TKO Group Holdings, Inc. (TKO) Earnings Call Transcript & Summary

Please welcome to the stage Screentime Host and Bloomberg Managing Editor of Media and Entertainment, Lucas Shaw.

Thank you for that. Thank you, Scott, for the kind words. And really thank you all for being here. We've been working on this for more than a year. I think we've put together a pretty good lineup of speakers, so I hope you'll stay for all of tonight and certainly tomorrow. That begins this evening. We've got Ariel Emanuel kicking things off. He's the CEO of Endeavor, the CEO of TKO Holdings. You probably first knew of him as a Hollywood agent. He's now a combat sports king. He recently closed the deal for WWE, which is one of many things we'll be talking about with them tonight. After Ari, we're going to have Donna Langley, who recently got promoted to be the Chief Content Officer at NBCUniversal, a very big job. She's been one of the best studio chiefs in Hollywood for a long time and is behind 2 of the year's biggest movies, Super Mario Brothers #2 movie this year as well as Oppenheimer, which for my money is probably the biggest surprise of the year, certainly in Hollywood, a 3-hour biopic about the atomic bomb that grossed more than $900 million, pretty incredible. Also tonight, we'll be unveiling Bloomberg Businessweek Ones to Watch. This is a new list of rising stars, up and comers in the business of media, entertainment and technology. I will not spoil the list. That goes to Joel Weber, the Editor of Bloomberg Businessweek. He's going to give you guys a sneak peek at it, and he will also be interviewing one of the people on the list who is a major local celebrity or if you do not know her, you should soon. For those that don't know me, my name is Lucas Shaw. They've said it, so I don't know why I'm even saying it. But I lead a team of very talented journalist covering the business of pop culture at Bloomberg. Also the author of a weekly newsletter called Screentime, which Scott mentioned. I've been writing it for a very long time. I started a newsletter more than a decade ago when newsletters weren't really a big thing. And I was mostly just mad that my friends weren't reading what I wrote. So, I would copy and paste articles that I wrote into Gmail, and then I put them -- I think at the time I started maybe 40 people on BCC and I blasted out. It's evolved a little bit since then. But I was at the time and still today sort of obsessed with the relationship between Hollywood and Silicon Valley, which then was very tense. You had people in Hollywood who saw the kind of the tech companies as pirates who had got rich off their work and not paid them enough. The folks in Silicon Valley who thought that people in Hollywood were Luddites and we're basically just trying to fight innovation. In the decade since I started that newsletter and then just over the past many years, the lines between technology, media, entertainment, they've blurred. You just need to take a look, a company like Alphabet is one of the biggest tech companies in the world, but it makes almost all of its money from advertising. It helps monetize all of you, what you search, what you look for your information. In that way, not that different from what TV networks, radio stations, newspapers have done forever or you look at a Netflix, which started as a tech company and is now one of the biggest Hollywood studios. That transition has not been easy, and I'd say the last few years, in particular, have been pretty bumpy as probably a lot of people in this room can attest to. Stock prices for a lot of these companies are in the toilet. We're hopefully, near the end of one of the longest labor stoppages in Hollywood history and the federal government is in the middle of suing both Alphabet and Amazon. So, we thought now would be the perfect time to bring you all together for an event. We'll hear from a lot of people involved in figuring out what the future looks like. I will be asking the questions. I will not be making predictions. Before we start, I got to do kind of run through a few things. These are procedural, but they will be useful to you, hopefully. To start off with, I want to thank our presenting sponsor for this evening, BMW of North America. Without them, the night would not have been possible. And if you're not already on your phone, which I think a few of you are, I would take it out now because we're going to do a few things that involve typing things, QR codes, all that stuff. So, they already got it up here. The Wi-Fi network. It's on your badge. It's also on these screens left to right. This QR code is because we are going to be doing polling throughout the night as well as audience questions. So, audience questions or you guys submitting ideas to me and to the other moderators that we can use. The polling is actually the thing you really need to pay attention to right now because throughout different sessions, we are going to put up polls on there that you can respond to, you should respond to. We'll do one in a second that they're going to put up, but also during different sessions, I will integrate that into the conversation. We've got one for Ari, that is about sports and we'll see if he agrees what you guys have to say. Let's put up the first poll, please. So, I'm not going to read out all the names. But the idea is, let's say you have some -- you come into some money and you can invest in the future earnings of one celebrity, one talent. These are your 5 options. To me, the answer is pretty obvious. It should be #1, but there's some good people on there. Now if you want to engage on social media, we have a hashtag at Bloomberg Screentime. You can follow along with us on social, all the different social platforms at Bloomberg Live. If you have a terminal, thank you for paying for my salary and also you can follow on live go. There's also an app for this event. I think this is our last QR code of the evening that they're going to put up here. You can use that to follow the agenda, do a bunch of other things about the venue and also chat with other people here. I want to reiterate what Scott said. I've been with a lot of these events over the years. We're obviously hoping this one is great. It's different, but the best part of it has tended to be not all with respect to what I'm about to do, what happens here, but the people I meet out there are, the conversations I have, so please be curious, please talk. I'm not going to tell you to make money like Scott, but if you do that, God bless. Now before we bring out our first guest, because this Hollywood, you do have sizzle reel but you -- he's been in the headlines for a lot of his career, especially in the recent years as he's bought, I don't know, he'll tell me, dozens of companies in news and sport, excuse me, in media and sports. Please welcome Ariel Emanuel.

Please welcome to the stage Endeavor and TKO CEO, Ariel Emanuel.

How did I do? You're worried about this?

No, I thought sizzle reel was halfway decent.

Okay. Good. Thanks for being here. Thanks for kicking it off. I'm going to start on one very serious subject. Just you happen to be one of the most influential members, I'd say, of the Jewish community in the U.S. And so I'm curious for your thoughts on the events of the past week.

Well, I actually wrote something. But before -- saw that. I had this -- it's not the same as 9/11, but I had that same feeling. Just to level set, my last name was taken from my father's brother's first name who died in '33 taking food and medicine into Jerusalem. As a Jew, what happened in Israel this past weekend was one of the worst pogroms in history, not including the Holocaust. And that was under Bibi Netanyahu. My grandmother escaped the Bolsheviks and the pogrom that happened then. It was even worse than that pogrom because we didn't have a Jewish state. We now have a Jewish state. Now we have a country with probably one of the great militaries, one of the great intelligence apparatuses. But from my opinion, a morally corrupt Bibi Netanyahu exposed Israel and its people to rape, death, beheadings of children, murders of fathers, mothers, grandmothers. And he did it to stay in power. He nominated a Minister of Homeland Security that didn't even serve the mandatory military term required in all of Israel. He nominated a second Minister of Defense who barely was a soldier. He fired the minister who was a General and had to bring him back because of public pressure. He refused to meet with key military figures. He was trying to change the Supreme Court because he had to keep himself out of jail. And this led to a vulnerability that is unprecedented. And this would be like 30,000 Americans dying in 9/11. That's what happened in Israel. And I just think it's time that we get rid of this man. So -- and we talk about -- I mean, there's been a lot of conversations about Hamas and the Palestine. The ignorance about Hamas and Hezbollah and the Palestinian issue. They're terrorists. I can argue with you and discuss with you properly, and I probably have different feelings than most people are saying maybe about the Palestinian issue and how he was using maybe Hezbollah to expand settlements. But they're heinous. They've had the territory for -- since 2007 when they were elected. Anybody that goes against them, the Hezbollah, they get rid of -- they have not created any economic benefit. That is not the Palestinian issue. So, I'm just angry, I'm upset and I don't think this man deserves to be empowered. It's just horrible.

Well, thank you for sharing that. There's absolutely no seamless transition, but I was curious for how you're feeling. We are here to talk about business not politics for the most part, unless you have thought to jump in later. You closed your deal for WWE a few weeks ago now. It's a business...

I think it's like 4.5 weeks, yes.

It's a business that you know well. You work with them as an agent. What -- why did you want to buy it? And what is the opportunity that you see to grow a business that's been around for 4-plus decades now?

Well, listen, we -- I think it's kind of UFC 2.0. We took that business from great owners in Las Vegas doing about $150 million in EBITDA. And we've increased the EBITDA by a significant amount of money. Vince and Dan has done an unbelievable job, continues to do an unbelievable job in that business. Vince has been decades and decades running this business. And I think our flywheel, whether it be international rights, domestic rights, sponsorships, site fees, all the stuff that we do and the cost savings that we can bring into it because of our organization, I thought that there was a lot of upside on what we create in addition to what we do on the domestic side and the rights deals. And also for the Street, I think our Endeavor story was a little confusing. We were not getting -- I mean, I don't think any CEO believes that they're getting proper credit for the economic value that they create. And so this would be a pure play and sports, combat sports and then the rest of Endeavor. And then a week ago, we tried to do the following to everybody. One, our cash flow conversion. That's what the Street was asking. I think we did a pretty good job there. By doing this deal, we've reduced our debt below 3x. It's a pure play, I think people can understand it now. I don't think they're understanding...

You brought up UFC earlier and one of the things that happened...

I'm a genius aren't I. Yes.

One of the things that happened with UFC is you bought it, everyone said you overpaid, which has been a recurring theme for you. You buy something, people that you overpay. You prove them wrong. With UFC though, you had a -- I assume you had a feeling and you were right that you could go and get a much bigger [indiscernible]. Now there was a point in time at which it looked pretty hairy. I, in fact, wrote a story that Christian who worked with you didn't speak to me for like 2 years after I wrote it because it was about the challenges you guys were having in getting a deal, but you did get a deal with Disney. The Street, so far, to your point, doesn't love the deal that you already did for WWE.

I mean, the NBC deal.

The NBC deal. So, for those that don't know, the WWE has 2 sets of, well 3, but 2 TV sets of rights, there's SmackDown and RAW. And NBC, which had what was seen as the more premium package paid for the less premium package. You got a 40% increase. It seemed like people both expected that to be more and/or we're worried that because NBC had sort of traded down that you are going to be in a tough spot with it.

Okay. So, let me answer the question, okay? Which you've nailed it. Here's what I would say. Again, they're wrong. But we got a 40% increase for SmackDown. We have RAW, which is the #1 package available. There's 3 rights coming available to market, 3 big rights; WWE, RAW.

NBA.

UFC, NBA, okay? We are involved in 2 of them, right? There's 6 buyers plus, I would say, WWE Network, which is up in '26, thing I'm saying that maybe '25 -- '26. So, you cannot undervalue the WWE and UFC for the following reasons. One, there -- we do not have a season. One of the biggest issues that will happen with SVODs and networks is churn. We're 52 weeks a year, right? And we're flexible. You want us Thursday night, you want us Tuesday night, I don't have any of those scheduling issues. And that churn issue because we're for the full year is so much different from any other sport because then people churn out. That's one of the issues with sports, not in a bad way, but that's...

You sign up for the NFL and then...

And then the package is over and then you leave. We do not have -- our fans are loyal, they stick around and they stay with -- and they move.

Do you think that the NBA deal has to get resolved?

No. So, I would say to you there's plenty of interest with RAW right now. I know people like well, I like NBC is out of the mix. And that's why it went down. I think there's 3 things that happened. One, the reason the stock is down is what they thought like RAW was the best package. I thought a 40% increase, which was in line with expectation, was good. 2, the PFL situation. And 3, probably, Vince in our deal wanted to be able to put at any point in time his stock, he's 78, he's always working at this for decades and decades. So, I think those 3 back-to-back issues...

For those that don't know the PFL situation.

So, the Saudis invested in this actually a sport that we said fine, put it on ESPN that's on ESPN with us with the UFC called the PFL, they put $100 million in. The WWE makes over $100 million from the Saudis for a 5-year deal for 2 events. It came from the group that did -- that does events in Saudi. People were thinking it was the next Live. It was announced actually today, I don't know if you saw it. We're doing an event with the UFC in Saudi, right? And they said that there's no exclusivity, which is an indication that, that was for events, we're bringing them an event. And so I think that will calm some nerves. And so we now have 2 big things to go out to market with. Like I was and Mark Shapiro was with UFC, we're pretty calm right now about our rights. We think we have a great situation. We have an unbelievable relationship with Bob Iger in ESPN and Jim and everybody there. And RAW is like the ratings are through the roof, SmackDown through the roof, our ratings are through the roof, our events are sold out. So, we feel really good.

I want to get back to rights in a second, but since Saudi Arabia came up, I'm curious. Rewind 5 years or maybe less than that. After Jimmy Kimmel Live gets murdered, you say, you give back money or that Saudi Arabia is going to invest in your company. You now are in business with them for a couple of ways, right? What has changed between then and now?

I would say -- I mean, we didn't want -- I didn't want them at the time in our -- we weren't public in our investors deck, okay? I said on many podcasts about my feelings about the situation and how it -- we -- they have hired us to distribute -- I didn't say that we would never be -- do business in Saudi, I just didn't want them in the financial stack of our investors. We distribute their now soccer league through IMG because of WWE, we're in business with them for at least 5 years, 2 events a year. Great. They just bought an event from us for the UFC. Great price for doing the event, will be an unbelievable card. So, I just, at the time, didn't feel comfortable for many reasons, which has been stated. But we're in business with them now. So, that simple.

And my colleagues and I reported recently that your company has expressed some interest -- you brought Live, some interest in maybe investing in the PGA Tour. Saudi Arabia is obviously supposed to be part of -- you're smiling at me.

No, we -- you reported -- you're unbelievable journalist. We like -- I think it's like 7 other bidders. We put in a bid for the -- there's a 501(c)(3) nonprofit and then they created a profit investment opportunity for the PGA. We put in a bid, I think, a week ago, like you know, Friday. We are in, in TKO, the sports business. I'm an avid golfer. Anybody want to know, I'm 7 handicap. We -- and it's one of the great sports. I love it. I think we could add to it what we've added to all of our sports based on the flywheel.

Would that -- do you have a sense of whether that would be in addition to the Saudi money coming in or instead of?

We put in our bid.

Yes. For what?

For the PGA deal.

Or piece of the tour or for the whole thing.

For the PGA. Yes.

A piece or whole. I'm...

You can't buy the majority.

Okay. Thank you.

I would love to.

Now on the sports rights front, a lot of this is predicated on that market keep continuing to increase. That has been ballooning for a long, long time. Given what you're seeing with the kind of continued collapse of TV, the way that...

Okay. I'm not going to interrupt you, okay.

Well, you know where I'm going.

NFL signed a 10-year deal with linear television, 10 years, okay? The linear business is not going anywhere. They've also made deals on digital. We did the same thing. ESPN, ESPN+ on the UFC side. WWE did, Peacock, Showtime, I mean, USA Network and Fox, which is whatever. So, the linear business is not going anywhere. The sports business is moving and is going to figure itself out between digital and linear. It's an unbelievably healthy market. They all have to be in it. They all want to -- every single one of the players want to be in it because of the audience. We have 2 assets in the sports business that don't have -- are yearlong, don't have a season. I don't believe prices are going down, you're going to figure out the bifurcation of the rights and get things up, not give things up.

How long do you think it is before Netflix actually jumps into sports?

They're in sports right now, but they just do the shoulder programming. I think their point of view and you'll ask Ted tomorrow is we build up the -- we don't want to be in the bidding of rights and then not have any long term. So, I'm not sure. They did bid on Formula One and ESPN got it. So, I think that was a smaller package, meaning smaller economics. So, we'll see.