Analyst defends UFC-Paramount deal despite cries of an overpay

When David Ellison, fresh off completing his purchase of Paramount last summer, swooped in for an eleventh-hour bid on UFC rights at an astounding $7.7 billion over seven years, it didn’t take long for the rest of the industry to characterize the deal as a massive overpay.

UFC’s previous deal with ESPN which included marquee pay-per-view cards and lesser events on linear television, brought in about $300 million per year for the MMA promotion. The Paramount deal more than triples that figure to $1.1 billion per year, albeit under a significantly different model. No longer are UFC’s top cards locked behind onerous pay-per-view fees. Now, anyone with a standard Paramount+ subscription can tune in. Some of the undercard fights are even simulcast on CBS.

Certainly, UFC needed some additional financial incentives if it were to abandon its lucrative pay-per-view model, which drove some of the price increase. But most observers have simply chalked the deal up to Ellison wanting to make a splash and send a message to the rest of the industry in the days following his acquisition. Paramount was now a force to be reckoned with in sports media rights negotiations.

One analyst, however, is more bullish on Paramount’s UFC deal. Wolfe Research’s Peter Supino joined The Varsity podcast with Puck’s John Ourand and argued that the Paramount-UFC pact isn’t as outrageous as many are making it out to be.

“We viewed the right estimate as $900 million, which was a little above consensus, but way below the $1.1 billion that it got,” Supino said, acknowledging that Paramount’s deal still came in over the higher range of estimates. “We felt that the decline of the pay-per-views was misleading because of piracy. The audience was many multiples of the pay-per-view audience, and really misunderstood because people would watch the pay-per-views in groups because of how expensive they were. Then the sport itself has a couple of attributes that made it absolutely mission critical to streamers: It’s a year-round sport, it’s young, and it’s global.”

Supino brings up a great point in that the pay-per-view audience was far from indicative of UFC’s overall audience. The high barrier to entry drove many UFC fans to piracy or group viewing in order to make the experience affordable. Now, with the barrier to entry being a standard Paramount+ subscription, there are large swaths of MMA fans who are now priced in that weren’t before.

Paramount+ subscription data would seem to support this theory. The streamer reportedly added one million subscribers on the day of its first-ever UFC card in January. And if Paramount+ can continue to see growth associated with its UFC deal, the $7.7 billion investment might not be that dramatic of an overpay after all.

“If the right price to pay is the price that an asset is worth based on its historical performance, then I would get behind the view that Paramount overpaid,” Supino said. “Investors—and I bet David Ellison thinks of himself as an investor—have high-risk, high-return jobs because they try to imagine the world as it will be instead of the world as it is. David Ellison is making some big bets, and I think the UFC is an asset that, if managed correctly by both TKO and its distributor, could have an unusually bright future. If that vision plays out, Paramount+ will benefit by more than the value it overpaid by.”

Sports rights deals have a funny way of looking very expensive when the contract starts and like a bargain by the time they expire. Who knows if that will be the case with UFC, especially considering the magnitude of the increase Paramount paid for rights. But it’s fair to take a more measured approach to the deal. If UFC turns Paramount+ into a must-have streaming service for enough people, Paramount’s $7.7 billion investment could look a lot different seven years from now.