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TKO Group Holdings Faces Antitrust Headwinds

 |  January 14, 2024

TKO Group Holdings Inc., the powerhouse behind World Wrestling Entertainment (WWE) and the Ultimate Fighting Championship (UFC), is grappling with a new challenge as TD Cowen breaks the streak of unanimous buy ratings from Wall Street analysts.

The sports-entertainment giant’s winning record has been marred by concerns raised by analysts Stephen Glagola and George Kuhle, who initiated coverage with a market perform recommendation, citing apprehensions about TKO’s performance and, notably, its legal entanglements in an antitrust lawsuit, reported Bloomberg.

The analysts underscored their caution by expressing doubts about TKO’s ability to continue generating profits and returns for shareholders amid the ongoing litigation. The pending antitrust lawsuit, which gained class action status in August, involves approximately 1,200 former UFC fighters accusing TKO of antitrust violations. The fighters allege that TKO confined them to successive contracts and paid them less than they would have received in a competitive market.

Glagola and Kuhle emphasized that the market may be underappreciating the risks associated with the antitrust lawsuit, assigning a $92 price target to TKO’s stock. The looming April 8 trial date is seen as a significant “risk catalyst” that warrants investor focus, potentially impacting TKO’s ability to announce share repurchases or dividends during the upcoming fourth-quarter earnings call.

In response to the concerns raised by analysts, TKO’s management remains steadfast in its stance. “As we’ve said previously, we believe the plaintiffs’ claims have no merit, and we look forward to making our arguments in court,” stated William A. Isaacson, lead counsel for UFC, and partner with Paul, Weiss.

Despite this setback, TKO still holds nine buy recommendations and zero sell ratings from analysts tracked by Bloomberg. The average 12-month price target of $110 implies a substantial upside of more than 40%. However, the stock experienced a 5.5% slump to $77.12 in New York on Friday, erasing gains and putting it in the red for the year.

Glagola and Kuhle’s skepticism extends beyond the antitrust concerns to the realm of key media rights renewals. They argue that TKO is “already over-indexed to US media rights” and express doubts about the potential for WWE’s scripted entertainment to drive incremental affiliate fee growth, characterizing its audience as a “niche market segment.”

As TKO navigates through legal challenges and skepticism surrounding its business model, the spotlight remains on the April trial and the potential implications it may have on the company’s future in the highly competitive sports and entertainment industry, particularly in the context of antitrust scrutiny.

Source: BNN Bloomberg