ESPN to Pay $1.5 Billion for UFC Broadcast Rights

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Just two weeks after ESPN agreed to purchase the rights to broadcast 15 UFC events annually for $750 million, the company acquired exclusive linear broadcast rights to the MMA promotion’s cable television package. The newly signed deal, worth $150 million annually, will give fans 27 additional fight cards each year (consisting of 10 new linear cards, 12 PPV prelims on linear, and five new OTT cards); meaning ESPN will pay a staggering $1.5 billion to carry 210 UFC events over the next five years. Earlier this week, ESPN President Jimmy Pitaro called the UFC an “ascendant property”, while touting its young and diverse fan base. It must be noted that despite the $300 million ESPN will pay UFC annually, UFC will retain the rights to its 12 annual PPV events (i.e. their best content). 

Howie Long-ShortWe told you that once the WWE SmackDown Live deal with FOX was completed, UFC’s linear broadcast offering would be the next set of sports rights to fall. What we didn’t project was ESPN (DIS) acquiring them after spending $150 million per year on digital rights for ESPN+ and hearing that Fox Sports had increased its bid to $175 million/year for the package (up from $165 million). UFC may have left some money on the table to do this deal. Experts projected the linear package to draw $200 million and several networks (i.e. Turner, NBC, Fox Sports) reportedly had interest.

$1.5 billion for UFC cards between fighters no one has ever heard of (yes, that’s a bit of hyperbole) does not sound like a great investment. The UFC lacks mainstream star power to begin with and naturally the promotion places its biggest stars on PPV cards (which they’ll retain); meaning the cards appearing on ESPN & ESPN+ won’t include Connor McGregor (or any other mega star) anytime soon. Did I mention Fox Sports’ ratings for UFC events declined double digits in 2017?

Need reasons to believe ESPN made a wise investment? UFC has the youngest fan base in sports (median age 40). Males aged 18 to 34 are particularly valuable to advertisers and at $150 million annually the package is still cheaper than what NBCUniversal and FOX will pay for RAW and SmackDown Live.

Fan Marino: I’m certainly not surprised that WWE content is valued more than UFC content, as WWE has a far better business model. WWE stars headline tentpole events (like WrestleMania) and more than 500 other shows each year, so fans get to see their favorite Superstars on a weekly basis. UFC’s biggest names might fight twice a year and are always one fight away from never headlining another event, either because they’ve lost their sense of invincibility (see: Rousey) or because they’ve made so much money that getting punched in the face for a living no longer makes sense (see: McGregor). UFC promotion can also be limited by the outcome of fights, as the best fighters aren’t always marketable (see: Stipe Miocic). You’ll never find WWE in that situation, as career arcs are decided before the Superstars get to the ring.

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Top Rank CEO Bob Arum Discuss ESPN+, PPV and Saturday Night’s WBA Title Fight

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On Saturday night, WBA World Champion Jorge “El Niño de Oro” Linares (44-3, 27 KOs) will defend his lightweight title against Vasiliy “Hi-Tech” Lomachenko (10-1, 8 KOs), headlining a night of fights at Madison Square Garden (and on ESPN and ESPN+). Bob Arum, the CEO of Top Rank, is amongst the most storied promoters in boxing history; having represented everyone from Muhammad Ali to Oscar De La Hoya and now Lomachenko. JWS caught up with Bob prior to the Thursday afternoon’s Linares/Lomachenko press conference and asked him about Top Rank’s deal with ESPN+, how he decides if a fight should be on PPV and what makes Lomachenko the “most technically proficient” fighter he’s ever had.    

JWS: The Walt Disney Company and UFC just signed a 5-year media rights deal worth $150 million annually, to bring 15 UFC events/year exclusively to ESPN+. Back in April, Top Rank announced a similar deal to bring 12 cards exclusively to ESPN’s OTT service. Does ESPN/ESPN+ value boxing the same way it values the UFC?

Bob: Somebody once asked me, why do you think horse trainers put blinkers on their horses? The answer was so that they don’t see what the other horses are doing. So, whatever deal ESPN made with UFC, I’m fine with; as long as we believe, which we do, that ESPN and Disney are treating us fairly. I don’t look to what the other guy is doing. 

JWS: Terence Crawford is going to fight Jeff Horn for the Welterweight Title on June 9th. That will be the biggest fight on ESPN+ to date. Are you concerned that a marquee fighter like Crawford won’t receive the requisite exposure fighting on a platform with less eyeballs?     

Bob: The arrangement with ESPN allows us to take a fighter like Crawford and have him fight 3 or 4 times per year, as opposed to the old plan when we were relying on HBO and he fought at best twice per year. So, yes, fewer people will watch him on ESPN+ than on ESPN linear, but he’s going to be on ESPN linear at least twice. By having this tremendous number of dates, we’re able to be flexible; and also, 2 fights (Barrera/Adames and Linares/Lomachenko) are going to be televised on Saturday’s show, everything else goes on ESPN+. So, now guys like Michael Conlan and Teofimo Lopez who are on the undercard, they know that people will be watching them.

JWS: High-profile fights on cable television have become commonplace. Is there a magic number of sales you need to be confident you’ll hit before you decide a show is headed to PPV?

Bob: A lot of it is done by the seat of our pants, but obviously if a show pencils out to do 100,000 homes we’re not going to put it on PPV. If we guess it’s going to do 250,000-300,000 homes, then it’s a question and we very well may go on PPV; and if 500,000-600,000+ it’s clear that you have to go on PPV. The problem in making the prognostication is that we’re not always right, the cable systems aren’t always right and the satellite providers aren’t (always correct). 

Howie Long-Short: Disney (DIS) reported fiscal Q2 ’18 profits increased 23% YoY (to $2.94 billion), with Black Panther ($1.3 billion in box office sales) and theme parks (+13% to $4.88 billion) spearheading revenue growth (+9% to $14.5 billion). Operating income for the company’s cable networks businesses (including ESPN) declined 4% YoY to $1.73 billion. The company did not provide an exact number of subscribers for their ESPN+ service, but CEO Bob Iger said that “a number of people have signed up for the trial and our conversion rates have been good so far”; adding “basically, I give it a so far, so good.”

Fan Marino: For those not familiar with Vasiliy “Hi-Tech” Lomachenko, make sure to tune to ESPN at 8p EST tomorrow night. He’s a two-time Olympic gold medalist, won titles at both featherweight and super featherweight in his first 11 professional bouts and has made his last 4 opponents quit before going the distance. Lomachenko was an accomplished amateur fighter, but relative unknown when Bob provided him with the opportunity to fight for a world title in his 2nd professional bout. I asked if that was a difficult fight to sell, considering his lack of mainstream name recognition? 

Bob: Accomplished fighter is not the right adjective to use. Lomachenko, as I viewed him, was the greatest fighter in the history of amateur boxing. So, it was relatively easy for me to fast track him for world titles as opposed to fooling around with preliminary fights. He didn’t need that type of a build-up.  

Fan: You’ve called Lomachenko the most “technically proficient” fighter you’ve ever had. Explain to the casual boxing fan, watching him for the first-time tomorrow night, what sets him apart?

Bob: Here’s the difference, Lomachenko is the best defensive fighter I’ve ever seen; but, there have been great defensive fighters before, like Floyd Mayweather. Floyd would use his defensive skills to make guys miss, throw enough punches to build up points and win a fight that way. This kid is different, when he is being defensive he is looking for an opening to destroy his opponent. In other words, the difference between Lomachenko and any other defensive fighter that I’ve seen is that he’s defensive so he can be more effective offensively and that’s the beauty of watching him fight. 

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Disney, UFC Sign Multi-Year Media Rights Deal

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The Walt Disney Company (DIS) and UFC have agreed on a multi-year media rights deal that will bring 15 live UFC events exclusively to ESPN+ (ESPN’s DTC streaming service), effective January 2019. The MMA fight cards will be branded as “UFC on ESPN+ Fight Night”, with each event featuring 12 bouts. In addition to the 15 fight cards, ESPN+ subscribers will have exclusive access to a new season of “Dana White’s Contender Series” (begins June ’19), a new all-access series produced by IMG Original Content and pre-fight/post-fight shows. UFC FIGHT PASS (UFC’s DTC streaming service) and UFC PPV events are not included in the subscription, though can be both purchased and viewed in-app.

Howie Long-Short: This partnership didn’t exactly come out of left field, we noted back in April that ESPN was considering in a joint bid with Fox Sports for UFC broadcast rights. It was rumored at the time that ESPN was willing to spend between $120 million – $180 million annually, to add +/- 15 exclusive UFC events to its burgeoning OTT platform. Ultimately, the 2 companies agreed on a deal worth $150 million annually over 5 years.

The deal would seem to make sense for both sides. Disney (DIS) adds valuable content to its growing ESPN+ library and will pull subscribers from a different pool than fans of stick and ball sports, while the UFC lands a lucrative deal for their streaming rights and finds a broadcast partner willing to promote their PPV events (see Fan below); an overlooked but valuable piece of the agreement.

It should be noted that the UFC is still looking to sell a linear broadcast package with 20+ events, their existing deal with FOX (worth an avg. of $165 million/year) expires in December. The new deal is expected to fetch at least $200 million annually.

Fan Marino: Buried within the press release, was the news that the first-ever rights and distribution agreement between DIS & UFC includes exclusive 30-minute specials previewing upcoming PPV events and re-airs of current PPV events (on ESPN’s linear and digital networks); seemingly indicating that fight fans would see more UFC coverage on cable television, but I’m not sure. Sure, ESPN’s talking heads will issue their share of UFC “hot takes” ahead of PPV events, but fans are likely to get less in-cage action assuming the 15 events heading to ESPN+ are the cards that previously aired on Fox or FS1.

Looking for free MMA action? Download the new ONE Championship app. The company just introduced a mobile application that will bring all their fights to consumers around the world for free, including events previously only available to U.S. fans on PPV (online).

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TickPick Doubles User Base with Razorgator Acquisition

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TickPick has acquired ticket re-seller Razorgator (excluding its corporate ticketing business) to grow market share in a competitive secondary ticketing industry. The company’s “Best Price Guarantee” (on the exact same ticket) and “No Fee” policy (for buyers), has enabled it to onboard over 1 million active users. Their white-label software will power a revamped Razorgator website, one that also maintains +/- 1 million loyal users. Financial terms of the deal were not disclosed, but it is suspected TickPick paid far less than the +/-$60 million in venture capital that Razorgator had raised to date; considering the company declared financial insolvency back in February.

Howie Long-Short: TickPick has been able to capture market share by operating on slimmer margins (13-14% commission) than the 25%+ collected, per transaction, by market leaders StubHub (EBAY) and Ticketmaster (LYV). The company did $100 million in 2017 sales, with EBITDA of $2 million over the trailing 12 months. Expect them to continue rolling up competitors, as consolidation within the secondary ticketing industry continues.

As mentioned, Razorgator raised $58.5 million over 6 rounds; though, no new money since ’14, before running out of runway. Steamboat Ventures, the venture capital arm of The Walt Disney Company (DIS) and Hercules Capital (HTGC) had both invested in the company. I’m unaware of any way to play TickPick.

Fan Marino: FlipTix, a mobile marketplace that enables fans to buy and sell tickets mid-event, is another exciting entrant to the secondary ticketing space. While historically, most stadiums prevent fan exit and re-entry, the FlipTix app gives promoters the ability to invalidate a bar-code on a ticket, notify prospective buyers, re-sell the seat and issue a new ticket. The original buyer then receives remuneration for their contribution to the transaction, though not necessarily in the form of cash. Secondary buyer pricing is determined by variables like the score and time remaining in the game. With teams once again moving downtown, fans are living/working within walking distance (or a quick ride-share) to the venue. I would expect FlipTix to capitalize on the fan who gets out of work late and wants to “catch a few innings” on his/her way home from the office; a market that didn’t exist prior to their entry.

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Twitter to Air Original ESPN Programming, Announces Content Partnership with Disney

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Twitter has announced a wide-ranging content and advertising partnership (among 30 renewals and new video deals) with The Walt Disney Company (DIS), as the online news and social networking company continues to invest in video content. The deal, which spans the entire DIS portfolio, includes live original ESPN programming. 2 shows have been introduced thus far, SportsCenter Live (TWTR version of the flagship program) and Fantasy Focus Live (live stream of a fantasy sports podcast). Expect ESPN to share some additional insight on the partnership at their Digital Content NewFronts event on Wednesday.

Howie Long-Short: It’s logical for TWTR to continue to invest in live video content, because it’s working; daily video views on the platform are up +/-100% over the 12 mo. and video is now responsible for more than 50% of the ad revenue. As Global VP of Revenue and Content Partnerships Matthew Derella pointed out, the company’s “super power” is its ability to tie conversation to video during the biggest moment; “giving brands the unique ability to connect with leaned in consumers.” Shares rose 4.5% on Monday’s announcements, closing at $30.31.

TWTR reported Q1 earnings last week, the company’s 2nd consecutive profitable quarter and 2nd profitable quarter ever. Quarterly revenue was up 21% and the company said it expects to be profitable in 2018. Ad revenue is driving the growth, as more brands are shifting marketing dollars from traditional television to digital outlets.

Fun Fact: In 2016, DIS had explored the purchase of TWTR; ultimately passing on the deal amidst concerns of the company’s inability to curb hate speech and trolling on its platform.

Fan Marino: Amazon (AMZN) also recently beefed up its sports video programming, acquiring exclusive rights to stream the U.S. Open Tennis Championships in U.K. and Ireland and renewing its exclusive Thursday Night Football streaming rights through the 2019 season. The 2-year deal worth $130 million (or $15 million more/season than the $50 million paid in 2017), gives the e-commerce giant the rights to stream 11 games during the 2018 season. On May 11th, the cost of Amazon Prime will increase from $99/mo. to $119/mo. With 100 million active members and another $2 billion in potential revenue awaiting, a $15 million annual increase for TNF streaming rights is just a drop in the bucket.

Amazon also just delivered impressive Q1 ’18 results, posting its most profitable quarter ever. Q1 revenue was up 43% to $35.7 billion, with net income up 121% to $1.6 billion. The company’s cloud computing business (+49% YoY to $5.44 billion), subscription services (think: Amazon Music, +60% YoY to $3.1 billion) and ad revenue (+139% YoY to $2.03 billion) all contributed to the record quarter.

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ESPN, Fox Sports Submit Joint Bid for UFC TV Rights

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ESPN (DIS) and Fox Sports (FOXA) have submitted a joint bid worth at least $320 million annually, to split exclusive television broadcast rights to the Ultimate Fighting Championship (UFC). Reports indicate that ESPN would contribute between $120 million and $180 million per year, to add +/- 15 premium live-events to its new ESPN+ service; with Fox Sports committed to spending $200 million per year, for the bulk of the TV package. There had been speculation Endeavor would hold on to UFC broadcast rights and distribute them direct-to-consumer following the company’s $250 million acquisition of the digital video broadcasting provider Neulion.

Howie Long-Short: In 2016, Endeavor paid $4 billion for the UFC expecting to cash in on this round of rights negotiations; but, poor ratings (-22% on Fox, -17% on FS1 in ‘17) and the pending availability of WWE television rights, lowered expectations dramatically. Initial reports had the company seeking $450 million/year, but by late 2017 Fox was offering just $200 million/year to extend broadcast rights into 2019.

This deal makes too much sense, for everyone involved, not to be completed. Endeavor could take in as much as $380 million/year, a figure that seemed unfathomable back in December.  The Walt Disney Company would acquire some much-needed content for ESPN+ and Twenty-First Century Fox (FOXA) would retain the bulk of the UFC TV package, while holding firm on their $200 million offer. Sure, they’re paying $80 million/year more for less programming; but, they retained live assets (Fox wants to be 80% live sports, news) and are still well positioned to pursue the WWE contract.

Fan Marino: It’s not nearly as rare as one might think for DIS and FOXA to share broadcast rights. Both ESPN and Fox Sports carry Big Ten athletics, Pac-12 athletics, MLS and USMNT matches.

As for the UFC fanatic, this deal means they’ll be forced to spend an additional $4.99/mo. (ESPN+) on fights, that they previously had access to with a cable subscription.

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YouTube TV, Hulu Engaged in Sports Sponsorship Arms Race

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A brand awareness campaign is among the ways (exclusive content and user experience are others) that an MVPD, OTT live-streaming service or VOD platform can distinguish itself from the competition and drive growth. Over the last month, rivals YouTube TV and Hulu have announced noteworthy sponsorship transactions (without disclosing financial details) surrounding marquee sporting events. Below is a brief each deal:

  • YouTube TV will remain (was in ’17) the presenting sponsor of the World Series, (“World Series Presented by YouTube TV”) through the 2019 season. As part of an expanded partnership, the subscription streaming service will also add MLB Network to its base package. For an additional fee, YouTube TV subscribers will eventually have the option to add MLB.tv (provides regional broadcasts of games) to their package. “On-air callouts”, a national advertising campaign and in stadium signage are also included within the deal.
  • YouTube TV will become the first-ever presenting sponsor for the NBA Finals. The deal, which runs through at least ’19, will also make the company the presenting sponsor of the WNBA and G-League Finals. On-court and in-arena signage, ABC ad spots, “in-game callouts” and branding across the league’s digital and social channels, are also included within the pact.

It must also be noted that YouTube TV has also landed exclusive streaming rights to Los Angeles FC and Seattle Sounders games.

  • Hulu has signed on as an official partner of the NHL & NHLPA for the 2018 Stanley Cup Playoffs and Stanley Cup Finals; a “comprehensive partnership” that will “cross all league touch points including NBC Sports, the NHL’s digital and social channels, as well as camera-visible, in-stadium inventory within all U.S. venues.”
  • Hulu also signed a deal with Turner Sports, to sponsor NBA playoff games on TNT. A “Presented by Hulu” graphic will be prominently displayed on “opening graphic cards, custom billboards and scorecards” throughout all first-round coverage, Conference Semifinals action and Western Conference Finals broadcasts. NBA on TNT talent will appear in ad spots promoting the streaming service.

Howie Long-Short: The success YouTube TV had using live telecasts of the 2017 World Series to drive subscriptions initiated this competition between rivals; but, YouTube TV isn’t the leader in this space. In fact, the size of its subscriber base (300,000+) has the company competing with Hulu (450,000) for a distant 4th place. The oldest service, Sling TV, leads with 2.22 million subscribers; while AT&T’s (T) DirectTV Now comes in second with 1.2 million. Sony’s (SNE) PlayStation Vue is 3rd with +/- 500,000 monthly subscribers.

Fan Marino:  For reference purposes, Sling TV is a subsidiary of DISH Network (DISH). Google (GOOGL) owns YouTube TV and The Walt Disney Co. (DIS), pending final approval of its 21st Century Fox acquisition, controls 60% of Hulu; Comcast (30%) and Time Warner (10%) own the balance.

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Pac-12 Networks Lags Far Behind Big Ten, SEC Networks

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SNL Kagan, a media research firm, has published a report detailing the average subscription fees for 26 national sports networks; data that reflects just how far Pac-12 Networks (P12) lags behind the Big Ten (B10) & SEC Networks. While the B10 and SEC command average subscriber fees of $.48 (+30% since ‘12) and $.74 (launched in ’14), respectively, P12’s average subscriber fee has declined 63% to $.11, over the last 5 years. Just 4 of the 24 national sports networks that existed in 2012, have failed to increase their average subscriber fee since (Olympic Channel -11.5%, Tennis Channel -17.5%, beIN Sports -35%) and P12 experienced the sharpest decline among the group. The Sportsman Channel ($.06), Outdoor Channel ($.06), Outdoor Television ($.05) are the only national sports networks that command less per subscriber than P12 does.

Howie Long-Short: College networks operate on a tiered structure where subscribers within “home markets” pay higher subscription fees than “out of market” subscribers. So, as a network expands distribution and adds out-of-market subs, the average per sub fee will decline. In 2016, P12 signed distribution deals with Dish Network (DISH) and DISH owned Sling TV; a conscious decision to add viewers at the expense of their average subscription fee. One would imagine the average fee would drop even further if the network wereable to work out its long-time impasse with DirecTV and add 37 million households nationwide.

To be fair, P12 has added 7 million subscribers within the last 5 years and the network is on solid financial ground; paying out $2.75 million to each member institution in 2018. Of course, that’s just a small fraction of the estimated $8 million that each SEC and B10 member institution earned, from their respective conference networks, in 2016.

Fan Marino: You can’t buy Pac-12 Networks, as the outlet is wholly owned by the conference’s member institutions, but you can buy shares in both the B10 and SEC. Fox Entertainment Group (FOXA) controls 51% of B10 (Universities own balance) and SEC, is a joint venture between The Walt Disney Company (DIS, 80%) and Hearst Communications.

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ESPN+ to Debut April 12, Include “Hundreds” of MLB, NHL and MLS Games

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ESPN has announced their upcoming direct-to-consumer subscription streaming service ESPN+ will debut on April 12th. Integrated into a “completely redesigned and reimagined ESPN App”, the $4.99/mo. OTT offering will include “hundreds” of MLB, NHL and MLS games, “thousands” of college sports events, Top Rank Boxing, PGA Tour Golf and Grand Slam Tennis; original content (scripted shows, films, studio shows) and an “unmatched library” of on-demand sports programming are also included. The service will be powered by BAMTech, a unit of Disney (DIS) Direct to Consumer and International. DIS acquired 75% of the MLB Advanced Media spinoff, for $2.58 billion.

Howie Long-Short: On Sunday, ESPN opened its new NYC home, a 21,000 SF facility called ESPN Seaport District Studios. The network’s new morning show “Get Up!” (hosted by Mike Greenberg, Michelle Beadle and Jalen Rose) debuted from Pier 17 on Monday morning at 7a EST. Among the site’s (at the foot of the Brooklyn Bridge) unique features is a 100,000 SF event deck (controlled by the Howard Hughes Corporation, HHC) to be used for concerts and an outdoor skating rink. The Seaport District Studios are just a small piece of the $5.96 billion (market cap) HHC conglomerate though, as the company develops and operates MPC’s (Master Planned Communities) and mixed-use properties across 14 states. FY17 was a successful one for HHC. The company increased land sales at MPCs for a 3rd consecutive year, reported its highest year of NOI (+13% to $157 million) from operating assets, placed 4 new properties into operation (from its development pipeline) and commenced on 5 others that will add $28.2 million in recurring NOI upon stabilization. Shares are up 11% (to $137.44) since we last wrote about the Seaport District Studio project in October.

Fan Marino: I fail to see who this service appeals to. Sports fans have favorite teams and watch their teams’ games, gamblers pay for services (think: NBA League Pass, NFL Season Ticket) that provide them with access to all the action and anyone willing to cut the cord (and drop ESPN), isn’t adding a package meant to be complimentary. That’s not to say there isn’t an end game here for ESPN, it’s just several years out. DIS is buying 22 21st Century Fox (FOXA) RSNs with the intention of adding 5,500 local broadcasts to ESPN+ (as existing the broadcast deals expire). When a fan in St. Louis can get all the Cardinals and Blues games for $4.99/mo., fans in St. Louis will subscribe to ESPN+.

Oh, and touting “thousands” of college sporting events is a bit misleading, as there won’t be any P5 football or basketball included. ESPN won’t be simulcasting its most watched content on the linear network to prevent the cannibalization of its cable subscription base.

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Endeavor Acquires Digital Video Broadcasting Company

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Endeavor has acquired the digital video streaming provider NeuLion, Inc. (NLN) for $250 million ($.84/share) in an all-cash deal; a 112% premium on the share price at last Friday’s close. NLN, which specializes in digital video broadcasting, distribution and monetization, will become a privately held subsidiary of Endeavor (formerly WME-IMG) upon the Q2 ’18 close of the sale. The announcement comes just months after NeuLion announced “it was selling some non-core assets to an affiliate of Fortress Investment group for $41.5 million”. NLN has struggled to replace the revenue lost following its loss of the NHL as a client to competitor MLBAM in August ‘15; revenue declined 8% YOY in Q4 ’17.

Howie Long-Short: You can’t invest in Endeavor (despite a long-rumored IPO), but with publicly traded rights holders valuing the technology that enables them to reach their consumers directly; there are several other was to invest in OTT service providers. Disney (DIS) owns 75% of BAMTech, NBCUniversal (CMCSA) developed PlayMaker Media and Turner Broadcasting System (TWX) owns “a majority stake” in iStreamPlanet. Don’t forget, you can also play Delatre via WPP; an investor in Bruin Sports Capital.

Fan Marino: Endeavor (which owns the UFC) worked with NLN on the dissemination of last summer’s McGregor/Mayweather mega-fight and while the fight had the 2nd most buys in PPV history (4.3 million), it was also marred by widespread technical difficulties. While that experience may not have gone perfectly for some viewers, it gave Endeavor the opportunity to see the platform’s upside; and with the UFC struggling to find the $450 million/year annually it seeks in TV money, retaining their own rights and going DTC may be the company’s best option.

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