Nouriel Roubini, the economist affectionately known to his friends, loved ones, and the media as Dr. Doom, recently warned of a looming sovereign debt crisis, pointing to downgrades and debt auction failures in the UK, Greece, Ireland, and Spain. He wrote
that sovereign wealth funds will face risk pressures “if their fiscal imbalances are not addressed immediately.”
Slightly further afield, the mighty Abu Dhabi Investment Authority is reported to have lost $125 billion last year, according to economists at the Council on Foreign Relations. That would push Abu Dhabi as the second largest sovereign fund in the world, behind Saudi Arabia.
Though the size of Abu Dhabi’s fund has been pegged at around $627 billion by the Sovereign Wealth Fund Institute, CFR states that the actual number is closer to $328 billion, down from $453 billion a year earlier. In December, Abu Dhabi stepped in with a $10 billion loan to rescue its neighboring emirate Dubai from default.
Abu Dhabi has historically invested heavily in US Treasuries and holds positions in Hyatt
(C), Ziopharm Oncology
(ZIOP), Toll Brothers
(TOL), and Advanced Micro Devices
(AMD). In 2008, it started tending toward more exotic investments, such as private equity, hedge funds, emerging markets, as well as some less than obvious corporate stakes, such as Chicago Parking Meters, LLC. Abu Dhabi owns more than 25% of that company, which privatized Chicago’s 36,000 parking meters last year.
With big losses on Abu Dhabi’s books and the immediate future looking less-than-rosy for sovereign wealth funds across the board, what Abu Dhabi has now decided to do may come as something of a surprise:
Flash Entertainment, a wholly-owned subsidiary of Abu Dhabi's government, has acquired a 10% stake in Zuffa, LLC -- parent company of the Ultimate Fighting Championship.
Until the Abu Dhabi deal, brothers Frank and Lorenzo Fertitta -- CEO and vice chairman of Station Casinos, respectively -- owned 90% of Zuffa, while 10% was controlled by UFC president Dana White.
Although the parties involved refused to discuss the particulars of the deal, the Associated Press reported
that Flash’s investment brings each Fertitta's 45% stake in Zuffa down to 40.5%, and reduces White’s stake from 10% to 9%.
"Flash is an independent live events and entertainment organization based in the United Arab Emirates," UFC president Dana White stated in an official release. "Its sole shareholder is the government of Abu Dhabi.
It may sound like another foray into investment exotica by Abu Dhabi, but have a look at the numbers:
2009 UFC Pay-Per-View (at $44.95 per event):
1. UFC 93 - 320,000 buys
2. UFC 94 - 800,000 buys
3. UFC 96 - 350,000 buys
4. UFC 97 - 625,000 buys
5. UFC 98 - 635,000 buys
6. UFC 99 - 360,000 buys
7. UFC 100 - 1,500,000+ buys
8. UFC 101 - 1,050,000 buys
9. UFC 102 - 435,000 buys
10. UFC 103 - 400,000 buys
11. UFC 104 - 500,000 buys
12. UFC 106 - 375,000 buys
13. UFC 107 - 620,000 buys
For the fourth straight year, according to MMATorch.com, the top-10 charts on pay-per-view in North America consisted of seven UFC events, two boxing events, and WWE’s
(WWE) annual WrestleMania.
This year was also the first in which UFC, not boxing, was able to claim the year’s most purchased event (UFC 100, 1.6 million buys) as it roared past boxing’s biggest card, (Manny Pacquiao vs. Miguel Cotto, 1.25 million buys), which was presented by HBO
From Pay-Per-View alone, UFC revenues topped $390 million.
Then, there are sponsorship deals with Harley-Davidson
(HOG) and Anheuser-Busch InBev
(BUD), which brews Bud Light, the exclusive beer of the UFC.
Plus, the fighters themselves are flush with cash, as well. The sport’s biggest stars, like Chuck Liddell and Rampage Jackson earn millions each year between fights and endorsements from such companies including Dell
(DELL) and Nike
All signs point to continued success -- and what could turn out to be a smart investment for Abu Dhabi.
Moody’s said, “(Mixed-martial arts) is among the fastest growing sports today and is well positioned for advertisers that seek to reach males in the 18 to 34 age demographic. As a result, revenue growth is expected to remain strong for the intermediate term.”
If it still sounds like an odd investment to you, consider this:
Ten years ago, would you have imagined buying shares of Citi would get you laughed out of the room?
No positions in stocks mentioned.
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