Mixed martial arts promoter ONE Championship’s net losses widened even as its cash burn continued to rise in the financial year ended December 31, 2019.
According to ONE’s financial filings with Singapore’s ACRA, the company’s net losses jumped by 60% to S$131.4 million in 2019 from the year before. Its net cash flow used in operating activities, which indicates the cash-generating ability of ONE’s core operations, also sank deeper into the red by 74% to -S$136.6 million for 2019 compared to -S$78.5 million the year before.
ONE’s group revenues rose 66.8% on-year to S$62.4 million in 2019, of which 95% comprised of live broadcasting and sponsorship revenues alone. Other contributing revenue sources were event ticketing, social media platforms and merchandising. Expenses also rose over the same period, particularly in marketing, which recorded a 46.4% increase on-year to S$72.2m in 2019.
In fact, ONE’s marketing expenses have been outstripping the group’s revenue across both 2018 and 2019. When taken as a percentage of group revenue, ONE’s marketing expenses represented 115.7% in 2019 against 131.8% in 2018.
High cash burn
ONE was burning through a ton of cash in 2019.
Its 2019 gross burn rate, defined as the amount of cash left at the end of 2019 compared to 2018, was S$116.3 million. That translates to roughly S$9.7 million a month.
ONE roughly has S$71.9 million in cash as of the end of 2019, according to its filings. The company raised S$99.1 million from new and existing investors in May 2020, bringing ONE’s total cash pile to about S$S171 million to date. ONE did not indicate whether this cash injection was by way of equity or debt.
How much cash ONE Championship has on hand right now, will depend on how far the company was able to slash its burn in 2020 – the blighting year of the coronavirus.
Scenario 1: ONE Championship maintains 2019 burn rate in 2020
S$171 million – S$116.3 million = S$54.7 million cash left
Scenario 2: ONE Championship slashes 2020 burn rate by 50%
S$171 million – S$58.15 million = S$112.85 million
Scenario 3: ONE Championship accelerates burn rate by 150% in 2020
S$171 million – S$174.45 million = -S$3.45 million
The more optimistic scenarios here show that ONE has roughly S$50-120 million runway left, indicating that the firm will likely be back on the fundraising trail in 2021. It could also mean that ONE will have to make its existing business verticals work a lot harder for it this year.
In an email statement addressed to DealStreetAsia, ONE Championship’s CEO Chatri Sityodtong said: “One Championship is investing heavily upfront in our platform, brand, and ecosystem with the vision of becoming a US$100-billion global sports media property.”
“To that end, I am comfortable investing a minimum of US$1 billion into the opportunity. There are not too many startups in Asia that genuinely have the entire world as its addressable market. As an asset-light business, our non-linear growth opportunities are quite significant,” he added.
Are ONE’s valuations too high?
Sceptics of ONE Championship have tended to raise issues around the firm’s bloated valuations. Those criticisms are well-founded based on ONE’s revenue figures.
According to VentureCap Insights, ONE Championship’s $166-million fundraising in Q4 2018 led by Sequoia Capital had the firm pegged at a post-money valuation of about $864 million. At the same time, ONE Championship generated S$34.4 million in revenue in 2018, which would mean that the firm was valued at roughly 25x its revenue that same year.
It is not clear if ONE Championship has continued to sustain those valuation levels since.
ONE disclosed just one fundraising event in 2019, a sale of S$10.4 million of convertible preference shares to TPG Capital founding partner David Bonderman in March 2019. In 2020, S$99.1 million was raised from “new and existing investors” without further details on how much of this comprised debt, how it was structured, or from who.
DealStreetAsia had last reported in June 2020 that ONE had issued S$35.43 million ($25.41 million) of convertible notes due 2025 to Dahlia Investments, an investment vehicle of Singapore government-owned investment firm Temasek. The new notes were part of the planned issuance of S$113.36 million ($81.30 million) of convertibles due 2025, according to filings by ONE.
ONE Championship has also seen a number of changes on its board of directors. ONE’s group president Teh Hua Fung and Temasek’s managing director Fock Wai Hoong were appointed as new board members on 27 and 28 July 2020, respectively. Victor Cui, one of ONE’s founding members and CEO of ONE Championship International and ONE Elite Agency, resigned as a board director on 24 June 2020.