Paramount-UFC reading between the lines

There's more than meets the eye to this deal, so let's dive in.

We tried to warn you.

Since the launch of this newsletter in 2023, we’ve been beating the drum that Ari Emanuel runs this game, not Dana White.

We’ve also tried to explain that Ari Emanuel embeds himself inside governments and mega-corporations like no one else.

Zach Arnold and I had been warning that Paramount could be a player for the UFC media rights since April (“could be a contender for Fight Nights”) and Zach upgraded them just last week (“Paramount is now a player for a piece of the UFC media rights package and Zuffa Boxing.”).

What we did NOT see coming was Paramount ponying up $7.7 billion for the rights to stream every UFC numbered event and Fight Night for seven years beginning in 2026. That’s $1.1 billion MORE than Paramount’s current market cap, BTW.

Zach’s looking especially smart now that Front Office Sports is reporting that TKO and Paramount are in discussions over the Zuffa Boxing rights (more on that later).

We weren’t the only ones. Lightshed’s Rich Greenfield told Business Insider he expected Paramount to be a bidder for the UFC rights at the end of July.

Greenfield also had some thoughts on David Ellison, Paramount’s new CEO (and son of Oracle billionaire Larry Ellison, who is the primary new owner of Paramount):

David Ellison is probably going to be running this company for 30, 40 years. He obviously has a passion for entertainment. He's moving to a much bigger stage.

(The South Park deal is) a small sign of the post-merger strategy, which is that David Ellison is not just doing this to cut costs and squeeze more juice out of this existing company. His goal is to build something significant with a very long-term perspective, which is going to require a lot of investment.

Frankly, Paramount’s UFC deal doesn’t make sense in an old-fashioned capitalist profit-and-loss environment. Only time will tell if the Paramount deal will be a win/win in our post-capitalist information economy, in which access to data and political influence seem to trump" business fundamentals (POTUS pun only slightly intended).

The business context

For reference, this chart on profitability by streamer shows why TKO was so interested in going with Netflix and why Paramount needed a massive cash infusion from Larry Ellison to buy the UFC rights.

This chart from Ariel Helwani compares the social media and streaming reach of the UFC’s current partner, ESPN, with their new partner, Paramount and their broadcast network CBS. As you can see, Paramount lags ESPN on social media despite having almost 3x as many streaming subscribers.

Dana White makes the announcement

The deal was announced by UFC CEO Dana White on Instagram and X.com in a charming piece of kayfabe intended to elevate Dana’s importance as the face of the UFC, even if there is little reason to believe he played a significant role in the media negotiations.

The video at the top of this post contributes to this misunderstanding (it also has a Hunter Campbell character appearing as Dana’s advisor in the media negotiations, not bloody likely) but it gets the main point across — Paramount’s bid was way high.

The details of the deal

Let’s start with a dive into The New York Times’ reporting on the Paramount-UFC deal:

Paramount announced Monday morning that it had struck a seven-year $7.7 billion deal to claim exclusive streaming and broadcast rights in the United States for the Ultimate Fighting Championship. The deal will go into effect next year.

The agreement will give Paramount access to the full slate of U.F.C.’s 30 fight nights, along with 13 of the sport’s biggest events. All of the fights will be available on the Paramount+ streaming app, and some marquee matches will also broadcast on CBS, which Paramount owns.
…
The new deal will replace a yearslong arrangement between U.F.C. and ESPN, and effectively doubles the total fee the sport will take in. ESPN currently pays roughly $550 million a year for U.F.C. coverage.
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The new deal will require just a subscription to Paramount+ ($13 a month without ads, and $8 a month with commercials) without any additional fees to access the fights.

Paramount and TKO said that the seven-year deal has an average yearly value of $1.1 billion, though “the contract’s payment schedule is weighted more toward the back end of the deal.”

Now, why would Paramount and UFC agree to float an AAV (Average Annual Value) that is backloaded so the payments increase every year of the deal?

That’s part’s easy: it serves both parties to buy now “low” and pay more later. But why did Paramount overpay so drastically? We’ll reveal that and have a detailed timeline of the negotiations, plus a review of pundit and analyst responses. We’ve also got a comparison of TKO COO Mark Shapiro’s explanation of the deal vs. Dana White’s, and a look at what this might mean for fighter pay. And finally, a look at what kind of subscriber numbers Paramount will need to make this deal work for them.