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Endeavor, parent company of UFC, labeled ‘substantial risk’ after credit downgrade from S&P Global

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The Fast Company Innovation Festival - The Next Intersection For Hollywood With William Morris Endeavor’s Ari Emanuel And Patrick Whitesell And Dwayne “The Rock” Johnson Photo by Ilya S. Savenok/Getty Images for Fast Company

It’s been a rough couple of months for Endeavor.

The parent company of Ultimate Fighting Championship (UFC), which acquired the mixed martial arts (MMA) powerhouse back in July 2016 for a whopping $4 billion, was already left with a black eye after trying — and failing — to go public last September.

Now the coronavirus pandemic has added insult to injury, slamming the brakes on a very busy schedule the promotion laid out for March and April, which included the highly-anticipated UFC 249: “Khabib vs. Ferguson” pay-per-view (PPV) event in Brooklyn, New York.

“Endeavor entered 2020 with a highly leveraged capital structure, therefore the anticipated significant drop in revenue in 2020 could potentially result in an unsustainable capital structure,” S&P analysts wrote (via The Wrap). “Even when production restarts, which we currently assume would be in the next few months, it might not be sufficient to offset the impact from cancelled or postponed events. In addition, the recessions currently underway in the U.S. and Europe are likely to put additional pressure on Endeavor’s revenue model, which partly relies on corporate sponsorships, advertising spending, and consumption.”

Endeavor’s credit rating was downgraded from B (highly speculative) to CCC+ (substantial risk). To be fair, ZUFFA LLC went through a similar downgrade in 2014, falling from “BB” to “BB-” as a result of “greater EBITDA volatility” before rebounding the following year.

Complicating matters is the fact that Endeavor recently laid off 250 employees and its top executives were forced to take a pay cut, while others took no pay at all. UFC remained unaffected but will face challenges of its own if it hopes to score its $750 million payday from ESPN in 2020.

Fight Island to the rescue?