Media Rights Step Ups And Site Fees Will Drive Long Term Earnings Power

Catalysts

About TKO Group Holdings

TKO Group Holdings operates and monetizes premium combat sports, sports entertainment and live experiences globally through properties including UFC, WWE, PBR, IMG and On Location.

What are the underlying business or industry changes driving this perspective?

• Embedded step ups in long-term media rights for UFC with Paramount and WWE with ESPN and Netflix, alongside annual escalators and broader distribution, are set to structurally lift high-margin contractual revenue and expand EBITDA margins and earnings visibility from 2026 onward.
• Migration of premium fight and event content from transactional models toward widely distributed streaming and broadcast platforms like Paramount+, CBS and ESPN DTC is broadening audience reach and deepening engagement, which should support sustained top line growth and pricing power for advertising and partnerships.
• Growing global appetite from governments and municipalities to use major sports and entertainment events as economic development tools is accelerating site fee adoption across PLEs, UFC numbered events and boxing superfights. This directly raises live events revenue and enhances blended net margins.
• Rising demand from blue-chip brands for year-round, culturally relevant sports IP is enabling TKO to bundle UFC, WWE, PBR and future Zuffa Boxing inventory into larger, multi-property partnerships. This is driving scalable, high-margin sponsorship revenue and supporting the path toward the stated $1 billion partnership target and stronger earnings.
• Formal integration of IMG, On Location and PBR into a unified TKO platform, paired with the build-out of a dedicated site fee and partnerships team, is unlocking cost synergies and cross-property monetization such as premium hospitality and experiential packages. This should support continued free cash flow growth and margin expansion.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming TKO Group Holdings's revenue will grow by 39.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.0% today to 14.0% in 3 years time.
• Analysts expect earnings to reach $974.9 million (and earnings per share of $10.47) by about December 2028, up from $228.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.6 billion in earnings, and the most bearish expecting $670.1 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 21.4x on those 2028 earnings, down from 68.0x today. This future PE is lower than the current PE for the US Entertainment industry at 21.6x.
• Analysts expect the number of shares outstanding to decline by 3.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.31%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The long-term shift from transactional pay-per-view to broader subscription distribution on platforms like Paramount Plus and ESPN DTC could ultimately compress pricing power if streamers face their own margin pressure and seek to renegotiate or slow fee escalators, which would weigh on media rights revenue and adjusted EBITDA margins.
• TKO is aggressively leaning into site fees from cities and sovereign partners such as Saudi Arabia as a structural growth pillar. A turn in political sentiment, budget constraints or public backlash against these incentive packages could limit the number and size of future deals, reducing live events revenue and dampening net margin expansion.
• The strategy relies heavily on continually scaling premium live events and superfights across UFC, WWE, PBR and boxing. A saturated event calendar, fan fatigue or an economic downturn that weakens discretionary spending on tickets and hospitality could slow ticket price growth and attendance, pressuring top line growth and free cash flow generation.
• Management is deploying significant capital to dividends, buybacks and a term loan add-on while also integrating IMG, On Location, PBR and launching Zuffa Boxing. If integration synergies or boxing economics underdeliver, the higher leverage and capital return commitments could constrain strategic flexibility and lower earnings growth.
• Rising fighter and talent compensation tied to media rights step ups and the need to keep star athletes within UFC, WWE and Zuffa Boxing could outpace the incremental revenue they generate over time, eroding the currently high segment margins and limiting the improvement in consolidated earnings and free cash flow.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $223.42 for TKO Group Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $250.0, and the most bearish reporting a price target of just $171.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $7.0 billion, earnings will come to $974.9 million, and it would be trading on a PE ratio of 21.4x, assuming you use a discount rate of 9.3%.
  
• Given the current share price of $197.11, the analyst price target of $223.42 is 11.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.