Breakingviews: Investors will keep Ari Emanuel in the boxing ring

Hollywood super-agent Ari Emanuel is getting a little too fancy with his deal moves. His entertainment company Endeavor has agreed to sell some assets associated with live events to sister firm TKO. Strategically it makes some sense, but investors are throwing tomatoes for good reason.

Endeavor announced on Thursday it planned to offload Professional Bull Riders, On Location, and IMG to the parent of World Wrestling Entertainment and Ultimate Fighting Championship for $3.3 billion in an all-stock transaction. The deal will boost Endeavor’s stake in TKO from 53% to 59%, further entrenching the two companies run by Emanuel.

Stuffing a franchise, live events producer, and sports rights management firm into TKO has a portion of industrial logic. This means that TKO will now have all of Endeavor’s various sports-related entertainment including Wimbledon. Keeping them in a single ecosystem could help when negotiating for broadcast and streaming rights, for example.

But there are two big problems. First is the price. While the deal is expected to include $30 million in cost savings, Endeavors’ units on their own should generate $265 million of adjusted EBITDA in 2025. It gives the transaction a multiple of roughly 12 times operating income, but that comes with caveats. They are including the impact of the Olympics and FIFA World Cup in their 2025 estimates. Strip those out and the multiple climbs to a less flattering 20 times, far less than TKO’s own valuation. TKO shareholders may feel that they are being sacrificed for the benefit of Endeavor.

The second, perhaps bigger, issue is the insider nature of more than one transaction happening in fairly close succession. In the past three years, Emanuel brought Endeavor to the public markets, acquired all of UFC, spun out that asset last year when it merged with Vince McMahon’s WWE, which became TKO, and now has plans to take Endeavor private with the help of backer Silver Lake. In the last twist, Emanuel is up for goodies that could give him a windfall of approximately $400 million contingent on some factors. Plus, TKO shareholders don’t even have a majority voice in this deal since they hold 41% of the vote.

Even if this is the best transaction, it will be difficult for shareholders to see it. Investors sent TKO shares down 8% in late morning trading on Thursday even with the sweeteners of a share repurchase program and a dividend. Emanuel may continue to get more jeers than cheers.