships, our partnerships, kicking strong. I think what gets lost sometimes is WWE, keep in mind, we came into the year with a little over $20 million in sponsorships. Coming into the year because some fell off from last year. And we're now up to $70 million or that's where it will be end of year. So we're making significant progress with the integration, but there's clearly still a lot of wood to chop on the core integration. We see more opportunity and we're laser-focused on it. Also, just finally, just going forward when you look at why we're focused on these two battleships because that's the business. These other PBR are small, obviously, but it's a rising sports league. And the other two assets are going to fuel these two battleships. 85 to 90% of our adjusted EBITDA going forward is UFC WWE. So our eyes are on the ball. We have to finish the integration on the two core assets of WWE and UFC. We're gonna then move sort of simultaneously and apparel attracted the integration of the new three assets. We're gonna keep our head down. We're gonna score numbers. We're gonna keep this thing a cash flow, Gusher, and we're gonna be focused on returning capital to shareholders.

Think that's a good wrap for the call. Thanks, Rich. Think that's it for the wrap the call. Thank you, everyone, for your interest. And for joining us on today's call. Operator, you can conclude the call.