Earnings Call Transcript - TKO Q3 2025

Operator, Operator

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. I'd now like to pass the conference over to our host, Seth Zaslow, Head of Investor Relations. Seth, please go ahead.

Seth Zaslow, Head of Investor Relations

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.

Ariel Emanuel, CEO

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 Zuffa Boxing joint venture will officially launch in 2026. And with it, we announced a significant media rights agreement with Paramount in the U.S., Canada and Latin America. We ramped up our competitive position in boxing by promoting the Canelo versus Crawford Fight in September, which sold out Allegiant Stadium in Las Vegas and drew more than 41 million viewers worldwide on Netflix. Those super fights will serve as significant marketing stages for Zuffa Boxing going forward. In addition to closing these major media rights deals, our sports properties, which collectively reach more than 1 billion fans globally, created strong momentum for our live events and brand partnership segments, setting new records and adding first-ever partners. As a few examples, UFC 319 became the highest grossing event at Chicago's United Center and UFC's highly anticipated return to Mainland China sold out Shanghai's indoor stadium in less than a minute. Similarly, WWE's live events set 35 individual market records throughout the quarter and the first ever 2-night SummerSlam sold more than 100,000 tickets at MetLife Stadium. Building on these arena records, our live events continue to attract strong interest from cities and venues worldwide. This quarter, UFC and WWE expanded their relationships with T-Mobile Arena in Las Vegas and Delta Center in Salt Lake City. We also announced a 4-year UFC partnership with Galaxy Macau and a WWE agreement with the General Entertainment Authority to bring WrestleMania 43 to Riyadh in 2027. WWE content also continues to generate impressive ratings for our media partners. SmackDown led primetime cable ratings 9 Fridays in the quarter, and Raw maintained its position on Netflix's global top 10 every single week through the quarter, extending a streak that began with the launch in January. Global brand partnerships achieved impressive results with WWE's robust double-digit growth in the quarter, powered by SummerSlam and new blue-chip brands, including Maybelline, WWE's first-ever official cosmetics partner. And at PBR, fan engagement continued to grow. In October, a single Sunday broadcast drew an average of 2.7 million viewers on CBS, the league's largest audience since joining the network in 2012, outperforming MLB playoffs and college football ratings that day. With this momentum and building on its long-standing partnership with CBS, PBR earlier today announced a 5-year deal to bring its Unleash the Beast Series to Paramount+ beginning in 2026. Finally, IMG and On Location also demonstrated momentum in the quarter. IMG, in addition to advising on TKO's landmark media rights deals, played a pivotal role in driving global broadcast coverage for top sporting events, including Wimbledon, the U.S. Open Tennis Championships, The Open at Royal Portrush and the Ryder Cup. And On Location continued to capitalize on robust demand for premium experiences, selling out packages to 20,000 fans at the Ryder Cup and hosting 47,000 attendees in Dublin for the Aer Lingus Classic. Across the board, we're firing on all cylinders, but we know we're still in very early innings. With our cornerstone media rights agreements secured, we are squarely focused on preparing for UFC's Paramount debut, maximizing WWE's presence on ESPN, driving growth across live events and site fees, strengthening our global partnerships and launching Zuffa Boxing. Our priorities are clear as we finish the year and position the business for 2026: sustain strong performance across all our businesses, capitalize on new growth opportunities and maximize shareholder value. With that, I'll turn the call over to Andrew.

Andrew Schleimer, CFO

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, Zuffa Boxing, the joint venture we announced earlier in the year as well as the Canelo versus Crawford super fight that took place in September at Allegiant Stadium in Las Vegas. The improvement in adjusted EBITDA was primarily due to the increase in revenue and a $33 million decrease in costs related to corporate allocations of Endeavor corporate expenses under their ownership of IMG, On Location and PBR. As we disclosed on prior calls, from the close of the acquisition on February 28 forward, there are no Endeavor corporate expense allocations. As for boxing, in September, we promoted our first super fight, Canelo Alvarez versus Terence Crawford, which was a massive success. As Ari noted, the event, which was held in front of a sold-out crowd of over 70,000, generated a gate of over $47 million, the third largest in boxing history and garnered over 41 million viewers on Netflix. Separately, we continue to operationalize our joint venture in preparation for our first event in January 2026. At the end of the quarter, we announced a pivotal milestone, a long-term media rights agreement with Paramount to become the exclusive home of Zuffa Boxing throughout the United States, Canada and Latin America. Now moving on to our capital structure. In the third quarter, we generated $399 million of free cash flow. Our free cash flow conversion of adjusted EBITDA was 111%. Free cash flow was positively impacted by the timing of cash receipts and payments related to the Canelo versus Crawford boxing event. During the third quarter, we collected a meaningful amount of cash on behalf of our partner, Sela. In the fourth quarter, we plan to transfer substantially all of these proceeds to Sela and therefore, expect an offsetting impact in our results. Free cash flow in the third quarter also included the unfavorable impact of approximately $12 million of net payments related to On Location for the 2026 FIFA World Cup. In early September, we announced a 100% increase in our quarterly cash dividend program. On September 30, we made our first payment under the upsized program from TKO OpCo of approximately $150 million. We intend to fund quarterly cash dividends with cash flow from operations or cash on hand. Regarding our previously announced share repurchase program, in September, we entered into an ASR agreement to repurchase $800 million of our Class A common stock. We received an initial delivery of approximately 3.2 million shares and expect to complete the agreement in early December. We also repurchased approximately $26 million of shares under a privately negotiated transaction. Lastly, we entered into a 10b5-1 trading plan for the repurchase of up to $174 million of Class A common stock. Repurchases contemplated under the 10b5-1 plan are to commence immediately once the ASR agreement is completed. These repurchases are being funded with proceeds from the $1 billion term loan add-on that we closed in mid-September. We ended the quarter with $3.759 billion in debt and $861 million in cash and cash equivalents in addition to $312 million of restricted cash. 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 third quarter in a row. We are now targeting revenue of $4.69 billion to $4.72 billion and adjusted EBITDA of $1.57 billion to $1.58 billion, an increase of $45 million and $25 million, respectively, at the midpoint of the ranges as compared to the prior guidance we issued in August. The increase is related primarily to strong operating performance at UFC and WWE through the first 9 months of the year as well as our anticipated performance for the remainder of the year. It also reflects the accelerated timing of the WWE PLE deal with ESPN, net of costs associated with terminating the NBCU deal early. In terms of free cash flow, while we have not given formal guidance, we are targeting 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 net benefit of 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 third quarter, and our results were consistent with all of them. As we look to the fourth quarter of 2025, we want to highlight the following: at UFC, results are expected to be positively impacted as the current calendar for the fourth quarter is expected to include 11 events compared to 10 in the prior year period. Within these 11, we expect 4 numbered events, which is comparable to the prior year. However, we intend to stage 9 events with live audiences compared to 7 in the fourth quarter of 2024. At WWE, as we previously discussed, the results will reflect the favorable impact of the raw domestic rights deal. As a reminder, the fourth quarter of this year will reflect the new long-term agreement with Netflix compared to the short-term agreement we reached with USA Network in the prior year. The fourth quarter will also benefit from the new domestic rights agreement with ESPN. However, the timing of the calendar is expected to significantly offset the benefit of these items. WWE is planning to have 2 nights of main roster PLE programming in the fourth quarter compared to 3 nights in the prior year. Most notably, as we announced earlier in the year, one PLE in Saudi Arabia is shifting from Q4 2025 to the first quarter of 2026. All these items taken together, along with continued underlying momentum in the business, are expected to yield strong financial performance in Q4. At the IMG segment, we expect fourth quarter revenue and adjusted EBITDA to be down modestly year-over-year in terms of absolute dollars, primarily due to the absence at IMG of the Gulf Cup, which, as a reminder, is a biannual event as well as an increase in cost at On Location related to preparations for the upcoming Olympic Games. In closing, while we're not providing formal guidance for 2026 on this call, we would be remiss if we didn't highlight some things we're excited about looking ahead: Number one, media rights. Our 2026 financials will include the significant step-up in connection with the commencement in January of the 7-year UFC rights deal with Paramount as well as a full year of media rights fees from our new 5-year agreement with ESPN for the WWE PLEs. This high-margin contractual revenue stream with annual escalators will provide attractive visibility and stability for our businesses for years to come. Number two, site fees. We continue to see meaningful momentum in securing significant financial incentives and delivering measurable economic impact by bringing our events to cities, both in the United States and around the globe. We're focused on a multipronged strategy that's predicated on receiving higher value from markets we currently have incentive packages with, site fees from markets we've been to but don't currently receive a fee from as well as site fees from new markets. Additionally, in 2026, the current WWE calendar includes 3 PLEs in Saudi Arabia compared to 1 in 2025. Number three, global partnerships. We continue to make significant progress in this area of our business, adding new partners and categories while also growing existing partnerships. Our recently announced media rights deals will further bolster this area of our business. In 2025, at UFC and WWE, we expect to achieve $450 million in high-margin partnership revenue and continue to work towards achieving our previously communicated target of $1 billion in total company partnership revenue by around 2030. Number four, boxing, which we believe represents an additional opportunity to drive value for shareholders in multiple ways. The initiative is anchored by our joint venture, Zuffa Boxing, which we anticipate will launch in January. For the avoidance of doubt, the financials for Zuffa Boxing are not consolidated. We have an equity interest in the joint venture, and therefore, we account for it as an equity method investment. Also within our reported results are management fees for services to the joint venture. Our consolidated results in 2026 are expected to include a full year of management fees as opposed to the partial year that we recorded in 2025. Over time, as Zuffa Boxing scales, our meaningful ownership interest will enhance the value to and inure to the benefit of TKO shareholders. Separate from the joint venture, we expect to work with our partner, Sela, to host 2 to 4 super fights per year. As with the recent Canelo versus Crawford event, TKO will receive additional promotional and management services fees as well as a commission for negotiating the media rights deals related to these events. In addition to these four items, we continue to focus on the integration of IMG, On Location and PBR as well as realizing revenue and cost efficiencies across all of our businesses, which we expect will be incremental to our already attractive margin profile. With that, I'll turn it back to Seth.

Seth Zaslow, Head of Investor Relations

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

Operator, Operator

The first question is from Stephen Laszczyk with Goldman Sachs.

Stephen Laszczyk, Analyst

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.

Mark Shapiro, President and COO

Great. Thanks, Stephen. It's good to hear from you. We're really viewing TKO as an execution story right now. Our main focus is on maintaining the momentum in the business, including operational expansion and integration. We're also highly focused on returning capital. On the media rights front, we're in a strong position domestically, with solid contractual revenue and annual escalators. This high-margin revenue stream provides good visibility, which is favorable for investors. Internationally, we're concentrating on enhancing our monetization opportunities. A majority of our fan base, particularly with UFC, is international, so it's essential to bridge the gap in our audience, prioritizing the maximization of our media rights. Successful global partnerships will benefit us in this area. As we effectively operate in various countries and potentially host multiple events in cities, especially with WWE, there’s a significant opportunity for audience growth. All of this should improve our attractive margin profile. We anticipate margin expansion through growth in high-margin revenue while maintaining cost discipline as we approach '26. When we examined the specific territories mentioned, it came down to negotiations with various bidders. We were fortunate to have three separate bidders interested in those regions, recognizing that what is important to one may not be to another. In the end, the domestic deal with Paramount and CBS worked out well for us. PSKY ultimately provided the best overall equation for our brand, with an effective marketing plan and the best rights fee. Our strategy always aligns with brand, reach, and revenue. For those specific territories, we expected a competitive bidding situation due to their attractiveness and strong fan bases, and we took full advantage of that. However, no one here is celebrating prematurely about those territories or our quarterly earnings. While we are proud of our achievements and the path ahead, we remain cautiously optimistic. We are encouraged by the various revenue drivers, but we recognize there is much work ahead to ensure continuous growth and improvement.

Stephen Laszczyk, Analyst

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?

Nick Khan, President

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 are 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.

Operator, Operator

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

Brandon Ross, Analyst

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.

Andrew Schleimer, CFO

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 other cable distribution. 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.

Brandon Ross, Analyst

Okay, I understand. With the UFC domestic deal finalized, I would like to better grasp the incremental flow-through regarding margin percentage. I am aware it is high, but any additional details would be helpful. How should we anticipate fighter compensation? Will fighter pay increase? What is the current framework for fighter pay? Historically, certain fights were tied to points and pay-per-views, but the business has evolved. Any insights you could provide on this would be appreciated.

Andrew Schleimer, CFO

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.

Lawrence Epstein, COO

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.

Operator, Operator

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

Benjamin Swinburne, Analyst

I wanted to ask about boxing, specifically the Canelo and Crawford fight. It was a massive success and it opened my eyes to the potential in this area. You have a joint venture and management fee structure, so I'm curious if there are plans or opportunities to consider a more direct approach as a promoter in boxing. You certainly have Dana White, a strong balance sheet, significant cash flow, and equity currency. Are there any plans to expand further in boxing beyond your initial investments as you prepare for the launch in 2026 with Zuffa?

Mark Shapiro, President and COO

I believe these major fights are going to be a significant driver for us. We didn't underestimate the first one, but it was a new experience, and we weren't fully prepared for what it would entail. Our main focus has been the Zuffa Boxing League. However, we anticipate receiving a services fee of $10 million for each fight, with plans for 2 to 4 fights annually starting in 2026. We are eager to proceed because we can feature Zuffa fighters in the undercards, which will help us develop names, personalities, and rivalries, further promoting our Zuffa Boxing League. There is potential for additional revenue from each fight, with the $10 million fee serving as a starting point. Nick is actively engaged in negotiations with our partners in Saudi Arabia to arrange these events and maximize value, including taking a commission. Additionally, this does not affect our joint venture; we also have media and partnership deals, ticket sales, and the role of marketing agency for ticket sales to consider. While we are not providing a detailed financial model right now, we are outlining a strategic approach to generate extra high-margin income. We are enthusiastic about this opportunity. At the same time, Nick has taken on a full-time role with WWE, and we are committed to maintaining our focus and not taking our current success for granted, especially as we aim to improve next year. Dana White is also quite busy and will only be able to handle a limited number of boxing events each year.

Benjamin Swinburne, Analyst

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.

Mark Shapiro, President and COO

Yes, we certainly have the resources to execute our plans. I want to emphasize that everyone here is actively engaged; we are not the type to sit back and relax. Our focus is on execution, and we aim to avoid distractions. We seek certainty, although there is not much available at our level, but we are actively searching. In the meantime, we will fully commit to boxing. I'm confident in our team; while everyone has their core responsibilities and may feel stretched, we maintain long-standing relationships with influential individuals who create value across the sports industry. We are ready to leverage these connections when the right opportunities arise. Meanwhile, we will concentrate on boxing, planning 12 to 16 fights on Zuffa this year, along with 2 to 4 super fights. We will generate commissions by delivering value to our partners in Saudi Arabia and aim for the Zuffa Boxing League to generate revenue comparable to our other leagues. We recently established a partnership with Paramount, which we believe will be excellent. Additionally, we have global partnerships, consumer licensing opportunities, and ticket sales initiatives ahead. Site fees will also contribute to our growth, strengthening our position alongside opportunities with WWE, UFC, and PBR. We will remain busy with our execution plan in boxing, but if any new market opportunities with scale, reach, and significant demand appear, we will explore them.

Operator, Operator

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

Peter Supino, Analyst

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?

Andrew Schleimer, CFO

So Peter, I have two ways to respond to this. First, regarding inorganic timing, we expect to gain from one major event in Saudi Arabia in 2025 and three events in 2026 due to the calendar shifting from December to January, including the inaugural Royal Rumble in Saudi Arabia in January. Specifically for 2026, it will benefit from three large site fees from Saudi Arabia. On the organic side, I've highlighted three key strategic areas of focus in my prepared remarks, and we are witnessing significant momentum there. The total addressable market is no longer just about our premium events, as we're seeing increasing interest in our Raws, SmackDowns, and UFC Fight Nights. We have a range of comparisons we've discussed in previous calls that contribute to a more optimistic outlook as we consider 2026. While we won't go into specifics on site fees right now, we'll provide more information in our 2026 guide, and we feel confident heading into next year.

Mark Shapiro, President and COO

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 multimillions around the globe. So this is a high-margin revenue opportunity that we are approaching like a heat-seeking business.

Peter Supino, Analyst

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

Mark Shapiro, President and COO

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.

Andrew Schleimer, CFO

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 flexibility 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.

Mark Shapiro, President and COO

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.

Operator, Operator

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

Ryan Gravett, Analyst

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?

Andrew Schleimer, CFO

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.

Mark Shapiro, President and COO

Yes. Ryan, while we sometimes refer to these brands as sponsors, we actually see them as part of a complex partnership filled with various opportunities, including activation, experiential initiatives, branded content, and commercial inventory. These are significant agreements that enable our brand partners to maximize their reach and visibility. For instance, as we matured with ESPN+ and reached 25 million subscribers, now Paramount boasts over 75 million global subscribers. This shift allows us to approach partners differently; instead of them questioning what they should pay for only 3 million subscribers, we can now suggest they reopen their deals in light of their 75 million subscribers. We are actively pursuing these discussions with existing partners as we aim for $1 billion. Additionally, we are excited about prospects with new categories and plan to announce two major new deals by year's end. I'm ensuring that Seth Zaslow notes this down.

Seth Zaslow, Head of Investor Relations

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

Operator, Operator

Final question is from Vikram Kesavabhotla with Baird.

Vikram Kesavabhotla, Analyst

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?

Nick Khan, President

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.

Mark Shapiro, President and COO

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.

Seth Zaslow, Head of Investor Relations

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

Operator, Operator

Next question is from Eric Handler with ROTH Capital.

Eric Handler, Analyst

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?

Andrew Schleimer, CFO

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.

Mark Shapiro, President and COO

Yes. I think it's important to add, Eric, we've now reached a point where we're receiving a significant number of incoming calls. When we initially partnered with the UFC, it was an outbound business. Now, we are getting these calls not only to check on the UFC but also to see if they can bundle a package with PBR and WWE. We believe that this approach will maximize reach and engagement, and it offers a great opportunity for us.

Seth Zaslow, Head of Investor Relations

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

Operator, Operator

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.