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UFC's $4 billion sale to WME-IMG scrutinized for possible exaggerated financial projections

Mark J. Rebilas-USA TODAY Sports

Earlier this year, Lorenzo and Frank Fertitta put a bow on a massive transaction which saw the billionaire brothers hand over Ultimate Fighting Championship to a group of investors led by WME-IMG for a whopping $4 billion, $1.8 billion of it to cover accumulated debt, according to Bloomberg via Deadline.

The sale was handled by Goldman Sachs Group Inc., which may or many not have exaggerated the mixed martial arts (MMA) promotion's power to turn a profit moving forward to potential buyers. That prompted Federal Reserve Bank supervisors to issue Goldman Sachs a warning for the alleged practices.

From the report:

When bankers marketed the debt deal financing the purchase earlier this year, prospective investors were shown estimates that, after the buyout, UFC's earnings before interest, taxes, depreciation and amortization would more than double to $298 million, according to documents obtained by Bloomberg. The figure included adjustments such as cost savings and projected growth in licensing revenue. The company recorded Ebitda of $142 million in the 12 months ended June 30, the documents show. As the company raised $1.8 billion of debt, the adjustments had the effect of lowering UFC's leverage to six times Ebitda, the documents show.

"The standard for all add-backs, be they large or small, is whether they represent reasonable, bona fide, achievable adjustments," law firm Kramer Levin Naftalis & Frankel LLP wrote in a report in August. "Loans relying on a large percentage of Ebitda add-backs have been SNC passes, and loans with minimal add-backs have been SNC non-passes," the report said, referring to the so-called Shared National Credit review process carried out by the regulators.

Furthermore, the warning was issued because regulators are trying to rein in risky, top-dollar lending practices by Wall Street's biggest banks that "push a company's debt load to more than six times its earnings," per the report. Nevertheless, WME-IMG is already doing its part to try and recoup some of the cash, enlisting high-profile celebrities as backers and co-owners such as Ben Aflleck and Tom Brady, just to name a few.

As for the Fertitta brothers, they made a pretty hefty profit following the transaction. And UFC president Dana White didn't make out too bad, either.

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