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Why WME-IMG Paid $4 Billion For UFC, A Mixed Martial Arts League

From spectacular live events to new forms of content, WME-IMG plans on taking the "niche" out of Ultimate Fighting Championship.

Brock Lesnar punches Mark Hunt of New Zealand in their heavyweight bout during the UFC 200 event on July 9, 2016 at T-Mobile Arena in Las Vegas, Nevada.

[Photo: Harry How/Zuffa LLC/Zuffa LLC via Getty Images]

In a jaw-dropping deal, a sport once denounced by John McCain as "human cockfighting" has just been valued at $4 billion. That’s how much a consortium of investors led by Hollywood talent agency powerhouse WME-IMG just paid for mixed martial arts league Ultimate Fighting Championship. (Other investors in the deal include Silver Lake, Kohlberg Kravis Roberts, and billionaire Michael S. Dell's investment fund.)

For some quick context, that’s about how much Comcast recently paid for DreamWorks Animation, and what Disney plunked down for Lucasfilm back in 2012—a purchase that was then declared the "deal of the century."

So how does a mixed martial arts sport that is the definition of a niche brand command the same value as the companies behind such mega film franchises (not to mention merchandising juggernauts) as Star Wars and Shrek?

The answer is simple: live events and content. UFC produces more than 40 live events annually and reaches more than 1 billion TV households worldwide. In a world where people are increasingly watching things where and when they want, UFC—like most sporting events—remains one of the few areas of programming that people actually watch while it’s happening. Which makes it incredibly valuable in terms of advertising, sponsorships, and distribution deals.

Enter WME-IMG, which, since buying sports management behemoth IMG, has been rapidly transforming itself from a traditional talent agency into a multimedia conglomerate that now owns and produces everything from fashion shows to Grand Slam tennis tournaments to art fairs. Besides the inherent "live" value in all of these diverse properties, WME capitalizes on them further by producing full-service entertainment events that bring together various branches of the company’s ever-expanding empire of music, movies, food, you name it. Expect future UFC events to have a pre-show musical act, maybe even a comedy performance, not to mention A-list Hollywood guests, all in the name of blowing up the sports’ image, brand, and audience.

Then there’s the content side. WME has been aggressively working to become a platform for digital content as a way to leverage its assets. Last year it live-streamed shows at New York Fashion Week (which it owns), created an app for the event, and launched content related to the shows on its fashion-focused Apple TV app, M2M. It is currently working on a similar digital strategy for Professional Bull Riders, which it bought last year. UFC lends itself even more to this ambition given that it already has an OTT service, Fight Pass; has produced more than 40,000 hours of archived content; and has an enormous following among millennials. (Another reason for the hefty price tag: The league attracts the most sought-after demographic in the eyes of advertisers.)

And, of course, there’s the talent angle. WME already represents UFC stars such as Ronda Rousey. Haven’t heard of her? With WME-IMG now fully invested in the league, she and others will surely start gracing magazine pages, perhaps be signed as a model (another one of WME-IMG’s divisions), and maybe land in a movie.

No one is expecting UFC to turn into the NBA overnight, or necessarily ever. But with WME-IMG power-fueling it, the league is positioned to become a much more focused brand with new revenue streams, some of which probably haven’t even been dreamed up yet.

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