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Formula 1, WWE and UFC are potential acquisition targets for streaming services

(LR) Conor McGregor of Ireland beats Dustin Poirier in the lightweight division during UFC 257 at the Etihad Arena on UFC Fight Island on January 23, 2021 in Abu Dhabi, United Arab Emirates.

Chris Unger UFC | Getty Images

In 2016, before the Ultimate Fighting Championship was sold for $ 4 billion to the company that became the Endeavor Group, the mixed martial arts league was nearly bought out by Disney for a little more.

According to people familiar with the case, Disney and the UFC have agreed on broad terms for the deal, in which the entertainment giant will acquire a martial arts company for about $ 4.3 billion.

Disney, which owns most of ESPN’s sports broadcasting network, has been playing with the idea of ​​buying sports leagues for years, one man said. Disney CEO Bob Eiger at the time was a model manager for a brilliant acquisition of intellectual property, buying Pixar, Lucasfilm and Marvel.

Eventually, Eiger dropped the UFC deal. He felt that the bloody and brutal UFC brand did not match the family’s Disney, said people who asked not to be named because the talks were private. A Disney spokesman did not comment immediately.

Two years later, ESPN paid Disney $ 1.5 billion for UFC television rights in a five-year deal. The deal immediately increased the value of the UFC to $ 7 billion, according to UFC Director-General Dana White. ESPN + from Disney has also signed a $ 150 million contract a year to broadcast UFC fights under the agreement, which expires in 2025.

If ESPN restores UFC rights, Disney will pay significantly more royalties than the $ 4.3 billion it would have paid in 2016. The cost of rights to popular sports broadcasts continues to rise rapidly as they provide unique opportunities for live viewing for advertisers and attract a relatively large audience.

This calculation has made professional sports and entertainment leagues, such as UFC, NASCAR, Formula One and WWE, potentially attractive to streaming companies as a way to control ever-increasing fees for rights to valuable live programs that are still worth promotional dollars.

“Disney would be much smarter to buy the UFC than spend so much on a license,” said LightShed analyst Rich Greenfield. “Now the costs are rising. Owning a league makes a lot of sense.”

Although rarely anything is put up for sale, the era of streaming has probably made sports leagues more desirable targets for acquisition, as competitors seek exclusive content for competitive advantage. Owning a league, rather than relying on a multi-year license renewal that will lead to periodic bidding wars, can strengthen branding and reduce subscriber outflows.

Mercedes AMG Petronas Motorsport driver Lewis Hamilton (44) from Great Britain celebrates his victory in the 2019 Formula 1 World Championship after the Formula 1 race – the US Grand Prix on the American track on November 3, 2019 in Austin, Texas.

Ken Murray | Sportswire icon Getty Images

Although Disney objected to the UFC’s image, it’s easy to imagine roller coasters and theme parks for the media companies that own them. For Amazon, there are clear product bindings. Netflix can use the appropriate IP for its video game division.

Formula 1, WWE and UFC are language-independent properties with global appeal. Formula One, in particular, prides itself on being an international sport, with races around the world. The league announced last week that it added its third U.S. Grand Prix in Las Vegas, starting in 2023.

This could tip the scales for streaming services that need to grow subscribers in the world such as Netflix and Disney to keep investors happy.

“The restraint companies are global,” said Sean Bratches, a former head of commercial operations at Formula One. He created and directed the production of “Drive to Survive”, a hit Netflix, which describes in detail all the seasons of Formula 1. “If you’re a sport like Formula One, one of your main strategic goals is to increase your rights to the media around the world.”

No known negotiations to acquire Formula One, UFC or WWE.

Rare inventory

While buying sports and entertainment leagues can be an attractive target for big streamers, there just aren’t that many. The largest professional sports leagues – the National Football League, the Major League Baseball, the National Basketball Association – are not targets of redemption. This leaves a mix of smaller leagues that may or may not be sold at the moment.

Chairman of World Wrestling Entertainment Inc. Vince McMahon (left) and wrestler Triple H appear in the ring during the WWE Monday Night Raw show at the Thomas & Mack Center on August 24, 2009.

Ethan Miller Getty Images Entertainment Getty Images

WWE, with a market capitalization of $ 4.6 billion, stands out as a potential candidate for the takeover because it is a public company with an aging controlling shareholder. Vince McMahon owns more than 80% of the vote and is 76 years old. At some point he and his family will have to decide whether to retain control of the company or sell it to whoever offers the highest price. McMahon’s daughter, Stephanie, also works for the company as a chief brand manager.

“We’re open for business,” Nick Hahn, president of WWE, said last month in The Ringer’s podcast “The Town”.

Buyers could be an outdated media company such as Disney, Fox, Paramount Global or NBCUniversal from Comcast, which last year struck a five-year deal with WWE worth more than $ 1 billion to become the exclusive home for consumers for WWE.

“If you look at what NBCU / Comcast needs, and I think that’s a factual statement, they don’t have the intellectual property that some other companies have,” Khan said. “I think they look at us as an entity that owns a lot of intellectual property. A lot of them haven’t been used. Now we have to monetize it properly and show the community exactly what we have.”

A NBCUniversal spokesman did not comment immediately.

If a potential buyer makes an offer to McMahon, it could happen before the next renewal of the company’s rights – likely to be announced in mid-2023. Probably that’s when McMahon may have to decide to sign another multi-year deal or sell.

While Disney and NBCUniversal own theme parks, major tech companies Apple and Amazon have also emerged as potential stakeholders in acquiring IPs for sports and entertainment. Both have entered into long-standing deals to broadcast MLB games on their streaming services. Amazon also acquired exclusive football rights on Thursday night, starting this season. Even Netflix, which has so far stayed away from live sports, is ready to buy the rights to Formula One after its documentary series “Drive to Survive” became a worldwide hit, co-CEO Reed Hastings said last year.

Potential disadvantages

While Disney has proven it can use and expand existing Marvel and Lucasfilm intellectual property, creating new characters is a different skill set, said Khan of WWE. It is unclear whether a streaming service or large entertainment organization will have the same skills as McMahon.

Gravedigger, Top and Brock Lesnar fight during Wrestlemania XXX at the Mercedes-Benz Super Dome in New Orleans on Sunday, April 6, 2014.

AP

The content of small sports companies can also be buried in a large streaming service that cannot offer its users everything. While the spin-offs of Star Wars and Marvel often get the highest bills on Disney +, other intellectual property can get lost in the shuffle. McMahon will have to decide whether WWE can expand its universe as part of a larger company, or risk losing cash without family attention.

Buying a smaller sports league may not interest a big streamer to make a multibillion-dollar acquisition, said Bratches, a former Formula One boss who has also worked at ESPN for 27 years.

Liberty Media, controlled by billionaire John Malone, acquired Formula One for $ 4.4 billion in 2016. For the past five years, Liberty has invested in Formula One and earned revenue by playing between different media entities, sharing rights around the world and auctioning license rights. .

This business model will disappear if the league is owned by one media party. Any vendor who cares about the future of what he sells would like to feel confident in the overall state of the streaming service he is purchasing, Bratches said. If consumers go bad on the streaming service and this company owns the league exclusively, viewers can suffer regardless of the quality of the league.

“It’s‘ nice to have ’real estate, but it’s not something you buy NFL,” Bratches said. “Not enough content to move the needle.”

Disclosure: NBCUniversal of Comcast is the parent company of CNBC.

WATCH: Liberty Media Announces Formula One Grand Prix in Las Vegas

Formula 1, WWE and UFC are potential acquisition targets for streaming services

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