If UFC is Worth $4B... WWE (WWE) is Worth?

July 11, 2016 3:21 PM EDT
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Hardcore fight entertainment lovers awoke to news that their beloved UFC was sold to WME | IMG - with the help of private equity firms Silver Lake, KKR and and MSD Capital - for a reported $4 billion. While a windfall for UFC owners, the news has market participants asking what this means for the longer-established World Wrestling Entertainment (NYSE: WWE), which has a market cap of a mere $1.5 billion.

UFC had revenue of $600 million in revenue in 2015, which was said to be "significantly" higher than 2014. As a comparison, WWE had revenue of $658.8 million in 2015, up a not-so-modest 21% from 2014. WWE's net income was $24.1 million in 2015. UFC's 2015 net income is not available because it is a private company.

Commenting on a comparable valuation from the UFC sale, Wells Fargo analyst Eric Katz said he thinks WWE could be worth $36-$44 per share, or more than double the current $20.53 price at the high-end of the estimated range.

Katz said based on UFC's EBITDA margins of 20-25% for ‘12-‘14, they believe the company generated $120-150MM in EBITDA for ‘15. This puts the sale at a valuation of 26.7-33.3x the UFC's ‘15 EBITDA.

Applying that multiple to the firm's ’17 EBITDA estimate for WWE of $102.8MM they get an equity valuation of $2.7-3.4B, or $36-44/share.

Commenting on how WWE compares to UFC, the analyst notes: The most glaring differences are – i) the UFC is a sport & WWE is sports entertainment; & ii) the UFC currently relies much more heavily on the PPV (pay-per-view) model. They similarities are – i) scripted or not, it’s a combat sport with top notch athletes, and does have some overlap in its fanbase; ii) both offer PPV; iii) both have TV rights contracts to appear on cable (and broadcast for the UFC); iv) both have a streaming OTT network; and v) both have a significant presence in retail and video games.

Lastly, the analyst notes there were a number of interested parties in the UFC.

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