SBJ Unpacks: TKO Group ‘won’t explore’ more Endeavor assets

On the heels of TKO Group Holdings announcing that it will acquire Professional Bull Riders, On Location and IMG from Endeavor Group Holdings for $3.25 billion, TKO President and COO Mark Shapiro was emphatic that TKO will not consider the acquisition of any further Endeavor assets.

“We won’t sign an NDA. We won’t explore. We won’t read materials -- nothing whatsoever,” Shapiro said. Endeavor is exploring the sale of sports assets including OpenBet, tennis' Miami Open and Madrid Open, part of an anticipated sell-off as private equity giant Silver Lake takes Endeavor private. Shapiro noted that Ari Emanuel, TKO’s CEO, may bid on some of the Endeavor assets in a purely personal capacity.

Shapiro made his comments during TKO’s Q3 earnings call on Wednesday evening. TKO, the parent company of UFC and WWE, reported revenue of $681 million and net income of $58 million for the three months through September. TKO’s revenue was split almost evenly between UFC ($355 million) and WWE ($326 million).

Fewer events lead to revenue drop for UFC

Shapiro downplayed UFC CEO Dana White’s recent comments about the promotion potentially getting into boxing , telling shareholders on Wednesday that a formal strategy is not yet in place. However, Shapiro also noted the fragmented sport of boxing offers a “growth opportunity,” though the company likely won’t pursue the acquisition of any existing boxing properties.

International gains for WWE

Shapiro noted that TKO is still combining UFC and WWE, not to mention will soon fold in PBR, and suggested shareholders could “expect more margin accretion” thanks to greater cost efficiencies and joint sponsorships across the owned properties.

TKO is in the process of refinancing its credit facility, including a new seven-year, $2.75 billion term loan and five-year, $205 million revolver, which is expected to close before the end of the year.

As Cardinals president Bill DeWitt III watched the live results on the Tuesday vote to legalize sports betting in Missouri , he felt like he was on the verge of watching his team blow a lead in the ninth inning.

Fortunately, Missouri voters turned out to be the equivalent of having Jason Isringhausen or Bruce Sutter on the mound.

“It felt like you’re trying to hang on to win in baseball and your closer is walking guys and they’re getting bloop hits and you’re like, ‘One more out,’” DeWitt told SBJ Wednesday. “And then the clock ran out.”

At 2:30 a.m. central time, legal sports betting passed in Missouri by a spread of just 5,000 votes with three million ballots cast.

“It’s an incredibly thin margin of victory,” DeWitt said. “It’s incredibly satisfying, and I would also call it somewhat of a relief.”

Missouri will have 14 online sportsbook skins -- one for each of its six professional sports teams , one for each of its six casino owners, and two untethered licenses which will presumably go to DraftKings and FanDuel. There are also 19 retail sportsbook skins -- one for each of 13 land-based casinos, and one for each of the six pro teams. DeWitt did not know whether all of them will activate.

DeWitt and the Cardinals were still evaluating how they want to proceed, with one sportsbook partner or multiple partners. "We know a dozen-plus operators will likely want to come into the market,” DeWitt said.

They could end up putting a retail sportsbook adjacent to Busch Stadium in their Ballpark Village. DeWitt said there is not a ready-made concept, so they would want to talk with their sportsbook partner and developer Cordish Companies on the best way to activate.

“We also want to be sensitive to families and fans who aren’t interest in this particular category, so maybe we pick a spot and focus our energy there on this category so you can do it if you want but it’s not everywhere that you turn if you don’t want to do it,” DeWitt said.

Sportsbook sources described DeWitt as “very influential” during the 2024 process.

In January, a coalition of the six Missouri pro sports teams led by the Cardinals, with significant contributions from DraftKings and FanDuel, launched their own initiative campaign, which culminated in a successful signature gathering effort and a narrow November win at the ballot box.

DraftKings and FanDuel ultimately gave a shade over $40 million to the campaign combined, which would seemingly give them the inside track on the two untethered licenses. The Cardinals, Royals, Blues, St. Louis City FC and the Current gave $333,333 each.

Previous legislative efforts, with DeWitt testifying at hearings on the issue, had advanced in the House before dying in the Senate. This time, they survived $14 million of spending in opposition.

“The filibuster rules in Missouri are notoriously favorable to those who want to block stuff, in the Senate in particular. We just kept falling victim to that process, and it was just so frustrating,” DeWitt said. “And so we finally said we’re going to take matters into our own hands.”  

The Braves reported revenue of $291 million for the three months ending Sept. 30, marking a 7% year-over-year increase. Nearly 60% of the team’s total revenue was from home games at Truist Park, with baseball event revenue rising 7% to $173 million in the quarter.

Growth in baseball event revenue was driven largely by new sponsorships as well as increases from season tickets and existing sponsorships. Home game revenue was actually down on a per-game basis, falling 3% to $4.2 million per home game in Q3 2024 vs. the same period last year. That decline, along with a 21% drop in retail and licensing revenue, was driven by decreasing home game attendance, which fell some 4% across the full 2024 regular season. It was still the team’s third consecutive season with over 3 million tickets sold, and Braves president and CEO Derek Schiller told shareholders on Wednesday that the Braves currently have 20,000 fans on their season-ticket wait list.

Revenue from broadcasting, which includes both local and national media rights, grew 2% to $71 million. Schiller said the ongoing Diamond Sports Group bankruptcy process has not yet impacted the team’s finances, with the Braves receiving all scheduled payments to date. Last month, Diamond presented reorganization plans that would see the Sinclair Broadcast subsidiary maintain the Braves while enabling all other teams to freely exit or renegotiate their existing contracts. Though he declined to predict whether Diamond’s bankruptcy might eventually impact the Braves’ finances, Schiller was optimistic about the team’s local media opportunities should its current rights agreement fall through. 

“We’re not just waiting for bankruptcy to be defining what might happen, but also studying what the potential opportunities are for us,” Schiller said. “We’re going to be prepared for any eventual outcome. No matter what happens, we think we’re in a very enviable position. ... We have one of the largest television territories in sports, and we have an opportunity, we think, to capitalize even further on that territory should those rights come back to us.”

The Braves’ earnings fell in Q3, with operating income of $6.4 million down 59% from $15.7 million in Q3 of last year. The drop was largely caused by increased spending, driven by payroll -- the team’s 2024 player spending was up nearly 15% to some $236 million, according to Spotrac -- as well as increases to MLB’s revenue sharing program, concert-related expenses and spending tied to the club’s minor league teams.

The team also saw continued growth from The Battery Atlanta, its mixed-use real estate development. Mixed-use revenue, comprised largely of rental income, was up 12% to $17.4 million. Truist Park and The Battery will host next year’s MLB All-Star Game festivities.

Earlier this week, MLB announced that its fan surveys ranked the Braves No. 1 in overall guest experience , concessions and non-game entertainment. 

A  few years ago, Minnesota Wild owner Craig Leipold was thinking it might be time to take some money off the table. Team valuations had skyrocketed since he’d acquired the Wild in 2008, and Leipold had just endured a year-plus of COVID lockdowns effectively shuttering his team’s home arena for both hockey and non-game events, such as concerts.

Leipold ultimately decided to offload 10% of the team. The issue was that rising team values had priced out most potential buyers. 

“To get an investor at that point to come in and buy 10% of the team, it was going to cost them $70 million,” Leipold recalled. “That’s real money, and those investors are harder and harder to get.” 

See more

The increasingly popular alternative? Private equity. Though the NHL had not yet approved institutional ownership, investment firms such as Arctos Partners and Blue Owl HomeCourt Partners had begun to acquire passive minority team stakes in other leagues, providing control owners a new source of liquidity.  

Yet Leipold, who knew of private equity’s reputation for demanding quick returns and utilizing mechanics such as put options to force an exit, remained wary. That outlook began to change, however, after Leipold spent time with Arctos co-founder David “Doc” O’Connor, whom he knew from when O’Connor served as president and CEO of Madison Square Garden. 

“It became clear to me that they were looking for something different. They were looking for asset appreciation, and they weren’t looking for a return in five years, or seven years, or 10 years; they had no horizon that was really defined for them,” Leipold said. “So I became really comfortable with them, what they could provide and the money that they had available.” 

Leipold was soon pushing the NHL to allow institutional investment. As it turns out, he had an ally in Tampa Bay Lightning owner Jeff Vinik, who had separately been exploring the possibility.

After an extensive vetting process, NHL owners officially approved institutional ownership in its teams in December 2021, joining MLB, MLS and the NBA, all of which had previously established bylaws governing private equity investments. Arctos acquired minority stakes in the Lightning and Wild shortly thereafter.   

The NFL remained the lone holdout among the major American leagues, but no longer: In August, the league’s owners voted almost unanimously to allow four provisionally approved groups — Arctos, Ares Management, Sixth Street and a consortium composed of private equity giants Blackstone, Carlyle and CVC; sports investment firm Dynasty Equity; and Ludis, a firm founded by former NFL running back Curtis Martin — to acquire up to 10% of individual NFL teams. 

The NFL’s approval has kicked an already hot trend into overdrive. Sports fund managers say it validates their early strategies, and others expect it will draw even more investment funds into sports. Though no NFL deals have yet been consummated under the new policy, several teams, including the Philadelphia Eagles and Miami Dolphins, are believed to be in talks with potential investors. 

By Sports Business Journal’s count, at least 24 teams across the nation’s other top leagues have at least one institutional investor on their cap tables. That’s to say nothing of team investments made overseas, where European soccer clubs and Formula 1 outfits have proved popular investment targets, or in emerging leagues such as the NWSL, TGL and SailGP, among others.

That activity is largely built on a single, fundamental tenet: North American pro sports have for decades ranked among the safest, most uncorrelated and value-accretive asset classes out there. 

“These are assets that have grown predictably and reliably over a very, very long term,” said O’Connor. “Literally decades, if not centuries. I don’t know what my phone is going to look like 10 years from now, but I can tell you that we will be watching the World Series in October 10 years from now.”

■ ■ ■ ■

F or team owners like Leipold, it’s easy to understand the appeal of institutional investment, especially since league bylaws mandate those funds be truly passive investors. Beyond injecting capital, those firms have proved to be valuable business partners. For the Wild, Leipold said Arctos was critical to forming strategies when the team was unsure about its local broadcast future.

“They made available to our team, at no charge, the best consultants and experienced people that have been in the industry for 20, 25 years,” Leipold said. “They were the highest-level, most experienced people in the regional sports network world that could possibly be available to a team.”  

The Wild are also navigating potential renovations for Xcel Energy Center. Though Arctos is not involved with financing efforts, the firm provided the Wild with contacts for architects and other teams that have recently pursued similar projects. 

San Antonio Spurs CEO RC Buford was likewise effusive in detailing how Sixth Street, the investment firm with a 20% stake in the team, and its subsidiary Legends had provided additional value across Spurs operations.  

“On our new performance campus, Legends is operating all food and beverage. When we were looking for financing options around The Rock, [Sixth Street] was incredibly helpful in providing new opportunities or new ideas on how we could approach things,” Buford said. “With ideation around the RSN bankruptcy that we’re going through right now, they’ve been a great partner.” 

Perhaps what’s not as clear is why large-scale institutional investors, the sort that usually expect control ownership positions and sky-high returns, are suddenly rushing to throw money at passive, minority holdings. 

“Typically, private equity funds are acquiring control or 100% of a company, and they’re improving profitability and will exit within a period of time,” said Eric Geffner, a partner at law firm Sidley Austin, who advises on sports M&A deals. “[A team stake] needs to be a longer investment, and you go in knowing that you’re going to have limited controls and limited access to information. … In conversations with private equity clients, they’re not looking at a hold period of five years and then exit. They could exit, but they may hold for longer depending on the situation.”  

The top American leagues have been careful in structuring their bylaws. Fund managers are typically allowed to receive only quarterly and annual team financial statements, and they’re often prohibited from attending board meetings. Their ability to sell also is restricted thanks to lockup periods — funds generally need to hold for at least five or six years, unless exiting as part of a control transaction — and required approval from both their control owner and the league at large. Most leagues prohibit funds from selling more than one team stake simultaneously unless they’re offloading an entire portfolio.

The NFL has gone even further, stipulating that investment firms pay the league $500,000 at the time of acquisition, as well as a cut of the earnings upon exit. While the league taking a profit share is not entirely unique — the NBA’s initial approval of Blue Owl in 2019 included that league receiving a cut of the firm’s earnings, according to multiple sources — it would appear a significant headwind for return-focused investment firms. 

That hasn’t stymied investor demand partly because the sports asset class has proved so consistently resilient. This past June, Arctos partnered with the Michigan Ross School of Business to launch a sports franchise index that found the values of teams in the Big Four leagues have grown at a 13% compound annual growth rate since 1960, outpacing equities (11%), gold (7%) and bonds (6%). 

It’s also worth noting that some of the sports world’s most active institutional investors don’t fit the traditional PE mold. Sixth Street’s flagship fund, Tao, is a flexible, evergreen vehicle that invests across industries and asset classes. Ares is similarly nimble at scale, able to invest up and down a company’s capital stack. Arctos was designed specifically to acquire longer-term team assets, as are other sports investment firms such as Blue Owl and Dynasty. 

Despite its added restrictions, the NFL is still seen as the crown jewel of team investment opportunities. 

“If you follow the economics of the various professional sports leagues, there is nothing more compelling economically than the fundamentals in the NFL,” said Mark Affolter, co-head of U.S. direct lending and sports, media and entertainment for Ares. “The long-tailed nature of media rights and corporate sponsorship dollars. The cost containment features with respect to some of the regulations. The locked-in nature of the cash flows associated with these clubs; the fact that they all make money. Those are dynamics that I would analogize to investing equity in infrastructure-like assets.” 

Other key growth factors include: 

■  Unlike other leagues, the NFL is not exposed to the collapse of regional sports networks, and its 11-year, $111 billion media rights deal includes an opt-out in 2029 that could lead to a significant increase in league revenue. 

■  The league is rapidly expanding internationally, with teams securing global marketing rights and the league able to play as many as nine games overseas in 2025. 

■  Many believe the NFL eventually will expand its regular-season schedule to 18 games, which would provide a boost across most league and team revenue streams. 

■  Some also have noted ancillary benefits related to being an NFL team investor that would complement a more modest return profile. 

“They’re not going to make a ton of money on these investments. It’s hard for me to see, in a reasonable time period, Ares making an investment in the Dolphins at $8 billion and turning it into $16 billion,” said a sports banker who has advised on numerous team M&A deals. “I think it’s more a marketing play for the big funds that are invested in sports or want to be invested in sports, to be able to say, ‘We’re approved by the NFL.’ It’s more that than, ‘We’re going to make so much money for our investors.’”

■ ■ ■ ■

A rctos is currently the only firm with at least provisional approval to invest across all major American leagues, but O’Connor expects more large-scale firms will soon catch up.

“On one level, that’s great validation for our thesis and our strategy,” O’Connor said. “And on the other hand, it creates competition. But as it’s proven in other private markets, it also helps to create a thriving market for liquidity, and that’s a good thing at the end of the day.” 

Though institutional sports investors are prepared for the long haul, liquidity in the marketplace will be critical when those firms inevitably need to return capital to their investors. What remains to be seen is the long-term impact of those institutional investments and, even more importantly, what happens when it comes time to sell.  

To this point, institutional stake sales have been few and far between, though most have been at record valuations. Blue Owl exited its position in the Phoenix Suns when Mat Ishbia acquired the team for a league-record $4 billion. Arctos exited the Portland Thorns on its sale to the Bhathal family for $63 million, also then a record for the NWSL, and has sold down a portion of its stake in the Lightning as part of Vinik’s sale to Blue Owl Capital co-CEOs Doug Ostrover and Marc Lipschultz.  

For those who have welcomed institutional money, there’s only excitement for what’s to come next. 

“If I were ever interested in selling another 10%, which I’m not interested in, but if I was, I’d call these guys immediately,” Leipold said. “The league is very comfortable with them, there has not been a bad experience. So I probably see it being more active than less active.” 

The Santa Clara County Board of Supervisors kicked the can down the road in its effort to reach terms with the Earthquakes on a deal that would allow the team to build a soccer complex at the county fairgrounds. Rather than vote on whether to approve a trilateral term sheet that county staff had negotiated with the Earthquakes and the City of San Jose, the five-member board unanimously voted to engage in additional talks with the Earthquakes to address fundamental concerns. 

The non-binding term sheet, which the city of San Jose separately approved yesterday by a unanimous 10-0 vote, outlined plans for the Earthquakes to build a soccer complex including four natural grass training fields and a performance center for the club, along with four artificial turf fields for public use, on 26 acres at the southernmost edge of the Santa Clara County Fairgrounds. The team and local officials had hoped to open the facilities in time for the 2026 FIFA World Cup.

Under the terms of the agreement, the Earthquakes would have spent more than $50M on the project, including $12M toward the construction of the public fields (which they would have also managed). The city of San Jose would have allocated $6M toward the public fields. Meanwhile, the club would have entered a 25-year ground lease with Santa Clara County -- with three unilateral 10-year extension options for the club -- for the 12 acres on which its private fields and facility would sit, with rent starting at $240,000 per year and increasing by 2.55% annually. 

In open discussion, several supervisors expressed concerns about various fundamental deal points negotiated over the past year, including whether the Earthquakes’ proposed rent undervalued the land; whether the 250 hours of free field use the Earthquakes had agreed to offer the public annually represented enough of a community benefit; and whether it was prudent to install artificial turf fields for the public rather than natural grass.

Daniel Cruz has spent his past few years working with superheroes in his former role as VP/digital media at Marvel. Now he’s joining a world of college athletics that’s creating, well, super headaches.

Why? The parallels are more similar than you think.

“What I do is I work with IP to marry with great brands, and then I take talent and we create great creative assets and we create storytelling,” said Cruz, who was hired as UCLA’s first chief revenue officer on Oct. 14 . “The more I talked to [UCLA AD Martin Jarmond], there was a direct correlation of the IP is UCLA athletics and the institution, the talent is the great student athletes, and then the brands, they want to create great storytelling.”

Cruz, who has worked in varying capacities at Disney for the better part of the last decade, along with stops at Spotify and ESPN, isn’t the first to be hired in such a role (Utah and Texas Tech have made similar staffing decisions). That said, his background is certainly unique among those who’ve been hired in such roles.

“Working at Disney, I’ve been very fortunate to have access to some of the greatest IP in the world,” he said. “I look at college sports, I look at UCLA as [some] of the top IP assets that are out there. … What I’m hoping to do is create a super authentic connection between the brands we want to work with and the student athletes that we want to bring to the forefront to promote and showcase, so that our fans see that it’s an authentic connection, and we’re elevating ourselves the brands that we’re working with and the student athletes as well.”

Situated in an entertainment hub like L.A., opportunities are certainly there for UCLA to make major plays in branded content. With the school likely soon to be on the hook for revenue sharing contingent on the House settlement going through, providing such opportunities for athletes to capitalize on is as crucial as ever -- and Cruz will be central to those efforts.

“What we’re seeing is the commercialization of college sports, and we’re entering a new agreement with our student athletes, a business relationship, helping them monetize their brand, create meaningful corporate partnerships, develop true NIL opportunities,” Jarmond said. “I call it the ‘New Deal.’ There’s got to be a value proposition for our student athletes that we have not considered before -- storytelling, branding, development, developing revenue opportunities. It’s all about where this is going.”

• Former CBS Sports Chairman Sean McManus and former Giants QB Eli Manning are two of the newest members at Augusta National Golf Club, sources tell SBJ's Josh Carpenter.

• For the third time, voters in Willis, Texas have turned down a $115.4 million bond package that included funding for a $68 million high school football stadium, reports SBJ's Irving Mejia-Hilario.