Original Article: The Ankler, by Matthew Frank, April 20th, 2024

Last Saturday night during the UFC 300, TKO and Endeavor CEO Ari Emanuel had his usual ringside seat to the mixed-martial arts (MMA) spectacle. Right next to him, though, was a new friend to the octagon: Ted Sarandos. (Hat tip to David Spade of all people for capturing the Netflix co-CEO obstructing his view.)

Sarandos thanked UFC and its president Dana White on his Instagram Stories, but what he didn’t mention was that he may very well have been there to inspect the merchandise up close. (A UFC spokesperson declined to comment.) While sports media-rights watchers circle the NBA and its current negotiations, speculating what, if anything, Netflix may want for itself (the In Season Tournament? The Play-In games?), UFC’s media rights are only months away from being renegotiated. MMA is not only global like the NBA, but it’d be cheaper than pro basketball and much like UFC and WWE making sense within its parent company, TKO Holdings, ultimate fighting might also be a perfect pairing with Netflix’s just-acquired rights to stream WWE Raw starting next January. (Netflix did not respond to a request for comment.)

Also in January 2025, the UFC will start the process of determining its next rights deal (or deals). In 2018, UFC negotiated a $1.5 billion all-inclusive media rights deal with ESPN, which expires at the end of 2025. TKO president Mark Shapiro told investors in March that it is the company’s “preference to stay at Disney” — while just happening to add that three different platforms had already reached out about UFC switching services.

He also declared that the UFC had easily asserted its rank among the four major sports, up there with football, basketball and baseball and ahead of hockey.

“The ratings on ESPN and ESPN 2, apples-to-apples against the NHL, even including the playoffs, we dwarf them,” Shapiro said. “You put a Fight Night — not a pay-per-view, not a preliminary bout in front of the pay-per-view — a regular weekly Fight Night on ESPN does double-digit ratings.”

If Netflix is going to make the leap from sports entertainment to live sports, don’t be surprised if Sarandos is preparing for a double-leg takedown.

Netflix Whiplash

Over the years, Netflix has been adamant about its disinterest in live sports. As recently as last October, Sarandos said there was “no core change in our live sports strategy or licensing live sports.” He said Netflix could impact the sports business via bringing “value” to “the drama of sport.”

Since at least 2016, when the service debuted Last Chance U about football players at junior colleges likely playing their last-ever games, it has developed a niche in offering sports docuseries. It has gone on to cover everything from a hardluck Premier League club (Sunderland ‘Til I Die) to the vaunted Drive to Survive and Quarterback. These then led to Netflix’s made-for-TV sporting “events” — the Netflix Cup and Netflix Slam — a more manufactured drama, but ever so slowly Netflix was inching its way forward.

Then in January, about three months after Sarandos forswore that there’d be no live sports on the service, Netflix signed its 10-year, $5 billion deal with TKO-owned WWE to air Raw weekly. WWE may technically be “sports entertainment,” but to its rabid fans, wrestling is a sport. Netflix’s next move, announced in March, is a boxing exhibition featuring Jake Paul vs. Mike Tyson, a stunt which will likely draw a considerable amount of eyeballs when it streams live on July 20. “Judging from the early excitement around the Jake Paul-Mike Tyson fight,” Sarandos told investors on April 18 during the company’s earnings webcast, “there's going to be a lot of people waking up in the middle of the night all over the world to watch this fight in real time.”

He rhapsodized about the “magic” of “folks gathering around the TV together in the living room to watch something all at the same time,” expressing his belief in “these kind of eventized cultural moments.” (Never mind that Netflix’s on-demand binge model helped erode that for everything but live sports.) UFC fights, of course, are the epitome of that kind of event. And so much for your own personal algo and the find-your-own-adventure on Netflix in its new age, as “broad” becomes the new “prestige.”

That’s Advertainment

Why the sudden shift into more live sports? Netflix’s implementation of an ad tier — another idea that the company pooh-poohed for eons until it decided to launch one in late 2022. Year-round sporting events lend themselves to appointment viewing, which drives higher engagement and advertiser interest.

“That's where sports really shines, and I think that that kind of underpins some of the value that WWE will bring to Netflix,” says Geoff McQueen, managing director at LEK Consulting, a strategic consulting firm with a media and entertainment practice. “UFC [would] do something very similar.”

In particular, UFC gets at advertisers’ coveted 18-34 demographic. “Netflix is already the leader in terms of distribution. I believe [UFC] would help Netflix with retention,” says John Kosner, a former ESPN digital media executive who now runs his own consultancy, Kosner Media. “[It] would help them reach UFC's younger, male demo, which I'm sure is part of their target and not as easy to reach.”

Disney’s Shifting Sports Ambitions

As Disney CEO Bob Iger seeks to reset the company on surer footing (and secure his legacy) and ESPN Chairman Jimmy Pitaro (maybe) auditions to replace him, ESPN’s streaming ambitions as of late are in flux. In February, the company announced a joint venture with Fox and Warner Bros. Discovery for a streaming sports service coming in the fall of 2024. ESPN also announced the launch of a new flagship DTC service that will debut in fall 2025, featuring both the linear ESPN and ESPN+ offerings.

Both new services, but in particular the latter, raise questions about what ESPN’s new setup might look like and the role UFC might play. Although UFC appeared to give ESPN+ an early boost — the sport’s first live event on the platform in 2019 generated 568,000 new subscribers — ESPN+ is still so small that it is dumped into the “other” bucket of streaming services that command less than 0.8 percent of the audience according to Nielsen.

“If there's no ESPN+, then it raises the question of ‘Okay, well, what about the proprietary content that we acquired for ESPN+, whether it's UFC or La Liga, or Bundesliga, or NHL Center Ice or the PGA Tour Thursday/Friday?’” asks Kosner. “How does that stuff fit in?”

Additionally, Disney, whose market capitalization sits roughly where it did when it made its original deal with the UFC, is looking to re-up its media rights deal with the NBA this summer. ESPN currently splits the NBA with Warner Bros. Discovery for a collective $24 billion over nine seasons, a figure that only looks to surge upwards in the coming negotiations, even if Netflix isn’t a buyer of some part of the NBA package.

Between the NBA, the $2.7 billion ESPN pays annually for NFL rights and its new six-year, $7.8 billion college-football playoffs deal, among others, another full-scale media rights deal with the UFC could be too rich for its pockets compared to Netflix.

“The legacy media companies, they have a lot of debt, and they have to pay through the nose for the sports rights,” says McQueen. “Because the sports rights, with the NBA or the NFL . . . they’re what’s keeping the pay-TV (PTV) ecosystem together and the pay-TV ecosystem is what's generating cash flow and profits for the legacy media companies, which they’re using to fund the streaming services.”

Benefits and Potential Cost of Netflix’s Sports Fandom

When TKO made the deal with Netflix for Raw, one of the main benefits for the WWE was that it standardized the wrestling promotion’s international distribution. WWE had previously been scattered across a hodgepodge of international partners, with some larger regional partners but

still very fragmented.

Netflix will now be the WWE’s turnkey international distributor.

“In a lot of these international markets,” says LEK’s McQueen, “Netflix will probably have higher penetration than in the PTV ecosystem to actually get UFC content or the WWE content in front of more fans and increase that fan base and ultimately drive more monetization because I think Netflix will be able to monetize it at a higher level.”

The same logic applies to UFC, which currently has assembled a bevy of different international partners because ESPN+ is not available globally.

But if Netflix does choose to buy some UFC rights, it could have downstream effects on the rest of Hollywood seeking to supply it with shows. Sarandos and CFO Spencer Neumann preached discipline in their content spending to investors this past week. “The budget is the budget,” Sarandos said. The money to pay for a live sports package would have to come from somewhere — and that somewhere is likely the budget for originals (the vast majority of its content spending) or licensed shows. Either way, live sports could translate into fewer buy orders from the best buyer in town.

More Partners Equals More Money

As the NFL has consistently proven, a sports league can generate a lot more revenue if it divvies up its rights to multiple partners.

Netflix, for example, may now own the media rights to Raw, but the WWE’s other weekly programming — SmackDown! — belongs to Comcast. It signed a new five-year deal, which starts in October, where it will pay $287 million annually to continue to broadcast it on USA Network and Peacock.

Could a similar-type package work between Netflix and ESPN?

Like the WWE, the UFC has two main offerings: There are its numbered events like the one Sarandos attended, which are pay-per-view through ESPN+, and then there’s Fight Night, which operates on a roughly biweekly basis, that’s either streamed without extra charge on ESPN+ or broadcast on ESPN or ABC. Netflix has never pursued an à la carte model, so the PPVs might be unattractive to the streamer.

Fight Night would be an easier entry point into the sport. Plus, without an added surcharge, that would more effectively service Netflix’s advertising mandate for engagement, whereas ESPN+ — or whatever service it becomes by 2026 — could still generate subscribers from exclusive PPVs.

With Netflix now generating $2 billion a quarter in profit, Sarandos may be thinking of one of Tyson’s most colorful quotes as he thinks about his competition: “When I fight someone, I want to break his will. I want to rip his heart out and show it to him.” Welcome to the arena, Ted.