Why Paramount's $7.7 Billion UFC Gamble Will Pay Off
But considering the company has struggled with profitability in recent years, recording an operating loss of $5.27 billion in 2024, it's reasonable to wonder how Paramount plans to recoup the value for the $1.1 billion per year it will pay on average to the UFC, and whether in an effort to outbid competitors like Amazon and Netflix it paid too high a price.
'On a standalone basis we struggle to see how Paramount earns back their investment,' MoffettNathanson analyst Robert Fishman wrote in a research note this week. 'However, this deal does cement Paramount's willingness to once again invest serious capital into the business in an effort to scale long-term.'
Under the previous ownership of National Amusements, led by Shari Redstone, Paramount looked in recent years to shore up its balance sheet by selling or licensing some of its most valuable assets. In 2021, it sold the skyscraper that served as CBS' New York headquarters for $760 million and later that year unloaded the CBS Studio Center in Los Angeles for $1.85 billion. Two years later, Paramount sold the publishing company Simon & Schuster for $1.62 billion, and explored further sales for cable channel BET and streaming service Showtime that never materialized. Two of the company's flagship shows, Yellowstone and South Park , were licensed to other streaming services for a cash influx.
The 42-year-old Ellison—son of the world's second richest person, billionaire Oracle founder Larry Ellison—has already made it clear his intention to reverse that trend. On Wednesday, he told reporters that Paramount was no longer shopping BET and plans to keep the company's assets intact for now. As he told the Wall Street Journal this week: 'You can't cut to grow.'
Still, the money has to come from somewhere—other than the $290 billion net worth of his father. The younger Ellison has promised $2 billion in cuts, and significant layoffs are expected to occur before the end of the year. In the short-term it will be a tight squeeze, with the company's streaming efforts being bankrolled by its linear broadcast channels.
'Certainly for the first half of this [UFC] deal, CBS is paying for it,' says Patrick Crakes, a media analyst and former Fox Sports executive who worked closely with UFC during its time on the network. 'Will it make a lot of money back? I don't know, but I don't think that was the point. Paramount has increased its value with this deal by being viable. And this makes it more viable and important and must-see. So I would look for them to invest more in this area, not less.'
Crakes knows firsthand what effects a deal like this can have on a network. In 1993 he had just been promoted out of the mail room at Fox, and was asked to load slides into the carousel for a presentation the network was making to the NFL, whose television rights were up for renegotiation. Fox eventually won the NFC package away from incumbent CBS by paying $400 million per year, seen at the time as vastly overpaying for football, considering CBS' previous $265 million deal.
During Crakes' 23 years at Fox, he says he can only recall the NFL turning a direct accounting profit once. But because of the value and legitimacy the league brought to Rupert Murdoch's then-nascent network, it was able to negotiate for better signal strength, channel position, and eventually build up a local station affiliate network that became enormously profitable for the company.
While the UFC is clearly not on the level of the NFL, it does have a rabid fanbase that has proven it will follow the sport to new platforms. In his MoffettNathanson report, Fishman estimates that UFC could attract six million new subscribers to Paramount+, comparable to its first two years on ESPN+, with the potential for more because of the elimination of the pay-per-view model on its biggest events.
Those numbers are a drop in the Octagon spit bucket compared to Paramount's ultimate strategy, says Crakes. He, like nearly all media analysts, remains convinced that the current array of streaming services will eventually be bundled or consolidated into fewer digital offerings in the future. And that future is coming quickly. Just this week, ESPN and Fox announced a new streaming bundle, in the wake of the abandoned Venu Sports venture those two networks announced with Warner Bros. Discovery last year.
By beefing up its content offerings, Paramount hopes to create a package that becomes not only indispensable for inclusion in future bundles, but also increases the share of revenue it can command. In other words, much like the cable bundles of 20 years ago, media companies are back to jockeying for carriage fees.
Because live sports will drive most of that value, there's almost no price too high to corner the market on an entire sport like MMA. Mark Shapiro, president and COO of UFC parent company TKO Holdings, says he has been hearing the rumblings that the sports rights bubble will burst since 2005 when he ran programming at ESPN, but has found eager bidders each time he has taken out rights packages.
'The crash is just not there, it's not true,' Shapiro tells Forbes . 'You've got multiple platforms, varying strategies, linear and non-linear, they all need premium content and sports is the last bastion of unifying content.'
With the addition of year-round UFC programming to Paramount's strong seasonal sports offerings on CBS—including the NFL, The Masters and March Madness—plus entertainment brands like Yellowstone creator Taylor Sheridan and the Star Trek universe, suddenly Paramount looks far more attractive as an acquisition or merger candidate. Or, given the backing of the Ellisons, Paramount could be the one doing the acquiring—especially given the makeup of Ellison's new board of directors, which includes private equity veterans from Redbird Capital as well as Silver Lake's Justin Hamill, who served for six years as the head of M&A at global law firm Latham & Watkins.
'This is repositioning an old stodgy media brand into a tech-first, personalized content brand, one that could be an acquirer instead of a target,' says Chris Bevilacqua, a 30-year broadcast veteran and cofounder of Bevilacqua Helfant Ventures. 'The question is, really, are they going to be one of those 4-5 services at the end of the movie?'
That desire to compete against the biggest companies in the industry, and win, is one reason why UFC CEO Dana White was sold on getting Paramount in his corner. 'They know exactly what they're doing,' White told Forbes earlier this week. 'The Ellisons are brilliant businessmen and they have a whole game plan behind this thing, so I love being in business with them for the next seven years." More From Forbes Forbes Dana White On How UFC Landed Its Blockbuster $7.7 Billion Streaming Deal With Paramount By Matt Craig Forbes South Park's Creators Are Now Billionaires By Matt Craig Forbes How This Hollywood Producer Turned Brad Pitt Into A $40 Million 'F1' Ad By Matt Craig Forbes Can Netflix Become The Netflix Of Gaming? By Matt Craig
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