TKO Group Holdings, Inc.

Hello, everyone, and welcome to the Q2 2024 TKO earnings call. My name is Charlie, and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypad. I will now hand over to our host, Seth Taslow, Head of Investor Relations, to begin. Seth, please go ahead.

Good morning, and welcome to TKO's second quarter 2024 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 the information regarding our second quarter 2024 performance. I want to remind everyone that the information discussed will include forward-looking statements and or projections that involve risks, uncertainties, and assumptions. Please see our filings with the Securities and Exchange Commission for further detail. If these risks or uncertainties were to materialize or any assumptions prove incorrect, our results may differ materially from those expressed or implied on this call. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events, except as legally required. Our commentary today will also include non-GAAP financial measures, which we believe provide an additional tool for investors to use in evaluating ongoing operating results and trends. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics can be found in our press release issued today, as well as the information posted on our IR website. With that, I'll now turn the call over to Ari.

Thanks, Seth. Consumers, and in particular sports fans, are increasingly seeking customized, immersive communal experiences, and TKO has demonstrated throughout the first half of the year how we are capitalizing on this demand and building entire worlds and weekends around our premium content. Coming off a strong first quarter marked by event milestones, record audiences, innovative brand partnerships, and the landmark WWE deal with Netflix, TKO delivered record revenue and profitability in the second quarter. With this continued momentum, we are again raising our full-year 2024 guidance for revenue and adjusted EBITDA. Before Andrew discusses our record financial performance, I'd like to share some key highlights from the quarter that include single event all-time highs for ticket revenue and viewership, significant site fees we've witnessed on a global scale, as well as new brand partnerships that will meaningfully drive top-line revenue, margin, and audience. UFC and WWE's live events continued to outperform, demonstrating that demand for premium sports and entertainment content has never been stronger. Starting with UFC, the marquee numbered events in Las Vegas, UFC 300 and UFC 303 brought in our third and fourth highest ticket revenue of all time, respectively. Additionally, UFC 302 in Newark, New Jersey set the record for Prudential Center's highest grossing event in venue history while also becoming the most watched UFC pay-per-view prelims ever on ESPN2, underscoring how much fans value our content, both live and on screen. At WWE, the quarter got off to an explosive start with WrestleMania 40, which became WWE's most successful event ever, setting records for highest grossing WWE event and most streamed entertainment event on Peacock. That momentum continued over the quarter with a powerful slate of international PLEs. Backlash France attracted more than 20,000 fans over two nights in Lyon, setting records for highest grossing SmackDown and highest grossing Backlash of all time. Meanwhile, Clash at the Castle sold out two nights at OVO Hydro in Scotland, breaking WWE's record for a PLE held in an arena. Taken together, these benchmarks all underscore how we are capitalizing on the growing demand for premium content and benefiting from the experience economy around the globe. Next, we improved the economics around our live events. In May, we integrated UFC and WWE's live events groups to drive synergies across event development and scheduling, tourism incentive programs, ticketing, and fan experiences. We had several wins throughout the quarter, in particular, a series of site fees and incentive packages from public and private partners that is clearly now an increasing trend. Most notably, ahead of UFC's first-ever fight night in Saudi Arabia, we expanded our relationship with the General Entertainment Authority to bring a second UFC event during Riyadh season in 2025. At the same time, WWE signed a first-of-its-kind agreement with Indiana Sports Corp. to bring its three largest stadium events, WrestleMania, SummerSlam, and Royal Rumble, to Lucas Oil Stadium in Indianapolis over a three-year span starting in 2025. WWE also struck a partnership with Minnesota Sports and Events to make Minneapolis the host for SummerSlam over two consecutive nights in 2026. While early innings, we are encouraged by this progress and confident in our ability to continue delivering one of a kind live events for venues and tourism authorities in the U.S. and abroad that will attract sold out crowds. Finally, we successfully signed new brand partners and expanded our relationships with existing ones. Top of this list is UFC's signing of Riyadh season to the largest single event sponsorship in its history. This milestone also marks the first time a UFC event will feature a title partner rebranding UFC 306 at Sphere Las Vegas as Riyadh season Noche UFC, which will no doubt be a much hyped and talked about spectacle for sports fans this September. We also signed partnership deals for Activision's Call of Duty franchise. with both WWE and UFC. This marks the first time TKO's global partnerships team has secured simultaneous deals for both companies, highlighting the marketing power of our integrated partnerships team and the attractive demographics and dedicated audience UFC and WWE deliver. In closing, the strength and appeal of our iconic properties are undeniable, and the value proposition we laid out for TKO is widely evident. As we build toward the launch of WWE's partnership with Netflix and with the record-breaking NBA media rights deals signaling powerful secular tailwinds ahead of our rights renewals, our conviction in TKO's potential for long-term growth and value creation is as strong as ever. With that, I'll turn the call over to Andrew.

Good morning. I'll start with an update on integration and then shift to our financial results before discussing our capital structure and outlook for the remainder of the year. Ari touched on a number of areas where we are making good progress with the integration of our businesses. That said, we recently kicked off our 2025 planning process. This will be the first full year with several of our groups, such as live events and sponsorship, combined as one team across both UFC and WWE. We expect to continue to realize benefits on both the revenue and cost side from running our business more efficiently as we continue to further integrate our operations. With a year under our belts and integrated teams impacting our planning process, we anticipate further off-site ahead of us. When we announced the combination of UFC and WWE in April of last year, we set a target of $50 to $100 million in annualized net savings. Including additional benefits we have started to realize from live events, production, and operations, I'm pleased to report that we now expect to exceed $100 million in annualized net savings. Before I turn to our financial results, I want to provide an update on the status of the UFC antitrust lawsuits, as well as the development regarding our external auditors, Deloitte. As we discussed on our last earnings call, we reached an agreement to settle all claims asserted in both UFC antitrust lawsuits. As we previously disclosed on July 30th, the court issued a ruling denying the motion for preliminary approval of the settlement agreement. We obviously disagree with this ruling and believe it disregards the expertise of both our council and plaintiff's counsel, as well as the input of an accomplished and well-respected expert mediator, all of whom have decades of experience in antitrust case law. It prevents the athletes from receiving what plaintiff's counsel argued was in the best interest of its clients. As we have said throughout this process, we believe strongly in the merits of our cases and are prepared to try both of these cases. We are evaluating all of our options and have initiated discussions with plaintiff's counsel who have expressed the willingness to engage in separate settlement discussions for the Lee and Johnson cases. As appropriate, we will provide further updates. Deloitte has served as our audit firm of record for WWE and UFC for many years prior to the formation of TKO and has been TKO's auditor since the transaction closed. we had expected to continue our long-term relationship with Deloitte in the years to come. Unfortunately, solely due to the effects of technical auditor independence rules of the SEC that will be triggered when the Endeavor Take Private transaction closes, Deloitte will be unable to continue to serve as TKO's auditor. Note, this is solely due to a technical matter and has nothing to do with the work performed by Deloitte for the company or any issue with the company's financial statements. We plan to file an 8K after the market closes today, announcing that we've engaged KPMG as TKO's independent registered public accounting firm. We are confident in a smooth transition to KPMG who will complete our 2024 audit. Turning now to our financial results. Second quarter reported results included three months of activity for both UFC and WWE. WWE activity is not included in the reported results for the second quarter of 2023. To assist with comparability, we've presented supplemental financial information in our press release and IR website that includes WWE activity and the portion of WWE related to the corporate group for the second quarter of 2023, as well as each quarterly period from January 1st, 2022 through September 11th, 2023. For the second quarter of 2024, TKO generated a record revenue of $851 million. Net income was $151 million. Adjusted EBITDA was $421 million, also a record, and our adjusted EBITDA margin was 49%. Including WWE activity for April 1st through June 30th, 2023, combined revenue for the second quarter was $716 million, combined adjusted EBITDA was $314 million, and our combined adjusted EBITDA margin was 44%. Inclusive of these amounts, revenue increased 19%, adjusted EBITDA increased 34%, and adjusted EBITDA margin increased 5 percentage points. Now I'll walk you through our segments. Our UFT segment generated revenue of $394 million in the quarter, an increase of 29%, or $89 million. Adjusted EBITDA was $232 million, an increase of 23%, or $44 million. UFC's adjusted EBITDA margin was 59%, down from 62% in the prior year period. Revenue growth was led by live events, which had a record quarter and continued to benefit from the strength of the experienced economy. Live events revenue increased 114% to $69 million. Ticket sales increased primarily due to one additional numbered event, four in the second quarter of this year as compared to three in the prior year. and strong demand for high-profile events such as UFC 300 and UFC 303. Site fees were also a meaningful contributor to the increase. Results in the quarter included a $20 million site fee related to our event in Saudi Arabia, as well as a meaningful site fee for UFC 302. Media rights and content revenue increased 18% to $251 million. The increase was primarily driven by one additional numbered event. UFC had 11 total events in both the second quarter of this year as well as the prior year. However, as we've discussed in the past, numbered events carry a higher allocation of fixed media revenue compared to fight nights. The contractual escalation of media rights also contribute to the increase. Sponsorship revenue increased 33% to $62 million. The increase was driven by new partnerships and renewals, as well as the mix of events in the quarter, including two of our biggest events, UFC 300 and UFC 303, which featured our annual International Fight Week. Adjusted EBITDA reflected the increase in revenue partially offset by an increase in expenses. The increase in expenses reflected higher direct operating costs, primarily due to an increase in production, marketing, and athlete costs, as well as an increase in direct cost of revenue due to one additional numbered event. SG&A was essentially flat year over year. Turning now to WWE. WWE delivered record quarterly revenue and adjusted EBITDA. The financial results continue to reflect strong creative momentum in the business, as well as the benefits to both the top and bottom line from the initiatives we've implemented since the formation of TKO. Our WWE segment generated revenue of $457 million in the quarter, adjusted EBITDA was $251 million, and adjusted EBITDA margin was 55%. The following commentary on the second quarter includes comparisons to activity for the period from April 1st through June 30th, 2023. In the second quarter of 2023, revenue was $410 million, adjusted EBITDA was $173 million, and adjusted EBITDA margin was 42%. Revenue increased 11%, or $47 million, adjusted EBITDA increased 45%, or $78 million, and adjusted EBITDA margin increased 13 percentage points. Revenue growth was led by continued strong performance for live events. Live events revenue increased 32% to $144 million, a quarterly record. The increase was primarily related to an increase in ticket sales. Since the formation of TKO, we've been focused on increasing ticket yield, and this strategy favorably impacted our results in the quarter, not only in connection with WrestleMania, but for the balance of WWE's live events in the aggregate. Media rights and content revenue increased 4% to $261 million. The increase was primarily related to holding one additional premium live event compared to the prior year, as well as the contractual escalation of meteorites fees for our flagship weekly programming and premium live events. These increases were partially offset by a decrease in third-party original programming due to the timing of delivery. Sponsorship revenue increased 6% to $25 million, primarily due to timing and the mix of events. In the quarter, we signed new sponsors in the insurance, beverage, CPG, spirits, and entertainment categories. Consumer products revenue was essentially flat at $27 million. Results reflected an increase in video game licensing revenue offset by the previously disclosed accounting related to the transition of our venue merchandise business to Fanatics in May 2023. Adjusted EBITDA reflected the increase in revenue and a decrease in expenses. The decrease in expenses reflected lower personnel costs and other direct costs, related to our planned cost reduction initiatives implemented following the formation of TKO, as well as a decrease in production costs. Turning now to corporate. Corporate reflects the general and administrative operations supporting both of our segments, including finance, legal, HR, and the executive team. Corporate also includes the fees paid by TKO to Endeavor under its services agreement. Corporate expenses were $62 million for the second quarter of 2024. On a combined basis, corporate expenses were $47 million for the second quarter of 2023. As a reminder, the WWE services fee to Endeavor didn't take effect until the six-month anniversary of the closing of the transaction. As a result, the second quarter of 2024 was the first time that TKO's quarterly results reflected a full three months of activity in addition to the fee UFC continued to pay. The increase was also due to higher personnel costs, including executive compensation and other G&A expenses, including public company costs, following the formation of TKO in September of last year. Moving on to our capital structure. We define free cash flow as net cash provided by operating activities less capital expenditures. Free cash flow excludes the majority of the mandatory tax distributions to our owners, but does include the portion of cash tax paid by TKO Pubco. For the quarter, we generated $219 million of free cash flow. This includes $12 million of capital expenditures, approximately $7 million of which related to WWE's new headquarters. We expect approximately $10 million of spending in the second half of the year on WWE's HQ, but nothing meaningful beyond that point. The quarter was also impacted by the timing of working capital with certain revenues recognized in Q2 that will not be collected until the third quarter. most notably the site fee associated with our WWE Saudi event, King and Queen of the Ring. We ended the quarter with $2.744 billion in debt and $278 million in cash and cash equivalents. As we previously discussed, we expect to have significant financial capacity over time as we grow adjusted EBITDA and generate cash. As such, we'll continue to consider a wide spectrum of opportunities to increase shareholder value, including organic investment at positive ROI, reducing our net debt position, returning capital to shareholders in the form of share purchases and or dividends, and M&A should a unique and compelling opportunity present itself to increase value, but intend to do so in a selective and disciplined manner. In the quarter, we repurchased approximately 1.9 million shares for 165 million. Since the formation of TKO in September of 2023, we've repurchased a total of approximately 3.2 million shares for 265 million. 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 our results are best evaluated on a full-year basis given the quarterly fluctuations that are inherent in our operations related to the timing of our events and content deliveries, among other items. As noted in our press release, we are raising our full year 2024 guidance for revenue and adjusted EBITDA for the second quarter in a row. We are now targeting revenue of 2.67 to 2.745 billion and adjusted EBITDA of 1.22 to 1.24 billion. The increase is related primarily to strong operating performance on a year-to-date basis in the following areas. Continued strength in live events at both of our businesses and increased expectations for sponsorship revenues at UFC. Conversely, these increases are partially offset by incremental production costs, most notably related to UFC 306 at the Sphere. On our last call, we noted that we expected the second quarter to be the highest revenue and adjusted EBITDA quarter of the year in terms of absolute dollars, mainly due to the strength in our live events business and the favorable timing of events at both UFC and WWE, and it was. As we look to the third quarter of 2024, we wanted to highlight a few notable items. At UFC, the current calendar includes 10 events compared to 13 events in the prior year period. In addition, we expect three numbered events compared to four in the prior period, as well as six events with live audiences compared to nine in the third quarter of 2023. The timing of the calendar is expected to meaningfully impact our largest revenue stream, media rights and content revenue. To a lesser degree, We expect the timing of the calendar to impact live events revenue as such should be substantially mitigated by strong underlying trends in pricing and attendance. We're incredibly excited about holding UFC 306 at the Sphere in September and the opportunity to create a once in a lifetime experience. As we've discussed, we expect to incur production costs in the quarter that are meaningfully higher than our historical norm for a numbered event, and as mentioned, higher than previously anticipated. At WWE, we expect healthy revenue growth and strong adjusted EBITDA driven by continued progress on our initiatives to take costs out of the business. Regarding free cash flow conversion, we are refirming our outlook at an excess of 40% of adjusted EBITDA for the full year. In conclusion, we generated strong second quarter results that reflected continued strength at both of our businesses. We are extremely excited about the road ahead and our prospects for 2024 and beyond. With that, I'll turn it back to Seth.

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

Of course, thank you. If you'd like to ask a question, please press star followed by one on your telephone keypads. If you'd like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure you are unmuted locally. Our first question comes from Brandon Ross of LightShared Partners. Brandon, your line is open. Please go ahead.

Brandon, are you there? Brandon, why don't we go to the second question? Wow. Charlie, why don't we go to the next question? He's there. He's there. Brandon, are you there? Yeah, you guys can't hear me at all.

Yeah, we got you now. Hey, Brandon, it's Mark and Andrew.

How are you? Okay. Sorry about that.

Brandon, when you're the first guy to go and hit, you got to be there, man. We can't be calling you three times. We got to put you at the back of the line, maybe.

I was there.

First, I'll take the blame on the technical difficulties. How about that? Thank you. Good morning to you. You too. A couple of things. One is in the prepared, Ari really highlighted how much bigger of a profit center live events has become, especially at WWE. And you've attacked it in a lot of different ways, including venue size, pricing. Just wanted to get a sense of where you are in that optimization journey at this point. How do you go about optimizing ticket prices? How much room is there? On the PLEs, are we going to see, you know, this move to stadiums and multi-nights? Any color you could give us to kind of model out into the future would be helpful.

Yeah, look, you're a little all over the map there. So I want to make sure, you know, maybe there's a couple of questions you want to ask us. But I would just say that, you know, from a revenue synergies perspective, you know, it's just right now, knock on wood, clear skies ahead. I mean, we're seeing no detraction whatsoever from the consumer, from the sports fan, whether it's the live events and our ticket yields. As you know, we put a press release out every time we do a site fee deal. We've done a number of them. I'm not going to start listing them off, but a number of them now, and it's clearly a huge growth sector for us. You know, our sponsorship, putting our two teams together, Clear skies there as well. I mean, we're already at our budgeted number for the UFC this year, and there's a lot of headroom to go on the WWE. And on the media rights side, internationally, IMG has just been a powerhouse for us, leveraging their offices, their people, their soldiers around the world with other properties to see that we're commanding the kind of rights fees we should be getting in these countries now that UFC and WWE are growing the way they're growing. So, look, these are meaningful areas for us. And I would just tell you, don't underestimate the Netflix play here, okay, in the sense that the Netflix feel for WWE is all about discovery, right? New audiences, new viewership. casual viewers. You're going to go to that front page and WWE is going to be right there being promoted, being marketed. That's a whole new audience for us. The folks that are already fans of WWE, they will follow. It will be appointment, but Netflix will serve to be a real discovery platform with us. And specifically that will help us Brandon, when it comes to site fees and sponsorship.

Got it. And then, um, The NBA deal finally wrapping up, if it actually is wrapping up. I guess UFC is really moving into focus and was just trying to think about the intrinsic value of the pay-per-view asset that you have. In the past, you've been extremely helpful with viewership growth for the PLEs on WWE. I was wondering if you could just talk to us about how UFC viewership of the pay-per-views and pricing has evolved since the last deal, and especially what you're seeing in recent trends?

Look, ESPN and Disney were very aggressive, if you will, on pricing the pay-per-view. I mean, and they have full control over that. I mean, we have inputs, but they have control given what they're paying us for those rights. So the Over the period of our partnership, as you asked, they probably went a little quicker and a little higher than we would have liked. And we voiced that to them, especially in this kind of era of piracy, where we're seeing our piracy numbers really jacked up. And we think that's driven by them pricing it too high. So they were very receptive to that feedback. We had a meeting in Las Vegas a few months ago with Jimmy Pataro and Dana. And they took their price down, if you will, in terms of offering a new marketing promotion where if you buy by a certain date well in advance of the numbered fights, you were going to get a discount. And then the price, of course, increases once you pass that date. And they're seeing good success with that. In the live event where we're selling out and breaking records, you see it all in the press release. And like the yield that we're commanding, which is in many cases, specifically with WWE, been higher than we even planned for. We're also sustaining our buys when it comes to pay-per-view. So we feel really good about that.

Excellent. Thank you. Thank you.

Our next question comes from Ben Swinburne of Morgan Stanley. Ben, your line is open. Please go ahead.

Good morning. Can you hear me?

Yes, we can.

Hello. Okay. So to make sure I didn't want to have Brandon's problems over here. Good morning, guys. Good morning. I have two questions. another huge year-over-year growth in live events revenues, and yet expenses were down. I think, Andrew, you said production costs were down. Maybe you could unpack what's happening there with this mid-50s margin at WWE, because obviously that's really impressive. And then I guess I would have thought the free cash flow conversion guidance might have come up just on the guidance raise, but also I figured you'd take the settlement out of the free cash flow. Maybe it's just too uncertain at this point. So I'm wondering maybe you could just comment on free cash flow as well. Thanks so much.

Yes, I'll take the second one first, Ben. As you know, we recorded a charge in the first quarter in connection with the settlement. At the same time, we readjusted or adjusted our free cash flow conversion to include the $200 million of payments that would otherwise have been made this year should we have already received preliminary approval and then final approval, which was anticipated by the end of the year. We have not revised or adjusted our expense flowing through any of our financial statements for the cash outflow for purposes of free cash flow conversion. That being said, if payments were to be delayed in the event that this ends up in a settlement, as I've articulated, we are in discussions with plaintiff's counsel and have separated two cases for purposes of those discussions, then free cash flow conversion would go up and obviously we would have to take a look potentially at the charge that is flowing through our financial statements. But we don't have any updated information that would cause us at this time to modify our expectations for the balance of the year. But we will, of course, keep you guys posted as things develop and any material information will come to pass. Going to WWE, and I also want to hit on something I think Brandon asked. This quarter was a big quarter for WWE live event anchored by WrestleMania in early April. Then other is we had 1 additional this quarter versus the prior year quarter at and these tend to carry a higher margin and higher higher revenue and higher margin gross margin contribution on the production side. We have been successful and taking cost out of the business on production. And this has simply been blocking and tackling. This is looking deep into each P&L, seeing what's superfluous and otherwise. And one of the reasons why we were able to get comfortable raising our estimates on synergies in excess of 100 million is largely through live event production and the efficiencies that we've been able to find there. I wish there was some magic other than getting our hands dirty and really digging deep into the P&Ls for each of these events, but we've been able to find efficiencies. In some cases, we've been able to reduce production elements and increase our saleable inventory in venue by just making the show smaller and not changing the ultimate product for television or for our audience in arena. So there's efficiency there as well.

I would also say, Ben, that while the cost synergies are going extremely well, and really the credit to the teams. I mean, they're working hand in glove. Epstein and Nikon, of course, are heading all this up. But Pete Dropek on the ticketing side, in the arena, site fee side, I mean, just driving huge opportunities. And the opportunity for us to still go into cities to get a combo weekend, if you will, is in our near future for several cities where we could do a smackdown, if you will, and then, of course, also have a either one of our Friday fights on UFC or, of course, a numbered fight. So that's out there. And on the production side, you know, Lee Fitting and Craig Borsari are working hand in glove to get our costs down everywhere from trucks to cloud storage and usage. So thrilled about that. But on the revenue synergy side, The WWE is really the one that's going to benefit in the near-term future. As I said earlier, UFC is already at their budgeted sponsorship number for the year. But we see attractive long-term growth opportunity specifically for the WWE brand because it's been under-monetized to date. And we're focused on closing that gap between the two properties in the next couple of years here.

Makes sense. Thanks, guys.

Thank you. Our next question comes from David Karnovsky of JP Morgan. David, your line is open. Please go ahead.

Thank you. Mark, on the psych fees, I'm interested how you view the best way to optimize this over the long term. Is this kind of a pure volume game where you look to get paid on as many events as possible? Or is this more about kind of increasing the value of events and then highlighting that to host cities and venues as a way to kind of drive competitive pricing?

Yeah, look, it's on the head there, David. It's a balance, right? I mean, it's both. We are, you know, Ari is really focused on festivalizing our events further than we're doing it right now with concerts. And obviously we have the weigh-in and adding, you know, culinary kind of taste opportunity, which you see at events like the U.S. Open in New York, and just making our events certainly really attractive for the hardcore sports fan, but also making it more of a cultural event. And I think the more we can do that, we can really expand the stay, if you will. The event becomes a one-day, a two-day, a three-day. I mean, it really moves from one to three days, which is something cities – and municipalities have communicated to us they would like to see more of, and they could spend more from their tourism bureaus or whatever it might be if we could expand the number of days that we come to town. So, you know, we're driving it hard in the sense of improving the quality of our overall event, both timeline, duration, and the content itself. but at the same time driving a hard bargain and really pitting these cities up against each other. You know, look, we're going to Vegas for WrestleMania, but truthfully, we easily could have gone to Minneapolis. And in fact, for a while, they looked like the favorites until Vegas came in at the end and trumped them. So it's just being really transparent with these cities and these local government officials, letting them know what they have to do, using the power of our leverage, the power of our relationships, and the power of the demand for our content to get us the price and the numbers and really the ticket we're looking for.

The only thing worth adding is historically WWE was largely a domestic product. And as we continue to bring WWE events overseas, there is demand for this model from tourism boards, et cetera. So those fit quite nicely in our effort to grow this line, I would say.

And then on the WWE sponsorship, I saw you added Wingstop as a sponsor for the PLE events, which is an addition to Prime. Just wanted to see if you could dig into your strategy in terms of limiting those in-ring sponsors for now to the biggest events you have and how you see that building out over time.

We don't. We don't see any limitations, frankly. it's all about price. If you want to be in the ring, if you want center canvas, you know, you want to be in the corners, you want to be the clock when it, when it comes to the UFC. I mean, we are out there, Grant Norris and Luke Costavalis are of course, you know, running the combined global partnerships group. We are out there talking to new categories. We are out there talking to traditional categories and we're, we're open for business. I would say these two and their teams are, are, get about as creative as any league I've ever seen. And we're open to anything, frankly. I mean, we're not, you know, looking to over commercialize it and certainly we're definitely never going to cheapen the brand, but at the end of the day, we're the league, you know, we're the commissioner, we have total control and, you know, we're only limited by our own creativity. And, and when you look at wing stop or, or frankly, you know, even our new Budweiser deal and, and, I would say Monster. I would say Crypto.com. We're constantly shucking and jiving with these guys, pivoting on what's working for you and what's not. What else do you want? What else can we create for you? And, of course, usually when we're moving or changing something in the contract, that comes with an increase. So it's all about monetizing and maximizing the dollar opportunities. And frankly, the ad market, you know, is strong, not just for media, but certainly for experiential activation and, of course, sporting events. If you don't see us fill it up fast enough, David, it's only because we're not yet getting the pricing we want. We will not give away inventory.

Understood. Thank you.

Alberto, let's take the next question, please.

Of course. Our next question comes from Ryan Trebet of UBS. Ryan, your line is open. Please go ahead.

Great. Thanks. Maybe just circling back on the USC rights, but on the international side, can you give us an update on how international rights rights renewals are performing. And if you're willing to share what kind of step ups you're seeing, and this is more broadly how you would characterize the demand environment for sports rights relative to what we're seeing in the US.

Yeah, what I would tell you there is, first of all, remember, when we moved to Netflix in January, For the most part, Netflix will have our international rights. There will be several regions and countries they don't yet have because of current contracts. But when those contracts roll up, they'll pick them up. So this is primarily a UFC conversation. And what I would tell you is IMG is really a secret weapon for us because the intelligence is second to none. The fact that they have 35 offices around the world It gives us kind of person-to-person contact, name basis, a lot of business they're doing. We can see around corners, and it gives us the opportunity to get to kind of step up. We expect to get it. We're not going to get any specific numbers on international and what we're seeing and what we're getting. What I would tell you is international is not as hot as it is domestically in the U.S., but nonetheless, we're seeing the increases when deals roll off.

Got it. Thanks, Mark.

You got it. Our next question comes from Steven from Goldman Sachs. Steven, your line is open. Please proceed.

Hey, guys. Thanks for the questions. First, maybe for Mark on live events, you guys see a pretty large swath of the income distribution across your two properties. I'd just be curious if you could unpack some of the consumer trends. Stephen Konya, You're maybe seeing at the moment, and then any thoughts on where there still might be opportunity across the properties to take some more price over the next year on the live event side. Stephen Konya, And then Andrew you caught up the sphere in September just curious if you could add any context around some of the revenue or or costs, we should expect to see come in in the quarter, thank you.

Andrew Sorensen, Thanks Stephen. Andrew Sorensen, Look, you know I covered this a little bit, I guess, all I would tell you is you know it's interesting. when Ari and I were listening to the, you know, the Disney, you know, quarterly earnings call and hearing Bob Iger talk about, you know, the lower end consumer, if you will, on the income side is kind of holding back. They're seeing things slow down to the Disney parks or maybe they're just moderating and getting back to normal because, of course, you know, post-COVID, the theme parks were just unstoppable. And then meanwhile, he said the higher end consumer is maybe not doing the theme parks, but they're traveling more internationally. All I can tell you is where we sit, specifically, Stephen, we can also tell you about advanced sales. We're just not seeing any slowdown. I mean, it's a credit, I think, to the kind of matchups Dana White is delivering week in and week out, and the creativity of Paul Levesque on the WWE side. And by the way, that's You know, that's a tall order. He's got a Friday night show. He's got a Monday night show. He's got NXT. We're talking with other content providers on more short form content, a bunch of deals that Nikon is currently working on and will announce in due time. The fans, they're just coming full bore. Demos are strong. Age group is strong, seeing a lot of pickup on the Hispanic markets, which is a real priority for us to grow on the UFC side because we've just opened a performance institute there in Mexico City, and we're really aiming on growing that audience. The spectacle that we're going to have at the Sphere is going to be really targeting the Hispanic audience, the Latin audience. It's just really a good place to be right now. We don't take it for granted. We're watching our pricing, but we're probably not being aggressive enough on the WWE side, but we're being careful. We're working with a lot of dynamic ticketing providers to see us get the leg up that we expected when we put this merger together. But you see our pricing. UFC and WWE are selling out week in and week out, and the per caps... on the F&B and the merchandise side for our partners are also very strong. So I think it's the fact that these two properties It's such a long event, the duration. You get so many fights on a fight night for UFC. And, of course, WWE takes a while to play out as well. I think we're still a good buy for the consumer. It's a great night out. It's a great family event on the WWE side. And for the sports fans, UFC is just really in the zeitgeist right now. We're trying to capitalize on that when it comes to the ticket per capita.

And on the sphere, just some color. Look, we're bullish. Obviously, we've talked about this being a cultural event and Dana has publicly stated how much we're investing in this event. And obviously, this is going to be a massive spectacle for those in the arena and for those at home. On the top side, this will be one of the largest gates, if not meaningfully the largest gate that we've ever done. And then the cost side, it's going to be the single largest investment that we're making in an event. And it's even more expensive than we originally anticipated. And that's reflected in our new guide. So we talked about some headwinds going into the balance, excuse me, tailwinds going into the balance of the year. But if there's one meaningful headwind that has a direct dollar for dollar impact on EBITDA, it's the incremental expense we're seeing at the sphere.

And Stephen, a little anecdote here. Now, Ari and I held a dinner in Paris for the Olympics. In fact, Andrew and I are coming to you from right now, for our premier ad partners. And one of them made a comment about us being in a position and always sort of having a history, and I credit Dana with this more than anybody else, of Not making every decision based on the dollar that we are committed to growing the brand. We are committed to growing the audience. And sometimes we will make investments that, you know, short term won't necessarily pencil out. But long term, there will be a big a big win for us and play out tenfold. And that's what the sphere is when Andrew talks about a spectacle. This event is going to be very positive for the UFC brand in business long term. And if we have to spend more than we've ever spent on an event, and believe me, we're doing that, it will pay off long term. We expect to use this event to grow our fan base, to increase fan engagement, and most importantly, to capitalize on the growth area that is the LATAM market for us. That's great.

Thank you both. Thank you.

Thank you. Our next question comes from Peter Cipino of Wolf Research. Peter, your line is open. Please go ahead.

Thank you. Good morning. I wondered if you could help us think as bigly as we can about your longer-term growth opportunity outside of the United States, especially in terms of event count and productivity per to exploit that over time. And I'd also love to hear from you about the international distribution you'll get from Netflix and how that compares to your prior international distribution since that's such an important driver of demand. Thank you.

Thanks, Peter. You know, I would say that on the first question, or I guess we could talk the international one first. What we love about the Netflix partnership, it's not like you're going to see it popping up in a lot of countries we're not already in, right? I mean, we're in 170 countries right now. But further international expansion is a priority. But more importantly, fan avidity and fan engagement, that is our priority with Netflix. reaching new fans, bringing in new customers, new audiences, really expanding that is the goal. And by the way, it's the goal for them. So we've kind of checkerboarded across the world, if you will, what's the priority for them to grow their audiences, right? Areas like Brazil. And what's the priority for us to bring in expanded audiences? And we'll work hand in hand. In fact, we'll launch a a co-marketing plan together where we'll buy media and also do an outdoor campaign to see if we can get the attention of new audiences and new fans. And that's really the way we're looking at it. So again, it's not like we're not in a lot of places, but we need to increase the passionate fan base. We need to increase engagement. We want to bring more women to the table. It's impressive that our sport is 40%. female on the UFC side, and of course, WWE already plays the families, but UFC specifically has room to grow there. Love this. Love to get this to a place where it's 50-50. At one time, that might have sounded like impossible, but we're training in that direction, especially on the ratings side in terms of some of the feedback we're getting from ESPN and how many women are watching usc fights and we're not just talking women fighters we're talking the entire card so look we're we're very attractive worldwide we're gonna we're gonna dig deep into that and we've got the power of netflix's programming the power of netflix as a marketing partner the power of netflix is pockets when it comes to dollars as a marketing partner and so we're bullish on on how we're going to do from a ticket yield standpoint and of course international rights on the IMG site? First question.

Yeah, look, I think in just thinking about it, Peter, we're thinking big, as I articulated earlier, while WWE historically had some prime premiere shows internationally, a vast majority, the overwhelming majority of their live events were here domestically. And we think bringing those shows overseas to new markets to build new fan bases and build fan affinity alongside Netflix is going to be a major opportunity for us. We've seen it in the limited time that we've been involved, whether it be in Perth, Australia, whether it be in this recent backlash in France, we did a PLE in Germany as well in the second quarter. There is significant appeal for our content internationally. And then, as I said earlier, it just opens us up for more site fees. in these markets as well. So the more international events we're going to do, the more the opportunities we have, particularly for the top line. So we're not going to size it for you, but we're feeling pretty good.

Yeah, look, you got to point back to New Zealand too. I mean, we did a test, you know, in New Zealand of our UFC programming live events on Netflix. And we won the night in ratings. I mean, that's insane. We did no marketing prior to, there was no warning or messaging that this was coming because of course Netflix was not worried, but they were being conservative in terms of testing the tech, which by the way, there was not one hitch. So we were excited to see that, but that was just gravy when the audience numbers came back. So when you're thinking long-term growth for us, obviously our media deal is strong. Obviously, site fees are really capitalizing on that, sponsorship, but international rights fees will definitely be part of the equation. Thank you.

Thank you.

Our next question comes from Eric Handler of Roth Capital. Eric, your line is open. Please proceed.

Yes, good morning. Thanks for the question. At this point, a lot has already been asked, but I guess with the WWE PLE deal that expires one quarter after the UFC deal, how are you thinking about, do you run that at a similar time frame as the UFC deal? Do you want to get the UFC deal situated before you think about that PLE deal? So any call you can give there would be great.

Yeah. Thanks, Eric. A couple thoughts there. I mean, we might as well just cover the whole meteorite situation because I know you're speaking in terms of timing for the PLEs, but of course we've got the UFC as well. Look, I'll tell you kind of holistically how Ari, Andrew, and I see this, and of course Nick and Lawrence play a key role here in these renewals. I don't need to tell you the market for premium content such as ours remains extremely strong. Look no further than the NBA renewal. which is, I think, higher than Adam even thought it was going to be. The Christmas Day games on Netflix, where there was big competition between Netflix and Amazon for those two games. I think the announcement by Zaslav and Warner Brothers, just even for the French Open, much smaller property, and I would add that IMG did that deal for them, for the French Tennis Federation. But that rights fee went from $12 million a year to $65 million a year, $650 million 10 years for the French Open. And I know that the USDA has two years left on their deal with ESPN for the US Open, and IMG also is representing the USDA on that rights negotiation. I'm very optimistic on how that's going to turn out for USDA and, of course, the value that ESPN will get in return. Now you've come to the UFC and the PLEs. I mean, this is content that airs year-round. We're strong in attracting viewers and subs in this whole direct-to-consumer environment we're in. Both are interesting. very strong when it comes to reducing churn and both are very strong as it relates to linear and network television let's not forget whether it's abc or nbc those are still very important and very much a part of the equation in rights deals going forward you see it with the nba deal where nbc will be carrying games in addition to abc and espn so You know, we feel very good about these renewals. I've been doing rights fees here, or rights deals, I should say, for 25 years, both on the buyer and the seller side. You know, dating back to my days at ESPN, whether it's Monday Night Football, NASCAR, or our owned assets. And I can tell you, this is as hot as I've seen it. But it is about timing. Very, very important to understand that. Sports rights are strong and they've sustained, but it's timing. Sometimes they're hot and sometimes they're warm. So what it is today isn't necessarily what it's going to be next year. Could be hotter, by the way. But we'll see how that plays out. Sports are a premium. Sports are bringing people in. Sports are unifying. Sports are live. And they're really important to every platform right now. So the numbers are coming in strong. But it is about timing, and we'll see what happens when we enter our windows. To your point about the PLEs, we don't, we anticipate discussions in 2025, but there's no timetable that has been set at this time.

Operator, let's take one last question.

Of course, our final question of today comes from Jason Bazanek of Citi. Jason, your line is open. Please go ahead.

Thanks. You guys have obviously done a good job on the revenue and cost side with these two properties together. Do you mind just rolling the clock back and reminding us, when you created TKO, why you didn't take all of the sports assets inside Endeavor, including PBR, and make it part of TKO? And is PBR something that could become part of the TKO family going forward? Thanks.

What I would say on that, Jason, is that, first of all, just with regard to PBR specifically, that was just never in the cards. I mean, you know, we were negotiating with Vince McMahon at the time, and from day one, he was only open to doing this merger, if you will, if it was these two properties, period, end of story. So there was no discussion on PBR. So that's the reason why that happened. And, you know, as far as anything else beyond that, I mean, look, we're, we're always going to view M&A through the lens of value creation, end of story. And, you know, we'll be opportunistic where we see where we see, we see value there, we see properties that are, are going to power our assets long term, that are going to accelerate our growth, that have clear revenue and cost synergies. You know, right now, TKO is one of the cleanest stories in media. And we don't want to pollute our story. We don't want to complicate our model. We're not creating Endeavor 2.0. We're going to be disciplined. We're going to be always value accretive. We're going to keep an eye on, obviously, leverage ratio. And anything we ever look at, I think, has to be also viewed with the lens of pairing a capital return program. Whether that is a dividend or that is a share buyback, that's a priority for us.

But there's nothing about the PBR asset that doesn't feel like it's not orthogonal to whatever you're building on the sports side. There's nothing that's uniquely different about that sport versus other sports.

No. I mean, look, these are two separate companies, right? Keep that in mind. I mean, TKO is a public company, its own shareholders, its own board. And don't get me wrong, that's obviously a great league. And on the Endeavor side, we're very hands-on with it. But I'm not going to comment or speculate on Silver Lake's plans for their assets as they begin to take it private.

understood okay thank you everyone thank you thank you everyone for joining us on today's call and for your interest in tko operator you can conclude the call now thank you this concludes today's call thank you so much for joining you may disconnect your lines