TKO - NYSE

Good afternoon. Thank you for attending the TKO Q3 2025 Earnings Call. My name is Matt, and I'll be the moderator for today's call. [Operator Instructions] I'd now like to pass the conference over to our host, Seth

Good afternoon, and welcome to TKO's Third Quarter 2025 Earnings Call. A short while ago, we issued a press release, which you can view on our Investor Relations website. A recording of this call will also be available via our website for at least 30 days. After prepared remarks from Ari Emanuel, TKO's Executive Chair and Chief Executive Officer; and Andrew Schleimer, TKO's Chief Financial Officer, we'll 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 2025 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. Q3 was a milestone quarter for TKO, securing landmark media rights deals, doubling our quarterly cash dividend and launching a $1 billion stock buyback. These achievements paired with strong quarterly results and the increased full year guidance we announced today underscore our continued momentum in the business. Our fundamentals are strong, premium sports content and experiences are in high demand, and as such, the table is set for long-term sustainable growth. Our historic media rights agreements were the standout this quarter, locking in recurring revenues and creating new monetization opportunities for our biggest brands. UFC's 7-year $7.7 billion agreement with Paramount to bring UFC to Paramount+ and CBS in the U.S. places us squarely in the sports mainstream and doubles the AAV of our previous agreement. Starting in 2026, UFC will join the NFL, the Masters, March Madness and UEFA in Paramount's sports portfolio, expanding our reach and removing barriers to entry for fans ultimately worldwide. WWE's 5-year premium live events partnership with ESPN in the U.S. launched ahead of schedule in Q3 with the first-ever Wrestlepalooza, a new franchise streamed exclusively on ESPN's new direct-to-consumer service. This deal delivers a greater than 1.8x step-up in value and brings WWE's marquee events, including WrestleMania and SummerSlam into ESPN's unrivaled promotional ecosystem, further expanding WWE's footprint and fan base. Our

Good afternoon. As Ari highlighted, we delivered solid operating and financial results in the quarter and for the third quarter in a row, have raised our expectations for performance for the full year. We've completed our most significant media rights agreements with great outcomes that provide visibility into a multiyear, high-margin contractual revenue stream with annual escalators. Over the term, these deals will drive meaningful margin expansion and significant free cash flow generation. We remain laser-focused on operational execution. UFC and WWE remain our core drivers, and we're continuing to see significant strength at these brands. We're also making meaningful progress integrating IMG, On Location and PBR into TKO and realizing cost synergies and revenue opportunities from these businesses that are even greater than our recently raised expectations. Now turning to our consolidated financial results for the third quarter. We generated revenue of $1.12 billion. Adjusted EBITDA was $360 million. Our adjusted EBITDA margin was 32%. As expected, our year-over-year results were impacted by the 2024 Paris Olympics, which was a key driver of the decrease in revenue as well as the increase in adjusted EBITDA and adjusted EBITDA margin as the event was loss-making. On a reported basis, revenue decreased 27%, adjusted EBITDA increased 59% and adjusted EBITDA margin increased from 15% in the prior year period. Turning to our UFC segment. As we articulated on our Q2 call, while the underlying trends remain extremely strong, the timing and mix of the calendar meaningfully impacted results in the quarter. UFC had 10 total events in the third quarter of this year, which was comparable with the prior year period. However, in the current period, we held 2 numbered events compared to 3 in the prior period, including a seminal event, UFC 306 at Sphere in Las Vegas. UFC generated revenue of $325 million, a decrease of 8%. Adjusted EBITDA was $166 million, a decrease of 15%. UFC's adjusted EBITDA margin was 51%, down from 55% in the prior year period, largely attributable to holding one less numbered event. Media rights production and content revenue decreased 7% to $201 million. The decrease was driven by one less numbered event, partially offset by the contractual escalation of media rights fees. Live events and hospitality revenue decreased 15% to $44 million. Strong underlying trends in pricing and attendance were more than offset by one fewer numbered event as well as the impact of UFC 306, which remains the highest grossing event in UFC history. Partnerships and Marketing revenue decreased 4% to $71 million. Tailwinds from new and renewed partnerships were more than offset by the mix of events in the quarter, most notably UFC 306, which featured our first-ever title partner sponsor, Riyadh season. We continue to make significant progress in partnerships, adding new categories and growing existing ones, including recently announced deals with Wingstop, Prime Video and Sony Pictures, among others. Adjusted EBITDA reflected the decrease in revenue as expenses were essentially flat. Direct operating expenses decreased due to lower production, marketing and other event-related costs, primarily due to the mix of event venues, cards and territories, most notably UFC 306, which had significantly higher-than-normal production costs. SG&A increased primarily due to higher personnel and travel costs compared to the prior year period. Our WWE segment generated revenue of $402 million, an increase of 23%. Adjusted EBITDA was $208 million, an increase of 19%. Adjusted EBITDA margin was 52%, down from 54% in the prior year period, largely attributable to strategic investments in talent associated with the launch of new properties such as Wrestlepalooza. Performance was favorably impacted by the timing and mix of the event calendar. Most notably, WWE had 5 nights of main roster premium live event programming in the third quarter compared to 3 nights in the prior year period. The increase related to the expansion of SummerSlam, which was held at MetLife Stadium to a 2-night event and the introduction of Wrestlepalooza, which marked the launch of WWE on the ESPN platform. Live events and hospitality revenue increased 61% to $83 million. The increase was driven by higher ticket sales revenue, reflecting an increase in average ticket price and total attendance and an increase in site fee revenue. SummerSlam, which included a meaningful site fee, was a notable contributor to the increase. Media rights production and content revenue increased 9% to $249 million. The increase was driven by the additional PLE programming, a second out of SummerSlam and Wrestlepalooza as well as the contractual escalation of media rights fees, including our long-term global agreement with Netflix. These items more than offset the unfavorable impact of one less episode of Raw in the quarter and the previously discussed shift to SmackDown to a 2-hour format for the second half of the year. Partnerships and marketing revenue increased 84% to $40 million, driven by new partnerships and renewals across multiple categories, including travel, financial services, food and beverage, telecommunications and beauty, among others. SummerSlam, which was the highest grossing non-WrestleMania PLE in WWE history, drove much of the quarterly increase. The event featured JPMorgan Chase, which partnered with WWE for the first time as a presenting sponsor. WWE partnership revenue at SummerSlam and overall growth in Q3 illustrated the blue-chip sponsors and new categories we are unlocking to deliver incremental revenue. We believe there's plenty of runway to continue growing this important part of the business. Adjusted EBITDA reflected the increase in revenue, partially offset by an increase in expenses. Direct operating expenses increased due to higher talent, production, marketing and other event-related costs, primarily due to the mix of events, most notably SummerSlam and Wrestlepalooza. SG&A increased primarily due to higher travel costs compared to the prior year period. Our IMG segment generated revenue of $337 million, a decrease of 59%. Adjusted EBITDA was $61 million, an increase of $116 million. Adjusted EBITDA margin was 18%, up from negative 7% in the prior year period. The decline in revenue primarily related to the absence of revenue at On Location from the 2024 Paris Olympics. This decline was partially offset by an increase in revenue at the IMG business from new business in our Studios Group, primarily Ryder Cup and the Esports World Cup in Saudi Arabia. Adjusted EBITDA reflected the decrease in revenue, partially offset by a decrease in expenses. The decrease in direct operating expenses principally reflected the absence of costs at On Location for the 2024 Paris Olympics, which was a loss-making event. SG&A decreased primarily due to lower Olympics-related costs at On Location as well as the impact of cost reduction initiatives in connection with the acquisition of IMG and On Location. Corporate and Other generated revenue of $63 million, an increase of 17%. Adjusted EBITDA was negative $75 million, an improvement from negative $90 million in the prior year period. The increase in revenue was primarily driven by promotional and management fees from our boxing initiatives,

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

[Operator Instructions] First question is from the line of Stephen Laszczyk with Goldman Sachs.

Maybe starting off first with UFC and the media rights picture coming a bit more into focus, the U.S., LatAm and Australia, I think, locked in. I'd just be first curious, Mark, if you could maybe discuss why you thought Paramount was the right partner on the LatAm and Australian side of the international equation. And then as you look out across the rest of the international portfolio, perhaps what you're thinking about and discussing and prioritizing in terms of partners, maybe why Paramount wasn't included more holistically on the international side and where that opportunity lies at the moment looking forward? And then a follow-up on WWE after.

Great. Thanks, Stephen. Good to hear from you. Look, we're -- I think just back up a step we're viewing TKO right now really is an execution story. Our primary focus is really continuing the momentum we're seeing in the business, which is continued operational expansion, integration. And of course, as you know, we're laser-focused on capital return. On the media rights side, look, we're in a real good place domestically, obviously, contractual revenue, annual escalators that are strong. It is a high-margin revenue stream with high visibility, which will be good for investors. And then on the international front, we're really focused on increasing our monetization opportunities there. Remember, a majority of our fan base, especially with UFC, is international. So we really need to close the gap on our fan base, make it a priority with regard to maximizing our media rights opportunities. Of course, global partnerships will end up benefiting if we do that. And as we're successful country to country and maybe starting to have multiple cities having events, especially with WWE in a country at the same time as we move around, that will be a real opportunity for us in terms of audience growth. And all of this will, I think, improve our attractive margin profile that we currently sit with. We expect to see margin expansion through high-margin revenue growth as well as continued cost discipline as we go into '26. And when we sat back and looked at these specific territories that you referenced, it's really -- it's a matter of negotiations really with various bidders. And we were fortunate to have 3 separate bidders at the table when it came to those specific regions because remember, what's important to one is not necessarily important to another. And at the end of the day, as it turned out with the domestic deal, Paramount and CBS for that matter. But overall, that company, PSKY, ended up having the best equation, which is best for our brand, best marketing plan, a holistic effort given what they're doing on the domestic side with that investment and, of course, the best rights fee. So for us, it's always going to be brand, reach, dollars. And for those 3 territories specifically, we knew we were going to have a nice bidding war because it was attractive and it has strong fan bases, and we capitalized on it. And frankly, nobody here has taken a victory lap, not on those specific territories in that deal or really even on the quarterly earnings here. I mean we're proud of where we are. We're proud of the road ahead. We're cautiously optimistic. We're encouraged by each of the revenue drivers, but we know we have a lot of work to do if we're going to continue to really beat and raise as a continual thing.

That's great. And then maybe one on WWE for Nick, if he's on. Just be curious, WWE Live Events revenue continues to re-rate meaningfully higher here. Just would love your take on the story that's playing out in that part of the business. Is this mostly PLE story at the moment? Or have the weekly events started to contribute as well and pricing versus capacity, would just love your take on where you think that could go as you look into 2026 and you re-rate off this higher base here?

So thanks for the question. It's both. Capacity continues to be very high. We've increased prices appropriately with the marketplace. That's for the PLEs, Raw, SmackDown, Saturday night's main event and every other ticketed program that WWE has. We remain bullish on it. A couple of years ago, when TKO was stood up, one of the first things we collectively did was reduce the non-televised live events, which created more scarcity in the marketplace for our televised events and our continued international expansion only furthered that. So even in January, you'll see us on a European tour for Raw and SmackDown leading into Royal Rumble, which takes place in Saudi Arabia. Tickets already on fire for that event and again, creates more scarcity in the United States, which is a good thing in terms of our overall gates.

Next question is from the line of Brandon Ross with LightShed Partners.

Just a quick follow-up on Stephen's first question. You talked about brand and reach and dollars kind of being what you're aiming for. Just focusing on the reach side of that, can you just talk about what the distribution model with Paramount is going to look like in the wake of this deal and what you expect going forward with other territories? Should we expect the pay-per-view model that, I guess, has now been replaced domestically and really at WWE to still have residents? Or do you expect that to kind of go away internationally as well? And then I have a follow-up.

Yes, Brandon, thanks for the question. There were very few markets where we actually, at UFC, did transactional pay-per-view and have deals to sell on a transactional basis. So legacy, we are still looking at Australia and Canada were the 2 big markets. And as part of the deal with Paramount, that excluded in Australia, the pay-per-view or numbered event main cards, which still sit with the [indiscernible] Foxtel. But those are really the 2 major markets where we're selling on a transactional basis. So you can expect like we historically have done is selling 42 nights of content to distributors and the ultimate distribution decision is based upon their go-to-market strategy in the case of Paramount, based tier subscription, all you can eat for all of our content.

Okay. Got it. And then with the UFC domestic deal done, just wanted to get a better understanding of exactly what the incremental flow-through is in terms of margin percentage. I know it's high, but any more color, should we -- how should we expect the fighters to be compensated? Is the fighter pay going to go up? And what is exactly the framework now for fighter pay? I know like going back in time, the North Star used to first -- certain fights used to be points and pay-per-views and the business has changed quite a bit. So any color you could give around that would be great.

Yes. So Brandon, I'll take the first part and then Lawrence Epstein, who's here with us, will take the fighter compensation and the structure around that going forward. Look, at this point, we're not going to give specific guidance around the flow-through other than the fact and consistent with past commentary is that it will be meaningfully margin accretive to the UFC business. And you've seen the last couple of quarters, Q2, the business operated at 59% operating margins, Q3, 51% operating margins for the variety of factors that we laid out on the call. But we do believe that there is going to be meaningful accretion to our operating margins going forward.

Brandon, this is Lawrence Epstein. On the fighter Pay question, there's going to be some changes to the structure of our deals, in particular, with some of our premium athletes that had a percentage of their compensation based upon pay-per-view sales. But that being said, our team is already in the process of working out those deals. And as Dana White said, there's going to be an increase in fighter pay. There's no doubt about that. But we feel like it's going to be in line with what -- will be consistent with the margins that we've maintained over the last several years.

Next question is from the line of Ben Swinburne with Morgan Stanley.

I wanted to ask you guys about boxing. The Canelo, Crawford fight. I mean, just was a massive, massive hit, and I think at least opened my eyes to the possibilities here. You guys have these sort of JV structure, management fee structure. I'm just wondering if there are thoughts or opportunities or maybe that ship of sale of doing more in boxing kind of wholly owned as a promoter. You certainly have -- you have Dana White. You have a strong balance sheet, lots of cash flow, equity currency. Are there things you're looking at on the boxing front maybe to go even bigger than some of the initial investments that you're making as you sort of get ready for what you're launching in 2026 with

Yes. I would just say, Ben, that ultimately, I think these super fights are going to be a huge catalyst for us, right? And we -- I wouldn't say we downplayed the first one, but it was obviously the first one we didn't really know what to expect. And we didn't anticipate necessarily pouring a lot of fuel over that. We're more focused on the

Yes. And just as a follow-up, Mark, I mean, you hit earlier, I think in your prepared remarks and then I think in the Q&A about TKO is an execution story right now and you're focused on executing. You look at UFC, what you guys have done with that asset kind of speaks for itself in the last decade. WWE, the numbers are way ahead of the deal model, at least that was filed. So it sort of begs the question like why not go out elephant hunting for more? And maybe the answer is there aren't opportunities. They are scarce assets. It's not like there's a long list of them. Maybe the answer is management bandwidth. You guys need to clone yourself. But I guess the question is, why not be looking for the next thing, just given how well WWE has gone, UFC has gone and clearly, the muscle you guys have built up here.

Yes. And our financial profile, I mean we certainly have the ammo to do that. Look, bottom line is we are. I want to make it clear. Nobody here is resting sitting back. That's not just in our DNA whatsoever. We are focused on the execution story. We don't want to get distracted. We're not -- we want certainties. There isn't a lot out there that reaches our level, but we're on the hunt. And in the absence of something coming to market, we're going to go full on with Boxing. I'm not worried about the team. Everybody does have a day job, as I said, and they're stretched. I'm not going to say stretched then, but they're stretched. But we have a number of relationships, each of us dating back decades here with high-level individuals, value creators across the sports spectrum, and we are just waiting to bring people off the bench, but we need those opportunities to materialize. And again, in that absence, we go full on with boxing. It's 12 to 16 fights on

Next question is from the line of Peter Supino with Wolfe Research.

I wanted to ask a question about site fees. You mentioned them in your prepared remarks as a driver of 2026. I think you've in the past provided some color on the number of sites that historically have paid fees and the number that haven't. I wonder if you could just give us any more color about to what extent that can be a significant driver of revenue in '26 and beyond? Anything we can do to think constructively about that?

So Peter, I'll look -- 2 ways to answer this. Number one, kind of inorganic timing, '25 benefit from one Saudi Arabia event. 2026 will benefit from 3 as the calendar shift from December into January with the first ever Royal Rumble in Saudi Arabia in January. So as we think about '26 specifically, it will be the beneficiary of 3 large site fees from Saudi Arabia. And then sort of on the organic side, I outlined really 3 key strategic areas of focus for us in my prepared remarks. And really, that's where we're seeing a significant amount of momentum. The TAM, as we've previously outlined, is no longer just sort of our premium, the 20 premium or so not encumbered by our Middle East events. We're seeing a lot of interest in the Raws, in the SmackDowns, in our UFC Fight nights. And we have a whole host of comps that we've discussed over the last couple of calls that give us even more of a bullish tone to strike as we think about 2026. So while we're not going to talk about specifics on site fees, we'll save that for our '26 guide, we feel real good going into next year.

Just remember, Peter, we have a full-time team that does nothing but work on site fees for the 3 major sports that are in our portfolio, let alone boxing, which is on the way. And we had a Board meeting just earlier this week where we're walking the Board through 60-plus different events where we're in conversations ranging from a couple of hundred thousand in cash and in kind to multimillion around the globe. So this is a high-margin revenue opportunity that we are approaching like a heat-seeking business.

How long has that team existed at scale doing what it's doing?

Really the last 3 months, I would say, is where we've made a couple of outside hires, added them to our revenue generation team, if you will, across TKO. So it's really like a 6-person roster that is dialing for dollars.

Well, I think you've heard us say this also before, Peter, the deeper we've gotten into TKO sort of '24, given the formation in '23 was already locked and spoken for. So '25 had some carryover where we had a little bit less flex in terms of dates and locations. '26 is really one of the first years where we have an open calendar where we can make more strategic decisions and offer up some of these opportunities to municipalities and tourism boards that are willing to pay.

And Raw has really gained so much momentum. I mean I know you follow the viewership. When you're #1 in 29 to 30 countries week-to-week on Netflix, that catches a lot of people's eyes. And that kind of opens the door for these conversations we're having with regional governments, municipalities, cities, et cetera.

Next question is from the line of Ryan Gravett with UBS.

So as you called out, there's a big opportunity for audience growth at the UFC next year without the pay-per-view paywall. So I'm wondering how that has impacted your conversations with current and potential new sponsors since the deal was announced. And Andrew, you referenced this in the prepared remarks, but how should we think about the impact of this on partnerships growth in 2026?

Look, I think it's clear that we have a lot of excitement around the table from our sponsors by virtue of this content, the most premium content in our numbered events being more accessible to a broader fan base than it's been in the past or at least over the last 7 years with ESPN and the double paywall. And I just bring you back to when we did the ESPN deal where we actually made a conscious decision to assist in the launch of ESPN DTC with a sort of nascent offering and a 2 million to 3 million subscriber base that we assisted in growing to north of 20 million. And at that time, we actually had the opposite question and why should we get more value from our sponsors when reach and frequency and distribution was becoming more narrow. And we were able to sell through that. So look, the team is excited. Our sponsors are excited. Our partners at Paramount are excited. What I'll tell you is a meaningful growth lever over the next 3 to 5 years is not only reach and frequency, but it's the ability to combine the commercial units and commercial inventory that we've got in these media rights deals. Hence, why we're getting even more comfortable with that long-term $1 billion goal.

Yes. Also, Ryan, I mean, we don't view -- although we may slip and say that now and then, we don't view these brands as sponsors. I mean these are multiple levels and layers and intricacies of partnership opportunities from activation, experiential, branded content, as Andrew said, commercial inventory. I mean, these are massive deals that cover a lot of ground as our brand partners attempt to maximize reach and eyeballs for their product or their own brands. This is a home run in the sense that even to Andrew's point that we matured with ESPN+ and got to a point of having 25 million subs, you're now talking about Paramount having 75 million-plus global subs. So from day 1, we've got a wider universe and it's actually flipped. It's not our partners coming to us saying, should we be paying as much for only 3 million subs like when we launched with ESPN+, it's us going to them saying, "Hey, now you're in $75 million, maybe we should reopen your deal and you should pay more and we'll blend and extend. So we're having those opportunities with existing partners in our quest to get to $1 billion. We're having fruitful conversations with new categories, and we plan to announce 2 major deals, new deals with new brands by the end of the year. I'm making sure Seth

Operator, why don't we take one last question, please?

Final question is from the line of Vikram Kesavabhotla with Baird.

I wanted to ask about WWE, and I'm curious if you could talk more about your initial reactions to this new relationship with ESPN. How these first couple of PLEs performed relative to your expectations? And what's standing out to you so far in terms of the potential benefits of that partnership?

Great. So by the way, we're thrilled with the start of it. So it's obviously a new product. It's a new platform. If you noticed any of the promotion going into our first event with them, Wrestlepalooza, which is a new event for us, which we're really pleased with. You saw wall-to-wall coverage on all ESPN platforms so much so that on College GameDay, the morning of Wrestlepalooza, you had the entire panel, Pat McAfee, Coach Saban, Kirk Herbstreit, Desmond Howard, Rece Davis, all predicting the winner of Brock Lesnar versus John Cena. It was phenomenal. It's going to take time for ESPN to grow that platform the way that they want to grow it. We're patient. We'll continue to put on our product the way that we think only we can do, and let's see where we end up.

Yes. Vik, ESPN can be one of the best marketing partners in the media space when they strategize and get behind something. We've seen that firsthand with the UFC. And to Nick's point, Wrestlepalooza was an incredible launch, great for our brand, great exposure out there in some of their most prominent shows with some of their most prominent talent promoting our event. We want to sustain that. We need to sustain that. And I think at the same time, it's extremely important to us, and we're watching like everybody else to see that as they renew a lot of their distribution partner deals that they get the ability to authenticate for free. So ESPN DTC, if you're a so and so subscriber, I'm not going to get into who has it and who doesn't, some of these folks can just authenticate and they get the DTC partnership for free. So you just carry the app and others are paying $29.99. And it's their goal, of course, to redo all their transmission deals and get these consents, and we're anxious to see that happen. YouTube TV is a prime example of that.

Operator, we have a couple of extra minutes. Why don't we take one more question?

Next question is from the line of Eric Handler with ROTH Capital.

Okay. Wonder if you could talk a little bit more about partnerships and marketing. Specifically, what's been the increase in the number of brands who are now doing sponsorships with both UFC and WWE. And what's been the overall increase in the number of brands? And at this point, is it still a volume game with a lot more brands to be added? Or is there some pricing leverage, too?

Thanks, Eric. Look, I think it's both. I mean, most recently, and I articulated this in my prepared remarks, brands like Wingstop are now advertising across both UFC and WWE. It is the most recent, but we've had a handful of crossover brands. But again, to your point, it's new brands, it's existing partners spending more. It's existing and new partners looking at us differently now via the Paramount relationship, just given the reach and distribution opportunity of all of our content, particularly our premium content in the numbered events. So this is an area where we still believe it's early innings. And our team led by Grant Norris-Jones is not going to rest until they get to that $1 billion-plus overall company goal. So we wouldn't be talking as specifically about numbers if we didn't feel good about them, and we've got our sights set on meaningful growth going into '26.

Yes. I think it's important to add, Eric, we've now reached a point where we're taking a great deal of incoming calls right? When we started with the UFC, this was an outbound business when we first acquired it way back in Endeavor. And now it's an incoming -- significant incoming call, not just to check on the UFC, but can they wrap a package portfolio of PBR and WWE. And frankly, we think that's how they can maximize reach and engagement, and it really presents a nice opportunity for us.

All right. At this point, thank you, everyone, for joining us on today's call. And operator, you can conclude the call.