Is WWE Really Worth $9.3 Billion?
Is WWE Really Worth $9.3 Billion?
and why Endeavor is willing to pay the price
Happy Friday!
Today we’re analyzing the valuation of WWE — one of the biggest entertainment companies in the world — and the reason why Endeavor paid a premium for it.
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Is WWE Really Worth $9.3 Billion?
Earlier this week, Endeavor announced it acquired a majority share of the World Wrestling Entertainment (WWE) at a valuation of $9.3 billion.
The merger will combine the UFC with the WWE to form NewCo — one of the largest sports-media companies in the world — valued at $21.4 billion.
But is the WWE worth it?
Relative Valuation
Comparing the WWE to big sports franchises might provide a proxy for its valuation.
According to Sportico, the biggest sports franchises in the U.S. — namely, the New York Yankees, the Dallas Cowboys, and the Golden State Warriors — are valued at $7.13, $7.6, and $7.56 billion, respectively.
These franchises differ from the WWE in their operations and sources of revenue, but it’s worth noting that they all compete for the same thing — the fans’ attention.
Yet, while WWE might feel expensive compared to the above, the WWE looks cheap relative to UFC’s valuation of 12.1 billion.
Multiples Valuation
For evaluating an investment, an investor will typically look for a healthy EV/EBITDA multiple ranging from 8 to 12.
WWE reported an adjusted EBITDA in 2022 of $384 million.
Under the acquired valuation of $9.3 billion, WWE’s EV/EBITDA multiple is about 24x.
WWE trades at a Price/Earnings multiple (PE) of 43.7. This ratio represents a 2.28% annual return rate — expensive, considering it’s lower than the 4.5% risk-free interest rate.
In short, WWE’s high PE ratio suggests the stock is overvalued based on the earnings it has generated so far under its current price.
So why is Endeavor paying a premium for WWE?
The Opportunity
Even though it feels like Endeavor paid an expensive premium for WWE, the opportunity to join forces with the engine powering the UFC to create the biggest powerhouse in sports media is undoubtedly highly appealing.
The growth potential of leveraging Endeavor’s knowledge and experience will help WWE’s global expansion, sponsorship revenues, and bigger media deals.
The Takeaway
Based on different valuation metrics, the $9.3 billion mark Endeavor determined for the WWE feels excessive — and the market is still undecided.
Even though the WWE stock kept rising in the days after the announcement, it still has a market cap of ~ $7.4 billion.
Still, based on its experience, and given it’s a property similar to UFC, the acquisition proves Endeavor’s vision and interest in the potential of the WWE — even at those abnormally high prices.