TKO Group Holdings, Inc. Q2 FY2025 Earnings Call

Good afternoon, everyone, and thank you for being with us for the Second Quarter 2025 TKO Earnings Call. My name is Carlier, and I will be leading the call today. I would now like to turn it over to our host, Seth Zaslow, Senior Vice President and Head of Investor Relations. The floor is yours.

Good afternoon, and welcome to TKO's Second 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 Ariel 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 second 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 our 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. TKO's momentum continued throughout the second quarter, reflecting strong execution of our strategy. The quarter included multiple live event milestones, enhanced event economics, and meaningful new brand partnerships. These results highlight our ability to capitalize on sustained demand for premium content and live events to drive growth, profitability, and margin expansion. As just one example, the ESPN domestic media rights deal for WWE's premium live events announced just this morning secures a pivotal recurring revenue stream for years to come. Our live sports and entertainment content has become a key differentiator for organizations, brands, and platforms in search of audience. From Netflix live events to YouTube clips and highlights, our global partnership with AB InBev to our extraordinary consumer licensing partnership with Fanatics, our strategy and our assets at TKO are truly unique. Given the continued momentum across our portfolio and our overall business outlook, we are once again raising our guidance for the full year. I'll now share some highlights from the quarter that underscore our positive momentum. Turning first to our core UFC and WWE businesses, where live events and global partnerships continue to deliver solid performance and drive meaningful growth. At UFC, in addition to setting arena records, our live events are securing meaningful economic support from host cities. During the quarter, 6 out of 8 live audience events were supported by incentives, including a first ever Fight Night in Baku, Azerbaijan. This event, along with our recently announced Visit Qatar partnership to host a fight in Doha, highlights continued traction in our site fee strategy, including generating greater support for our fight nights from new destinations. Meanwhile, our global brand partnerships team delivered robust double-digit growth for UFC in the quarter, following recent major deals with Meta and Monster Energy. This progress continues with the recent expansion of UFC's Wingstop partnership that will include additional integrations across WWE premium live events over a multiyear period. The properties are continuing to find meaningful ways to live side by side, leveraging the collective audience and fan avidity. At WWE, on the heels of a record WrestleMania 41, which was the highest grossing event and most viewed WrestleMania in company history, Money in the Bank at Intuit Dome in Los Angeles became the highest grossing WWE arena event of all time. A record we've now broken 3 times over the last year. The strength of our premium live events was further on display last weekend at MetLife Stadium in New Jersey, where WWE's first-ever 2-night SummerSlam drew more than 113,000 fans. While premium live events remain a key driver, we're seeing enhanced economics across the entire event portfolio at WWE. In the quarter, we set 36 individual market records for ticket sales and sold out 16 events. On the programming side, WWE's partnership with Netflix is showing robust appeal and growth across overall viewership and the harder-to-reach younger demos. Since launching on the platform in January, Raw has appeared on Netflix's list of top 10 shows every single week. That's 30 straight weeks, totaling more than 280 million view hours on the platform. Internationally, WWE's PLEs have been a consistent performer, making the top 10 list in 37 countries over the first 6 months of the partnership. Additionally, with last week's Netflix premiere of 'WWE on Reel', we are creating more opportunities for fans to engage with our ancillary content, in this instance, taking them behind the scenes and into the writers' room for the very first time. Across global brand partnerships, WWE generated remarkable growth in the quarter, driven in particular by record-setting deals surrounding several of our premium live events. We also renewed long-standing partners, including Slim Jim and expanded our roster in the financial services category with digital banking platform, Chime. Turning next to IMG, On Location, and PBR. IMG's global production capabilities were on full display this quarter. A singular high-impact weekend in May alone saw more than 1,000 IMG team members across 3 continents delivering thousands of hours of sports coverage for marquee events, including the final days of both the English Premier League and Saudi Pro League seasons, the EuroLeague Final 4 in Abu Dhabi, plus 15 MLS matches. Taken together, these achievements collectively showcase IMG's unmatched scale in delivering world-class premium sports content to audiences worldwide from screens on phones to screens on planes with Sport24. IMG's unrivaled capabilities were again on display last month at the 153rd Open at Royal Portrush, where IMG supported our long-standing partner, the R&A, to deliver a record-breaking championship across attendance, viewership, and engagement. From international media rights and brand partnerships to world-first innovations like SpiderCam on the 18th hole, IMG helped elevate the fan experience on site and worldwide. At On Location, fans worldwide are already gearing up for next year's Milano Cortina Winter Olympic Games and FIFA World Cup. As of July, 1 year out from the FIFA World Cup's arrival in North America, hospitality sales and reservations have already surpassed the entirety of Qatar 2022 hospitality sales. And at PBR, the 2025 Unleash The Beast and Pendleton Whisky Velocity Tour successfully concluded in May with record regular season attendance across both tours. The focus now shifts to PBR's Camping World Team series debuting with 2 additional media partners, FOX Nation and the CW network, who joined CBS' coverage. In closing, positive trends continue across the business, and we are enthusiastic about key milestones ahead with the UFC rights renewal, TKO's promotion of the Canelo versus Crawford Super fight next month and the planned commencement of our share repurchase program in the third quarter. We remain incredibly well positioned in today's sports ecosystem due to the strong demand for our premium content and high contractual visibility. As we move through the second half of 2025, our focus is clear: execute, integrate, and deliver on our updated guidance. With that, I'll turn the call over to Andrew.

Good afternoon. As Ari highlighted, we delivered strong operating and financial results in the quarter and for the second quarter in a row, have raised our expectations for performance for the remainder of the year. UFC and WWE remain core drivers of TKO. Both delivered record quarterly revenue and adjusted EBITDA. We're seeing significant strength of these businesses, particularly with respect to live events and partnerships, and we continue to realize benefits to both the top and bottom line from the initiatives we implemented since the formation of the company. Now turning to our consolidated financial results for the second quarter. We generated revenue of $1.308 billion, an increase of 10%. Adjusted EBITDA was $526 million, an increase of 75%. Our adjusted EBITDA margin was 40%, an increase from 25% in the prior year period. Our UFC segment generated revenue of $416 million, an increase of 5%. Adjusted EBITDA was $245 million, an increase of 6%. UFC's adjusted EBITDA margin was 59%, which is consistent with the prior year period. UFC had 11 total events, including 4 numbered events and 2 international events in both the second quarter of this year and last year. The mix shifted slightly as 8 events had live audiences in the second quarter as compared to 7 last year. Partnerships and marketing revenue increased 39% to $86 million. The increase was driven by new partnerships and partnership renewals. We continue to make significant progress in this area, adding new categories and growing existing ones, including recently announced deals with Monster Energy and Meta. Increasingly, we're focused on partnerships across multiple TKO properties. This initiative is gaining momentum, most recently demonstrated by the Wingstop agreement we announced last week, spanning UFC and WWE. The complementary power of our properties is highly appealing to brands, and we expect to announce more cross TKO partnerships in the near future. Media Rights production and content revenue increased 4% to $261 million. The increase was driven by the contractual escalation of media rights fees. Live events and hospitality revenue decreased 15% to $59 million. As we previewed on our last call, the decrease reflected lower site fee revenue, driven by the timing and mix of international events. UFC held a Fight Night in Baku, Azerbaijan in the quarter, while the second quarter of 2024 included a site fee related to UFC's first event held in Saudi Arabia. Adjusted EBITDA reflected the increase in revenue, partially offset by an increase in expenses. Direct operating expenses decreased primarily due to lower production, marketing, athlete, and other event-related costs due to the mix of event cards, venues, and territories. SG&A increased primarily due to higher personnel and travel costs compared to the prior year period. Our WWE segment generated revenue of $556 million, an increase of 22%. Adjusted EBITDA was $330 million, an increase of 31%. Adjusted EBITDA margin was 59%, up from 55% in the prior year period. Live events and hospitality revenue increased 29% to $186 million. The increase was driven by higher ticket sales revenue, reflecting an increase in average ticket price. Total attendance declined as a result of our strategic decision to host fewer non-televised events. Site fee revenue also increased as we receive payments for both Night of Champions in Saudi Arabia and WrestleMania 41 in Las Vegas in the second quarter. Partnerships and marketing revenue increased 136% to $58 million, driven by new partnerships and renewals across multiple categories, including video games, travel, food and beverage, financial services, telecom, and QSR, among others. As we discussed on our last call and driving much of the quarterly increase, WrestleMania 41 set an all-time record for partnerships revenue more than double the previous record. The event featured a record 28 total partners, including a partner sponsor for each of the 14 matches over the course of 2 nights. Partnership revenue at WrestleMania and overall growth in Q2 showcases the execution on one of the core tenets of our investment thesis. We believe there is plenty of runway to continue growing this important part of the business. Media rights, production, and content revenue increased 7% to $279 million. As we discussed on our last call, results reflected the expansion of SmackDown to a 3-hour format for the first half of the year, resulting in a shift in quarterly revenue recognition. The increase was also driven by the contractual escalation of media rights fees, including our long-term global agreement with Netflix. Adjusted EBITDA reflected the increase in revenue, partially offset by an increase in expenses. Direct operating expenses increased primarily due to higher production and talent-related costs. SG&A increased primarily due to higher personnel and travel costs compared to the prior year period. Our IMG segment generated revenue of $307 million in the quarter, a decrease of 4%. Adjusted EBITDA was $29 million, an increase of $120 million. Adjusted EBITDA margin was 9%, up from negative 29% in the prior year period. The decline in revenue primarily related to IMG no longer having rights to the FA Cup. This was partially offset by revenue from new production agreements, including a multiyear deal with the Saudi Pro League. Adjusted EBITDA largely reflected a decrease in expenses, partially offset by the decrease in revenue. The decrease in direct operating expenses principally reflected the absence of the write-down of unsold tickets at On Location for the 2024 Paris Olympics as well as lower media rights fees at IMG associated with the FA cost. SG&A decreased primarily due to lower Olympics-related costs at On Location. Corporate and Other generated revenue of $45 million, an increase of 9%. Adjusted EBITDA was negative $77 million, an improvement from negative $91 million in the prior year period. The increase in revenue is driven by management fees from Zuffa Boxing, the JV we announced earlier in the year. Adjusted EBITDA improvement was primarily due to a decrease of $24 million of costs related to corporate allocations of Endeavor corporate expenses under their ownership of IMG On Location and PBR. As we discussed on our last call, from the close of the acquisition on February 28 forward, there are no Endeavor corporate expense allocations. Now moving on to our capital structure. In the second quarter of the year, we generated $375 million of free cash flow. Our free cash flow conversion of adjusted EBITDA was 71%. Free cash flow in the second quarter included the adverse impact of the third and final $125 million payment related to the UFC antitrust settlement, as well as a favorable impact of approximately $165 million of prepayments related to On Location for the 2026 FIFA World Cup. On June 30, we made our second quarterly cash dividend payment from TKO OpCo of approximately $75 million. We ended the quarter with $2.769 billion in debt and $535 million in cash and cash equivalents in addition to $323 million of restricted cash. Regarding our $2 billion share repurchase program, we continue to expect we will commence activity in the third quarter of 2025 and with our timing and quantum ultimately subject to market conditions and related factors. We remain committed to a robust and sustainable capital return program that balances the return of capital to shareholders with organic investment and maintaining our strong balance sheet. As for boxing, we continue to operationalize the JV we announced in March and intend to hold our first event in early 2026. Separately, in June, we announced that we will promote the Canelo Alvarez Terrence Crawford fight taking place on September 13 in Las Vegas. We'll provide further updates on our boxing activities as and when appropriate. Now turning to our outlook. As we've discussed in the past, we manage the business with a focus on full-year performance. Therefore, we believe results are best evaluated on a full-year basis, given the quarterly fluctuations that are inherent in our operations. As noted in our press release, we are raising our full-year 2025 guidance for revenue and adjusted EBITDA for the second quarter in a row. We are now targeting revenue of $4.63 billion to $4.69 billion, and adjusted EBITDA of $1.54 billion to $1.56 billion, an increase of $135 million and $40 million, respectively, at the midpoint of the ranges as compared to the prior guidance we issued in May. The increase is related primarily to strong operating performance at UFC and WWE through the first 6 months of the year and our anticipated performance for the remainder of the year. It also reflects continued progress on the integration of IMG, On Location, and PBR. To date, we've achieved our 2025 target of $15 million of in-year savings, representing $25 million on a run rate basis, and we remain on pace for a run rate of approximately $40 million by year-end 2026. In terms of free cash flow, while we have not given formal guidance, our view remains unchanged. We continue to target a full year 2025 free cash flow conversion rate in excess of 60%. As we've discussed on prior calls, this excludes the impact of approximately $300 million of nonrecurring amounts, as well as the benefit of any restricted cash related to the 2026 FIFA World Cup. On our last call, we highlighted a few notable items that we expected to occur in the second quarter, and our results were consistent with all of them. As with our prior calls, while we are not providing quarterly guidance, we want to highlight a few notable drivers of our expected performance as we look into the third quarter. At UFC, the third quarter is expected to include 10 events, which is comparable with the prior year period. However, within these 10, we expect 2 numbered events, our fewest in any quarter this year compared to 3 in the prior year period. Further, we intend to stage 8 events with live audiences compared to 6 in the third quarter of 2024. Despite strong underlying trends, the timing of the calendar is expected to meaningfully impact our largest revenue streams, media rights, live events and partnerships. As a reminder, UFC 306 was held at Sphere in the third quarter of 2024. This event was the highest grossing game in UFC history and also included a title partner sponsor for the first time. With respect to expenses, as we've discussed, we incurred meaningfully higher than normal production costs for UFC 306. That said, an event of this magnitude is not expected to occur in the second half of 2025. At WWE, the current calendar includes 3 main premium live events, which is comparable to the third quarter of last year. However, the expansion of SummerSlam to 2 nights is expected to favorably impact multiple revenue streams including media rights, live events, and partnerships. As we've previously discussed, SmackDown's format will revert to 2 hours beginning in the third quarter. And while there is no impact on the full year, the change will adversely impact media rights revenue recorded in the quarter. At the IMG segment, we expect third quarter revenue and adjusted EBITDA to increase quarter-over-quarter in terms of absolute dollars, as our results are expected to reflect the impact of a number of signature tenants and golf events, including Wimbledon, the U.S. Open, the British Open, and the Ryder Cup. IMG and On Location will also be performing services in connection with the Canelo versus Crawford event, which is expected to favorably impact our performance. At Corporate and Other, adjusted EBITDA is expected to improve modestly, quarter-over-quarter, primarily due to the benefit from the services fee related to Canelo versus Crawford. With regard to our WWE deal with ESPN announced earlier today, the agreement is 5 years in duration, and we expect to recognize revenue in line with sports media rights industry standard annual escalators. As Ari touched on earlier, this deal is further evidence of the value of our core IP, and we are excited about the potential impact of ancillary revenue streams we can generate from the halo effect created by the Disney ESPN ecosystem. In conclusion, we generated strong second quarter results that reflect continued momentum across our businesses, in particular, UFC and WWE. While we still have a lot of work ahead of us, we are extremely excited about our prospects for the remainder of the year and beyond. With that, I'll turn it back to Seth.

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

Our first question comes from Ben Swinburne from Morgan Stanley.

Congratulations on the WWE deal. I wanted to pick up on the comment, I think, Andrew was just making about sort of the halo effect. Remember, you guys went from the WWE network to Peacock and now moving to ESPN. If you think about how the PLEs have performed on Peacock and how that's impacted the value of those rights and those assets and then think about what will happen with ESPN, can you talk about what you think the big changes, opportunities, impact will be? And I know you can't answer for Netflix. But I guess I'm a little surprised to see them not pick up these rights given they have them everywhere else. I guess, from a TKO point of view, what's your perspective on having multiple partners for these rights in different regions versus bringing them to one platform?

Thanks, Ben. First off, I think we've been consistent in our messaging to you that we were always a little reticent about having all of our eggs in one basket. Don't get me wrong; when you're doing these deals, you're balancing monetization, right, of the asset and the opportunity with, of course, reach with regard to our brand and our audience. So that certainly played a factor. When we went into the market at roughly the same time we began talking to interested parties on the UFC, we had strong interest because, more than anything else, these are monthly big events, right? And we're now frankly living in the big event era, if you will. You've heard that Sarantis Bulgaria, in particular, talk about those big events, looking for big events, not volume, not necessarily weekly, certainly not at a big event. So I would just tell you, when all was said and done, we could have actually had a slightly higher rights fee by going with another partner. But we felt the strength of ESPN's brand, their reach, the platform, the makeup of their audience, and their D2C strategy, which is launching soon here, was just as important as the dollars, and we've been consistent with our approach in that messaging to you. Ultimately, we're sitting here with a 5-year deal, annual escalators, high-margin revenue stream with attractive visibility and stability. The slate of programming that are the PLEs, Nick Khan and Triple H have done such an amazing job taking the baton from Vince McMahon. These PLEs are purpose-built for direct-to-consumer services. We will stream all 10 PLEs over the course of the year, powered at times by linear, and I want to underscore that; that could get lost in the messaging. The idea of having a Money in the Bank, SummerSlam, WrestleMania, take your pick from our PLEs with the first hour or even 2 simulcast on ESPN linear and D2C with a handoff to their direct-to-consumer, you just can't beat that proposition. And of course, that's driven by the fact that ESPN's linear platform is absolutely unmatched in the industry. On the ESPN side, they saw this as big audience content that travels to any platform. It's a very loyal audience. They were firm in agreement that both WWE and the UFC content for that matter attracts new subscribers, attracts cord-nevers, very important. Those folks that have never signed up for cable or satellite. They are streamers from birth, if you will. They saw that with our content, and they also knew we were the antidote to churn. And of course, that track record with UFC and what we built at ESPN+ played into our favor. In terms of what we are getting in return beyond the math that you've seen, which is a clear step-up from what we were getting, $900 million AAV in our last deal to now, excuse me, $1.625 billion overall for the deal in 5 years, it's a 1.81 step-up. And I want to have Andrew walk through the math of that for a second and also hit your last point, which is what are you getting beyond that? Like what are the adds that we should be looking for, which we see as further monetization opportunities. Andrew?

Thanks, Mark. I think there was a bit of confusion or at least a couple of different reports as to the baseline for which is the appropriate level to measure of the deal and what was widely reported at $325 million AAV or $1.625 billion over the 5-year term. So for the avoidance of that, our current Peacock deal commenced March 18, 2021, for that first sub-calender year, March through December, the right to be paid. And this again is not revenue recognition, but it's purely cash in and rights fee, the service fee, the baseline calculation is just under $100 million. For each of the subsequent calendar years '22, '23, '24, '25, the rights fee has been just under $190 million and for sub-'26, given the fact that there's a short period of time through March of '26, it's just under $50 million. So all of this aggregates to Mark's point of $900 million of total rights fee over the 5 years or an AAV of $180 million. What's included in the Peacock deal of $180 million that actually is not included in the ESPN deal, i.e., what we've retained for further monetization are all of the NXT PLEs, roughly 6 per year, 250 hours of original programming that historically had been in WWE's cost and expense that we no longer have an obligation to produce contractually, 5 documentaries over the term, 1 per year at WWE's cost and expense, which we no longer have the obligation to produce contractually as well as the content archive. So meaningful opportunity for additional monetization on top of the $325 million.

And Ben, just bear with me for 1 second. I know this is a long answer, but we're trying to cover a lot of ground. I think another subset of your question, what made us feel okay walking away from Netflix? And by the way, I'm not suggesting they made any offer at any level, but of course, they are a great partner. And to your point, they have all of our content for the most part, the rest of the world outside of SmackDown. Why wouldn't they have it here? The ESPN proposition and whether our audience would travel was important to us. And I think Nick is best suited to talk about how our audience has traveled and why that gave us, I would say, a firm confidence that we were going to be able to build off what we currently have. Nick?

Thanks, Mark. A number of different examples, the WWE audience, for example, during the last or 2 Winter Olympics ago, we were notified on short notice that we'd be moving Monday Night Raw at the time from USA Network to SyFy. Maybe it was 1 or 2 weeks of notice. 96% of that traveled to SyFy, which, with all respect to USA and how great it is, SyFy is not necessarily a destination network. If you look at WWE Network, which at its peak in the United States had 1.1 million subscribers when we went to Peacock, each and every one of those traveled plus the subscriber base for Peacock that was there exclusively for WWE grew massively. If you take a look at that and what we think we can do with ESPN and its D2C, it should grow even further. Our audience always travels.

Our next question comes from Brandon Ross from LightShed.

I guess, moving from the WWE PLE to UFC, we're surprised that you announced that PLE deal before UFC. Were you just waiting for Paramount Skydance to close or another external event? Or is the UFC deal proving to be more challenging than the PLE deal was? And I guess, you suggested you were looking at your partners holistically or as a portfolio in your answer to Ben. Should we now assume ESPN with WWE Intel is less likely to continue on with UFC? And on the flip side, as you suggested you walked away from Netflix, are there more likely as a UFC partner?

Thank you, Brandon. I'll address all your points, and if I miss anything, feel free to bring it up later. The first question is whether the UFC has been more challenging for us. The answer is definitely no. Regarding timing, we have essentially been managing five properties simultaneously. There's the UFC, which can be viewed as one, two, or three entities depending on perspective, along with the number of events and fight nights that ESPN has presented. There were two deals to consider. Then we have the WWE PLEs, our new boxing promotion, and PBR. As you might remember, Dr. Phil's initiative and Merit Street encountered difficulties, leaving us with a contract worth approximately $181 million over four years for PBR, which we need to find a new solution for. So, we're indeed working with all five at the moment. The timing of each deal and the discussions surrounding them will naturally unfold as we progress. Regarding the UFC, we are nearing the final stages, and we will share updates on the rights once they are available. Our goal continues to be finding a balance between maximizing revenue and broadening our reach. The strong market for premium content, particularly major event programming, is evident, as shown by our WWE PLE deal with ESPN, and we believe it will hold strong with ESPN in the future as well.

Okay. And the other part of that was whether the outcomes of each of these deals in the marketplace influence each other, such that UFC would be less likely to negotiate a deal with ESPN, or if they are mutually exclusive.

I mean that's more of a question for Jimmy Pitaro and Bob on the Disney call. I do know that Jimmy was quoted yesterday when asked about this specifically in trades. He relishes the relationship with TKO, specifically pointing to the success they've had with UFC and what that did for ESPN Plus and what they believe that WWE can do for their strategy going forward, and I don't think it rules them out his words.

Our next question comes from David Karnovsky from JPMorgan.

Mark, sorry, just on the non-PLE content, why hold that back? And maybe to the point Ben was trying to make, is the thought there that maybe that belongs with one of your existing partners?

Well, the answer there, Dave, is simply more monetization opportunities. Look, our goal here is to increase profitability, increase margins, get to investment grade. And we're marching to that beat. And so we're cutting a deal and it's not just about the actual rights fees here. It's about all the bells and whistles in between. And those bells and whistles add up from an ancillary perspective. So to Andrew's point, if we can have Nick Khan go to the market and sell NXT PLEs for incremental rights fee, fantastic. We no longer have to produce 250 hours of original programming annually. That's a lot of bandwidth, and it's a lot of cost we can take out, 5 documentaries over the term contractually. We certainly want to do films and documentaries in WWE; our production arm there has proven to be very successful in delivering documentaries that are critically acclaimed and highly viewed, but we want to go out and sell those one by one and maximize the market and timing. And of course, when it comes to our library and our archive, we're going to maximize that opportunity as well. So not every deal is created equal, and not just because something was in the last deal will mean it's in the next deal and vice versa.

David, the only thing I'd add, and I did allude to this in my prepared remarks with regard to the Halo effect. When you look at UFC's ad sales and partnerships business and the benefit of step-function change we saw in that business, when we moved from Fox to ESPN, and the current trajectory we are now on with WWE, the halo effect of Netflix, albeit internationally for the PLEs and Raw here domestically. We do believe that this deal will yield meaningful benefit for us on partnerships and then over time, live events and rights fees as well.

And David, just the other thing...

Go ahead, Mark.

Andrew mentioned the significance of securing ad inventory in our future deals, and this is crucial for us. Our global partnerships division is nearing $300 million in revenue solely from UFC, not including WWE. We have previously shared this information publicly. We aim to link some of our partnership agreements—like in-arena sponsorships and telecast integrations—with actual sales of ad inventory. We have started this with UFC pay-per-views, but it hasn't been our primary focus until now. Opening this door with WWE premium live events and being able to sell ad inventory in ESPN deals is a transformative opportunity for us. It is also an essential aspect for any future UFC agreements.

Mark, maybe just a follow-up on the reach point regarding ESPN platform. I just want to understand better your point of view because the linear subs are going to have a DTC entitlement, and that will give you reach right away. But obviously, the stand-alone price is a bit above Peacock. I just want to understand also your considerations there for that kind of cord nevers, sort of your fans.

Thank you. We've been in this situation before. Just to remind everyone, when we launched with ESPN and ESPN Plus, we started in 3 million to 4 million homes. Initially, some partners expressed concerns about viewership, indicating they expected a larger audience. Despite those challenges, we did not adjust their rights fees and instead found other ways to satisfy them. ESPN+ has seen rapid growth, but it required fans to pay for both the subscription and the pay-per-view events, which increased the overall expense. This created a significant barrier for our fans, causing some dissatisfaction. Nonetheless, we achieved great success with UFC and ESPN+. As we explore new opportunities, even if the initial numbers are small, the direct-to-consumer price of $29.99 is attractive compared to previous pay-per-view costs. We believe this will appeal to cord nevers and provide a substantial discount for viewers, so we’re not concerned about this aspect.

Our next question comes from Stephen Laszczyk from Goldman Sachs.

Maybe on the '25 guidance for Andrew, it sounds like you have seen WWE outperforming our internal expectations going into the first 6 months of the year. I'm just curious if you could talk a little bit more about what areas specifically are driving some of that outperformance versus your expectations? And then to what extent you expect some of that momentum to carry on into the back half of the year? Or if you think there are other puts or takes we should be considering as we look into the final 6 months as being factored into the guide that you gave today, updated guide?

Yes, thank you, Steph. As I mentioned in my prepared remarks, both of these areas are exceeding our internal and external expectations compared to market consensus. The growth is primarily driven by live events, intellectual property, and partnerships, along with the contractual increases in media rights and the advantages we gain from our Netflix partnership throughout the year. These three factors have contributed to our year-to-date growth. I provided specific details regarding changes in our event calendar mix and other drivers for Q3. With our full year projections, it’s clear what Q4 may look like. Year-to-date, the focus has been on live events and partnerships, and we expect these positive trends to persist. We shared insights into our Q3 mix, with top-line revenue projected at $135 million and adjusted EBITDA at $40 million, maintaining a 33% overall margin. We are confident in the state of our business. I want to highlight two points: Mark and I regularly discuss margins with the team. In Q2, UFC achieved a 59% operating margin, which is stable year-over-year and demonstrates strong performance. Meanwhile, WWE is also boasting a 59% operating margin, largely due to the success of WrestleMania. We embarked on this journey to bring WWE's operating margins closer to UFC's, aiming for over 50%, and we feel optimistic about the sustainability of this achievement, especially considering the deal we finalized this morning.

Our SummerSlam, Stephen, was the most viewed we've ever had in history. So quickly, that is turning into another WrestleMania for us. And the more that Nick and Paul can drive these events to be of that ilk and that level and deliver the kind of results on live events and site fees that we get for WrestleMania. That's what's going to get us the rest of the way there on the margin accretion.

That's all helpful. I would like to follow up about WWE sponsorship. It has been a significant opportunity, and you all have done well with the PLE. Nick, I’m curious if you’re still available to discuss the future opportunities for continued execution in this area. As we look beyond the PLEs, how should we understand the pace of execution regarding sponsorship opportunities?

It is one of the top priorities at WWE and TKO. Mark mentioned earlier the strength of our global partnerships group. UFC is now generating significant global partnership revenue, especially with WWE's family-friendly programming, where 50% of our live audience brings a child and nearly 40% of our live audience is women. We believe there is considerable potential to further increase those sponsorship dollars. It's a priority for us. We think that transitioning to ESPN B2C will enhance this opportunity, and we see limitless potential.

Any advertising inventory we acquire from these deals will contribute to our partnership goals. I can tell you, Stephen, Nick, and Andrew, that selling to WWE is almost enjoyable. We essentially had a blank canvas when we started this. Our publicly stated goal is to generate $375 million from the two entities this year. We are actively selling in various areas, whether it be the mat in the arena, concourses, or through hospitality packages that include sponsorships. This terrain is highly promising for us. Therefore, we are very optimistic about our potential in WWE, especially considering the strong foundation that Grant Norris-Jones' team has created and built upon at UFC.

Our next question comes from Peter Supino from Wolfe Research.

A question for Andrew and one for Mark. Andrew, on profitability, which is generally a good subject at TKO, your guidance implies about a 30% incremental margin, while we're hearing in your commentary that the upside to revenue guidance is coming from site fees and live events and sponsorships, which we think have near 100% flow-through to EBITDA. So I wonder if you could help us with those just thinking about the incremental margins in the guidance. And then, Mark, thinking beyond this UFC renewal, a question we frequently hear from investors, and I thought I'd be asking you to play your strength by answering it in this format is really what is the growth algorithm of this company? What is there to be excited about beyond the UFC media rights renewal? And so I just wonder, obviously, you're not going to give us multiyear revenue guidance here, but if you could talk about the attributes of this company beyond the media rights in '26 that you think are worth focusing on.

Let's start by handing out the multiyear. Andrew, go ahead.

Thanks for the question, Peter. We've had a strong performance in the first half of the year. I'll refer to my prepared remarks regarding the mix and balance of events, particularly considering the headwinds related to the 2-hour format change for SmackDown in the latter half of the year, as well as the absence of events like UFC 306 at the Sphere compared to last year. While we still expect growth from our high-margin contributors, it’s important to view the full year as we outlined. The first half was very strong, but we noted shifts in events and mix for Q3, along with some tailwinds in 2024 tied to event type and quality that may not be recurring. Initially, we had planned for just one Saudi PLE this year, but that has now shifted to 2026, which will impact our overall annual margin by approximately 200 basis points for this year. This is a benefit for 2026, but it negatively affects 2025. Overall, we are confident in our progress for the year. When discussing tailwinds, we focus on long-term prospects. We're not noticing any slowdown in conversations regarding site fees or global partnerships. As we think about future revenue for 2026, Grant and his team are dedicated to making 2026 as successful as we anticipate 2025 will be.

Great. Peter, regarding M&A or other investment opportunities, I want to be cautious. Currently, we are still finalizing the WWE PLE deal with ESPN, and we are actively working on several other renewals. Our primary focus remains on enhancing value at UFC and WWE across various revenue streams. Additionally, we need to stay focused on integrating IMG, On Location, and PBR to reduce costs and generate new revenue opportunities. We are ahead of our synergy guidance, but we have more work ahead. Another priority is to build on the momentum with Netflix, especially regarding Raw. We've seen success, and we recognize our position as a top property on the Netflix platform. The launch of WWE PLEs on ESPN is significant, and we expect that event to receive the same level of attention as a Super Bowl, particularly with ESPN's upcoming Super Bowl coverage. TKO has a strong financial position, and we project a margin of about 33% for 2025 at the midpoint of our outlook. The UFC margin for Q2 is 59%, while WWE has shown improvements from 40% in 2023 to 50% in 2024, and now 59% in Q2, benefiting from WrestleMania. We are making progress for our shareholders and aim to further expand our margins over time. Looking ahead to 2026, we have two significant rights renewals that will positively impact us, along with three WWE PLEs in Saudi Arabia that we anticipate will enhance our margins. Moreover, we haven't yet discussed boxing, which will add a fourth major sports asset for TKO and its shareholders. I must emphasize that UFC's success is significantly aided by Ari Emanuel, who has been a key driver for WWE as well. He is a vital creator of value, leveraging his relationships to identify potential opportunities that align with our sports-focused model.

Our next question comes from Ryan Gravett from UBS.

Mark, you just touched on this briefly, but I was wondering if you could provide more of an update on how the boxing initiative is progressing, especially with some of the new legislation being proposed. And then, Andrew, you gave some color on the financial impact this year, but how should we think about that financial contribution as we go into 2026?

Great. Thank you, Ryan. I'll touch on the business, and there's some salient updates here, and I'll get into those, and then I will turn it over to Lawrence Epstein, who is working on the Muhammad Ali American Boxing Reform Act, Revival Act, and he's rolling up his sleeves getting ready right now. So first off, look, we think boxing is an attractive growth opportunity for TKO. We believe we will deliver significant long-term value for our shareholders. And as I mentioned, this unequivocally will be a fourth tentpole sports asset for TKO. I mean we are going all in here. Nothing like 2 gladiators going toe-to-toe since the beginning of time. It never gets old. That's why boxing has the staying power that it has. The interest is multigenerational, both in the U.S. and internationally. We're excited about our new JV, formerly titled Zuffa Boxing, which we launched with Saudi-based Sela and announced in early March. This is a low-risk and TKO receives a roughly $10 million fee for serving as the managing partner and providing day-to-day operational management oversight. And that's all margin for us. TKO has no funding obligation. Additionally, outside of the JV, wholly separate, we will look to deliver 2 to 3 super fights per year, similar to the Canelo Crawford fight that the Saudis, of course, Nick Khan and Dana White have helped us put together for September in Las Vegas. Again, no risk to us on that deal. We get a fee to promote it; each one of these super fights. We get a fee to negotiate the media rights for each fight, which IMG does. So another reason we're strong and proud that we brought IMG into the fold of our flywheel. We get a fee for On Location to sell hospitality packages. And we will put Zuffa Boxing fighters on the undercard of each of these super fights. We expect to net on average another 10 million for every super fight we manage and promote. And I would just say one last note. We've had significant interest from several domestic linear and D2C platforms with regard to the media rights for our Zuffa Boxing promotion that we'll launch in the first quarter of next year, and we are in the home stretch of those negotiations and believe we will have something to announce soon. Now with regard to the Muhammad Ali Act and the reform that's going on there, I know there's been a lot of press and attention to your point. And I'd like Lawrence Epstein to walk you through our efforts and our progress there. Lawrence?

Yes. Thanks, Mark. So as Mark alluded to, the Muhammad Ali Boxing Revival Act was recently introduced in Congress. It's got bipartisan support via our co-sponsors, Brian Jack of Georgia and Congresswoman, Sharice Davids of Kansas. Sharice actually is a former MMA athlete. I want to be very clear that this new legislation does not intend to change anything in the existing Muhammad Ali Boxing Act. Every single word will remain exactly the same. We are proposing adding some additional language to this legislation that will allow for, what I'll call, UFC unified organization for the promotion of boxing events. This is going to provide more choice for athletes in the boxing space, and we are very optimistic that this legislation will move relatively quickly through first House of Representatives and then, of course, Senate and become law. We're hopeful in the relatively near future. And then on just as Mark alluded to, some of the financial aspects of boxing. I will say that over time, as and when we're successful, we will have an interest in a venture that we anticipate with our blood, sweat, and tears will create meaningful firm value that will inure to the benefit of our shareholders as well. So not only will we be clipping cash management fees for our services at the JV for our participation in promoter in Super Fights, we're also going to create value by virtue of an ownership position in joint venture.

And we'll close, as Ryan, by just telling you we're competitors, partners, suitors, see what we're doing every day to see the traction. They see the way that WWE and UFC are growing. And, frankly, PBR is on a great run right now, too. And we get all kinds of incoming costs; I mean we had a nice pitch this week to a JV in highlight and trying to bring in highlight back in Miami. We have passed on that opportunity, but it just shows you the kind of opportunities that are knocking on our door. Thank you, everyone.

All right. On that note, thanks, everyone, for joining us on today's call. Operator, you can conclude the call.

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.