Grade: F — Major Red Flags
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-02-25, FY ended December 31, 2025) + Yahoo Finance
Auditor: Deloitte & Touche LLP — Unqualified opinion
One-line verdict: TKO's F grade is driven by acquisition-related distortions from the Endeavor Asset Acquisition (IMG, On Location, PBR) completed February 28, 2025, and the ongoing impacts of the 2023 UFC-WWE combination. Goodwill+intangibles of $11.8B represent 315% of equity, cash covers only 20% of $4.1B debt, and the screening engine flagged unusual patterns in inventory, gross margin, and accounts receivable. However, the underlying business is strong: CFFO surged 119% to $1.29B, FCF was $1.16B, and the company's premium sports intellectual property (UFC, WWE) commands long-term media contracts with Netflix, ESPN, and Paramount. This is a heavily acquisitive roll-up story where balance sheet flags reflect deal structure, not operational weakness.
| Metric | Result |
|---|---|
| Red Flags | **5** (AR trend, inventory vs COGS, gross margin pattern, cash/debt, goodwill/equity) |
| Watch Items | **1** (DSO increased 11 days) |
| Checks Completed | **17/18** (1 N/A: impairment) |
| Beneish M-Score | **-2.73** (clean — unlikely manipulator) |
| F-Score | **1.55** (moderate manipulation probability 0.57%) |
| Altman Z-Score | **1.02** (distress zone) |
| Auditor | Deloitte & Touche LLP — Unqualified opinion |
A Sports Empire Assembled Through Acquisitions
TKO Group Holdings was formed through the September 2023 combination of UFC and WWE. On February 28, 2025, TKO completed the Endeavor Asset Acquisition, acquiring "the IMG business, including certain businesses operating under the IMG brand, On Location and Professional Bull Riders (PBR)" for approximately "$3.25 billion plus a $50 million purchase price adjustment."
Per the filing: "We significantly expanded our portfolio on February 28, 2025." The transaction was satisfied entirely through issuance of 26.54 million TKO OpCo units and corresponding Class B shares — no cash consideration. This means the goodwill was created without depleting the cash register but did dilute existing shareholders.
TKO is now controlled by Silver Lake through Endeavor. Per the filing: "we are currently controlled by Silver Lake through its ownership and control of Endeavor."
Understanding the Distorted Metrics
Revenue declined 3.1% to $4.74B from $4.88B. But the comparison is misleading: FY2024 included a full year of the combined UFC-WWE entity after the September 2023 combination, while FY2025 adds 10 months of Endeavor Acquired Businesses. The filing notes that comparisons to prior periods are "not comparable" due to the timing of acquisitions.
Net income was $195M, up from $9.4M in FY2024. The prior year was suppressed by transaction costs from the Endeavor take-private.
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Revenue | $3.22B | $4.88B | $4.74B |
| Net Income | $223M | $9.4M | $195M |
| Gross Margin | 51.1% | 46.3% | 59.8% |
| CFFO | $266M | $586M | $1.29B |
| FCF | $172M | $467M | $1.16B |
The gross margin jump from 46.3% to 59.8% reflects the addition of higher-margin IMG and On Location businesses, not organic improvement.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | WATCH | DSO increased 11 days (32 to 43) |
| A2 | AR vs Revenue Growth | FAIL | AR outpaced revenue 2 consecutive years |
| A3 | Revenue vs CFFO | PASS | Revenue -3.1%, CFFO +119.4% |
A2 — AR outpaced revenue for two years. DSO grew from 15 days (pre-combination) to 32 days (FY2024) to 43 days (FY2025). Each step reflects the addition of businesses with longer payment cycles. IMG's sports media clients and On Location's hospitality clients likely collect on different terms than UFC/WWE's broadcast contracts. This is an acquisition mix effect, not a revenue quality issue.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | FAIL | Inventory +13.5% while COGS -27.5% |
| B2 | CapEx vs Revenue | PASS | CapEx +6.8% vs revenue -3.1% |
| B3 | SG&A Ratio | PASS | SG&A/Gross Profit = 53.4% |
| B4 | Gross Margin | FAIL | Gross margin +13.5pp while AR increased and AP decreased |
B1 and B4 — The engine flagged a potential fraud pattern. Inventory rising while COGS falls, combined with gross margin surging while AR increases and AP decreases, can indicate revenue overstatement. However, in TKO's case, the COGS decline reflects the elimination of WWE's higher-cost standalone programming after the combination, while inventory growth reflects new content assets from the Endeavor Acquisition. The margin expansion is structural — adding IMG's asset-light sports agency business (high margin) to the mix.
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | PASS | CFFO/NI = 6.58 |
| C2 | Free Cash Flow | PASS | FCF $1.16B |
| C3 | Accruals Ratio | PASS | -7.0%, low accruals |
| C4 | Cash vs Debt | FAIL | Cash $831M covers only 20% of $4.1B debt |
CFFO/NI at 6.58x means cash generation massively exceeds reported net income. The gap is largely explained by non-cash charges: depreciation of acquired intangibles, stock-based compensation, and amortization.
Cash of $831M against $4.1B in debt. The debt includes borrowings used to finance the Endeavor Asset Acquisition's related structural costs. Debt/EBITDA at 3.1x is manageable, and interest coverage at 4.1x is healthy.
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | FAIL | $11.8B = 315% of equity |
| D2 | Leverage | PASS | Debt/EBITDA = 3.1x |
| D3 | Soft Asset Growth | PASS | Other assets -24.9% |
| D4 | Asset Impairment | N/A | No write-off data |
D1 — Goodwill of $8.4B plus intangibles of $3.3B. The goodwill reflects premiums paid for UFC (acquired by Endeavor in 2016), WWE (combined 2023), and the Endeavor Acquired Businesses (2025). In a sports IP business, the primary asset is the brand and the exclusive right to stage events — which shows up as goodwill. The 315% ratio is extreme but structurally expected for a company built entirely through acquisitions of IP-rich businesses.
Acquisition Risk & Manipulation Score
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | PASS | FCF after acquisitions positive |
| E2 | Goodwill Surge | PASS | Goodwill+Intangibles -3% YoY |
| F1 | Beneish M-Score | PASS | -2.73 (clean) |
The M-Score passes at -2.73. The DSRI component at 1.361 reflects the DSO increase from acquisitions, but all other components are benign.
Key Risks from the 10-K
1. Controlled Company — Silver Lake and Endeavor
Per the filing: "Ariel Emanuel serves as CEO and Executive Chair and Mark Shapiro serves as President and COO." Silver Lake controls TKO through Endeavor's ownership of Class B shares representing approximately 51% of voting interests. Class A shareholders (public market) have limited governance influence.
2. Media Rights Concentration
TKO depends on "key relationships with television and cable networks, satellite providers, digital streaming partners and other distribution partners." The filing lists agreements with Netflix, ESPN, Paramount+, CBS, CW, and DAZN. The Netflix deal for Raw is particularly significant — if Netflix faces subscriber pressure, it could affect future renegotiations.
3. Integration of Endeavor Acquired Businesses
The $3.25B Endeavor Asset Acquisition closed only 10 months before fiscal year-end. The filing warns of "uncertainties associated with retaining key management and other employees" and the risk that synergies "may not be realized." IMG and On Location bring different business models, cultures, and operational requirements than the owned-IP model of UFC and WWE.
4. Live Event Risk
Per the filing: "owning and managing events for which we sell media and sponsorship rights, ticketing and hospitality exposes us to greater financial risk." TKO stages "more than 500 live events year-round, attracting more than three million fans." Any disruption — labor disputes, venue issues, public health events — directly impacts revenue.
Summary
Grade: F — acquisition-distorted balance sheet, but strong cash generation.
TKO's five red flags all trace to its serial acquisition strategy: the UFC-WWE combination (2023) and the Endeavor Asset Acquisition (2025). Goodwill of $8.4B, intangibles of $3.3B, DSO rising from 15 to 43 days, and cash covering only 20% of debt are all consequences of buying IP-rich businesses through stock-funded deals.
The operational story is compelling: CFFO of $1.29B (up 119%), FCF of $1.16B, M-Score of -2.73, and a portfolio of premium sports IP reaching over 1 billion households in 210 countries. Debt/EBITDA at 3.1x and interest coverage at 4.1x are within healthy ranges.
The question for investors is whether the acquired businesses can generate returns above their cost of capital — and whether Silver Lake/Endeavor's control structure serves or harms minority shareholders.
**Disclaimer**: This report is based on TKO Group Holdings' FY2025 10-K filed with SEC EDGAR on February 25, 2026. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: Deloitte & Touche LLP (Unqualified opinion)
Fiscal year ended: December 31, 2025