TKO: "A Transformative Deal"
From “Positioned To Capitalize” (June 2023): “If you share my view that live sports will ultimately play a prominent role in the content slate for a few of the leading DTC services / streamers, you can start to appreciate why the WWE and the UFC are attractive properties - particularly given the flexibility of their format / scheduling, the size and demographics of their audience, and the price tag of their rights relative to other sports. As overall content budgets at major media companies are being thoroughly scrutinized, my view is that sports rights are one area where spending will continue to rise (the latest example is Peacock’s ~$110 million deal for a single NFL playoff game).
As it relates to the leading player in streaming, Netflix, I’d note that they have had significant success with sports docuseries like ‘Drive To Survive’ and ‘Full Swing’… I think the introduction of the ad-supported / AVOD tier will eventually lead Netflix to conclude that they should be in live sports.”
On January 23rd, the global leader in DTC video streaming took a major step forward in their distribution of “live sports entertainment”: Netflix announced a 10-year, ~$5.2 billion deal for “Raw”, WWE’s flagship weekly program. I won’t rehash the ground covered in the most recent Netflix update (“Reaping The Rewards”), other than to reiterate that I think this is a good fit for Netflix given the flexibility of WWE’s format / scheduling, the size and demographics of its audience, and the structure / price for “Raw” relative to other (global) sports.
I also think this is an intelligent deal for the WWE / TKO. As a reminder, here’s what Netflix co-CEO Ted Sarandos said after the deal was announced: “We believe that the WWE has historically been under-distributed outside of North America, and this is a global deal. We can help them and they can help us to build that fandom around the world.” TKO CEO Ari Emanuel shared a similar conclusion: “This strengthens the WWE brand on a global basis.”
Based on management’s commentary, I think the AAV (average annual value) on the Netflix deal was in a similar ballpark to the ~1.4x increase received for the NBCU / “Smackdown” deal (they secured a ~1.7x increase on the CW / “NXT” deal, but that’s only for ~$25 million a year). One key difference between the “Smackdown” and “Raw” deals is their length: the NBCU deal is for five years, while the Netflix deal runs for ten years (in addition, Netflix can opt out after five years or extend the term another ten years to 2045). Long story short, TKO made some concessions to ink the Netflix deal. (Netflix CFO Spencer Neumann: “This is a type of sports entertainment programming that’s going to work well for our members in many parts of the world... We felt it was an attractive value, in terms of member impact relative to our cost.”)
In the end, they had to come to an assessment of the long-term value Netflix brought to the table. The streaming service has more than 180 million paid subscribers in International markets (ex-UCAN), a number that has grown by >100 million over the past five years. (“Raw” will be on Netflix beginning in January 2025 in the U.S., the UK, Canada, and Latin America, with other markets around the world to be added as their existing media deals expire.)
As TKO COO Mark Shapiro noted on the Q4 call, this deal is about much more than media rights’ dollars: “This is the best platform in the world, with the largest audience in the world… By the way, Netflix is also one of the best marketers in the world. The idea of seeing ‘Raw’ on the front page when you open Netflix is something we're really excited about… Netflix has unbelievable reach and global scale… This is a transformative deal.”
If we assume the alternative opportunity for WWE was a collection of regional deals that offered 10% or 20% higher AAV’s, I much prefer this decision. Netflix will add significant value for the WWE, particularly outside of the United States. It should also help with reaching younger fans domestically, many of whom have abandoned pay-TV. Finally, I think this is the first step of a long-term partnership, with opportunities for expansion in the years ahead (on live rights, as well as with shoulder programming). For a management team at EDR / TKO where I’ve been a bit uneasy at times with how much concern they seem to place on outside considerations - for example, how they’re viewed by Mr. Market - this helps restore my confidence that they’re focused on the long-term decisions that are critical to sustaining and building the value of the enterprise. (To be fair, the situation at Endeavor may help to explain why that perception issue has been top of mind for management.)