TKO's 2025 Results Mask Underlying Risks Amid High Valuation

What happened

TKO announced its fourth quarter and full-year 2025 financial results, with CEO Ariel Emanuel highlighting momentum across UFC and WWE and strong positioning due to long-term media rights agreements. However, the DeepValue master report reveals that behind this optimism, TKO faces significant leverage with net debt/EBITDA at 3.71x and gross debt rising to ~$3.7B by Q3 2025, driven by aggressive debt-funded buybacks. The report points to revenue volatility, such as a Q3 2025 drop due to cyclical factors in IMG and On Location segments, despite core growth in UFC and WWE. Recurring legal costs, including $401.1 million in add-backs for 2024, undermine GAAP profitability and signal persistent regulatory risks. Overall, the press release's positive narrative contrasts sharply with the report's critical assessment of TKO's overvaluation and financial fragility.

Implication

The Q4 2025 results underscore TKO's dependence on UFC and WWE media rights, but the ~29x EV/EBITDA multiple leaves little margin for error amid high expectations. Aggressive debt-funded capital returns have increased leverage to 3.71x net debt/EBITDA, weakening the balance sheet's ability to absorb operational or legal shocks. Segments like IMG and Corporate/Other show ongoing volatility and losses, challenging the diversification benefits touted in filings. Recurring legal exposures, such as antitrust settlements, add cash outflow risks and regulatory overhang that could pressure future earnings. With a POTENTIAL SELL rating and attractive entry at $165, investors might consider trimming positions or awaiting clearer signs of deleveraging and sustainable growth.

Thesis delta

The 2025 results confirm TKO's operational momentum in UFC and WWE but do not address the core concerns of overvaluation and leverage outlined in the DeepValue report. Therefore, the investment thesis remains unchanged, advocating for selling or underweighting TKO at current levels until evidence of improved balance sheet health and reduced legal risks emerges.