UFC, Formula 1 and WWE could be the next acquisition targets for streaming giants

In 2016, before the Ultimate Fighting Championship sold for $ 4 billion to the company that would become the Endeavor Group, the Mixed Martial Arts League was almost grabbed by Disney for a little more.

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

Disney, which owns most of ESPN’s sports broadcasting network, has been playing with the idea of ​​buying sports leagues for years, one man said. Disney CEO Bob Eiger at the time was the model executive for brilliant intellectual property acquisitions, buying Pixar, Lucasfilm and Marvel.

In the end, Iger rejected the deal with the UFC. He believes the bloody and violent UFC brand is not linked to the family-friendly Disney, said people who asked not to be named because the talks were private. A Disney spokesman did not comment immediately.

Two years later, Disney’s ESPN paid $ 1.5 billion for UFC television rights in a five-year deal. The deal immediately raised the value of the UFC to $ 7 billion, according to UFC Executive Director Dana White. Disney’s ESPN + has also signed a $ 150 million contract a year to broadcast UFC fights in an agreement that expires in 2025.

If ESPN renews UFC rights, Disney will pay much more than the $ 4.3 billion royalties it would pay in 2016. Popular sports broadcasting rights fees continue to rise rapidly as they provide unique live viewing opportunities. advertisers and attract a relatively large audience.

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

“Disney would be far smarter to buy the UFC than spend so much on a license,” said LightShed analyst Rich Greenfield. “Now the costs are rising. Owning a league makes a lot of sense.”

Although something is rarely offered for sale, the streaming era has probably made sports leagues more desirable targets for acquisition, as rivals seek out exclusive content for competitive advantage. Owning a league, instead of relying on years of license renewals that lead to recurring bidding wars, can strengthen branding and reduce the outflow of subscribers.

While Disney has refrained from the UFC’s image, it’s easy to imagine rowing in a WWE or Formula 1 amusement park and walking in theme parks for the media companies that own them. There are clear links for goods for Amazon. Netflix can use its own IP for its nascent video game division.

Formula 1, WWE and the UFC are language-independent properties with global appeal. In particular, Formula 1 is proud to be an international sport, with competitions around the world. The league announced last week that it has added a third US Grand Prix in Las Vegas, starting in 2023.

This could tip the scales for streaming services that need global growth for subscribers such as Netflix and Disney to keep investors happy.

“Streaming companies are global,” said Sean Bratch, former chief operating officer of Formula One. He created and directed Drive to Survive, Netflix’s hit documentary series that describes the full seasons of Formula One sport like Formula 1, one of your main strategic goals is to improve your media rights around the world. ”

There are no known negotiations for the acquisition of Formula 1, UFC or WWE.

While buying sports and entertainment leagues can be an attractive target for big streamers, there just aren’t many. The biggest professional sports leagues – the National Football League, Major League Baseball, the National Basketball Association – are not viable buyout targets. This leaves a mix of smaller leagues that may or may not be sold at a given time.

WWE, which has a market capitalization of $ 4.6 billion, stands out as a potential candidate for takeover because it is a publicly traded company with an aging controlling shareholder. Vince McMahon holds more than 80% of the vote and is 76 years old. At some point, he and his family will have to decide whether to retain control of the company or sell it at the highest price. McMahon’s daughter, Stephanie, also works for the company as CEO.

“We’re open for work,” said Nick Hahn, president of WWE, last month on The Ringer’s “The Town” podcast.

The buyer could be a legacy media company such as Disney, Fox, Paramount Global or Comcast’s NBCUniversal, which last year struck a five-year deal with WWE for more than $ 1 billion to be the exclusive home user for WWE.

“If you look at what NBCU / Comcast needs and I think it’s a factual statement, they don’t have the intellectual property that some other companies own,” Hahn said. “I think they see us as a subject that has a lot of intellectual property. Much of it has not been exploited. It is now up to us to generate revenue from it properly and to show the community exactly what we have.

NBCUniversal declined to comment.

If a potential acquirer makes an offer to McMahon, it may come before the next renewal of the company’s rights – it will probably be announced in mid-2023. Probably then McMahon may have to decide to sign another multi-year deal or sell.

While Disney and NBCUniversal own theme parks, big tech companies Apple and Amazon have also emerged as potential stakeholders in acquiring IPs for sports and entertainment. Both have made long-term deals to broadcast MLB games in their streaming services. Amazon also acquired exclusive football rights on Thursday night, starting this season. Even Netflix, which so far stays out of live sports, is open to buying Formula One rights after its documentary series Drive to Survive exploded as a worldwide hit, co-CEO Reed Hastings said last year.

While Disney has proven it can use and expand existing intellectual property from Marvel and Lucasfilm, creating new characters is a different set of skills, said WWE’s Khan. It is unclear whether a streaming service or a large entertainment facility would have the same skill set as McMahon.

The content of smaller sports companies can also be buried in a large streaming service that cannot present everything to its users. While Star Wars and Marvel spinoffs often receive the highest billing at Disney +, other intellectual property may be lost in the shuffle. The McMahons will have to decide whether WWE can expand its universe as part of a larger company or risk losing cash without the family’s attention.

Buying a smaller sports league may not interest a streamer big enough to make a multibillion-dollar acquisition, said Bratches, a former Formula One executive who also worked for ESPN for 27 years.

Liberty Media, controlled by billionaire John Malone, acquired Formula One for $ 4.4 billion in 2016. Liberty has spent the past five years or more investing in Formula One and generating revenue by playing on different media entities by sharing rights. worldwide and at auction for licensing rights.

This business model will disappear if a media party owns the league. Any retailer who cares about the future of what they sell would like to feel confident in the overall health of the acquiring streaming service, Bratches said. If consumers opt out of a streaming service and this company owns an exclusive league, viewers may suffer regardless of the quality of the league.

“These are ‘pleasant to own’ properties, but it’s not like buying the NFL,” Bratch said. “Not enough content to move the needle.”

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

WATCH: Liberty Media announces the Grand Prix of Formula 1 in Las Vegas