Anthony Chavon (3:03)

Conscious is one way to put it. This is what CEO Todd Vasso said on the call. Quote, our customers continue to report that their financial situation has worsened over the last year as they have been negatively impacted by ongoing Many customers report that they only have enough money for basic essentials with some noting that they have to sacrifice even on the necessities. As we enter 2025, we are not anticipating any improvement in the macro environment particularly for our core customer, end quote. And I got, I got nothing smart to say to that other than yikes, this sounds bad.

Nick Scipal (3:37)

Yeah, I think yikes is a good way to put it. I mean some customers are sacrificing on necessities. That sounds pretty bad and definitely not a good outlook for the economy. And the consumer and many other retailers this earnings season have said similar things. Simon Property Group is one company that I follow pretty closely and they're one of the largest owners of retail real estate in the world. And they've been saying something very similar in that the lower end consumer has been in a recession for quite some time. And I think the remarks you just mentioned from the Dollar General CEO, it seems like the lower end consumers purchasing power just continues to be under pressure after years of cumulative inflation have really been making an impact. So yeah, that's a pretty bleak consumer outlook for sure.

Anthony Chavon (4:26)

One thing I don't quite understand, you hear consumers are getting stretched. You'd think there would be a trade down to Dollar General, but that doesn't seem to be happening. They even mentioning on the call that store traffic is down a bit. Those same store sales coming from people spending more there. So why don't seeing that, why don't you think we're seeing a trade down to Dollar General stores?

Nick Scipal (4:45)

Yeah, I think Amazon and Walmart have probably had a pretty big impact on the the consumer trade down for Dollar General in recent years. They're Just becoming bigger competitors in this space. And I think an argument can be made that they have, you know, similar quality products but, but offer them at a lower price, especially if, you know, free delivery is included in that as well. Dollar General CEO actually said something pretty interesting on the call this morning. He said, quote, what has really become apparent leaving Q4 and moving into Q1 is the trade down is back, both the mid and upper end trade down. And he continued, if anything, we may have seen it accelerate a little bit in the last few weeks, end quote. So we've had a lot of retailers come out this earnings season again and they talk to the more conscious consumer. And Dollar General seems to be echoing that sentiment as the trade down seems to actually be back for Dollar General a little bit.

Anthony Chavon (5:39)

So if you like dividends, which I, I know you do ant Dollar General will pay you about 3%. And I know you look closely at dividend stocks. This is one where I, you know, I looked at with some interest. I'm like, could this be a value play? One thing that would make me hesitant about it is while the stock has gotten crushed, the valuation has slimmed down well below a market multiple. Dollar General's not buying back any shares, which to me signals that management does not think the stock is, is undervalued. But I'll throw it to you. You can take one dividend player to, to a desert island Dollar General, you can take a different retail stock or you can just keep it simple with schd. The Schwab High Dividend etf. Which one are you bringing?

Nick Scipal (6:21)

Retail stocks have, have been hit hard on, you know, recession and tariff concerns this year. That's probably a good place to be looking for opportunities. But I think that the Schwab US Dividend ETF that you mentioned is a pretty cheap way to get broad exposure to high quality dividend payers, including some of companies. So some of the largest companies are like included in the ETF are Coca Cola, Chevron, the Home Depot, Texas Instruments. And historically, dividend payers tend to outperform the broader market during market downturns. And that's definitely been the case so far this year. So I think that's probably a good way to get some diversification in what has definitely been a volatile market to start the year.

Anthony Chavon (7:02)

We got another look at the consumer from research firm Circana. They found that Americans are spending less at convenience stores. US convenience stores sales volume fell by more than 4% over the past year. One problem ant is that prices are rising there a large bag of chips in Chicago cost seven bucks at a store where a Wall Street Journal reporter was taking a look. I've noticed it at gas stations myself where I'm like, man, these candy bars and bags of chips feel really expensive. I'm taking this as a sign that maybe these big food companies have reached the limit of their pricing power. How about you?

Nick Scipal (7:37)

Well, I mean, if they haven't reached their limits of pricing power yet, I, I think we gotta be pretty close to that tipping point. I mean, one thing we've seen in recent years is that, you know, generally speaking, the volumes for big food companies, they've been flat or, or even declining, but the prices have gone up substantially. And I think that dynamic can only continue for so long. And then, you know, talking about convenience stores, they typically sell their products at a higher price point because, you know, it's essentially conven fee that they charge upcharge compared to a grocery store. So that's an additional cost borne by the consumer. And I think, you know, we're starting to see consumers push back that, that $7 bag of chips.

Anthony Chavon (8:19)

Yeah, and I think there's, there's another broad scale shift going on that I think some large food company CEOs are hesitant to acknowledge. To put it kindly. Smucker, which now owns Hostess Brands, was asked about it on, on their most recent earnings call. CEO Mark Smucker, you know, trying to deal with the impact of GLP1s and that broader shift to healthier eating. He said, quote, we continue to not see a material impact to the category. So I would guide you back to the comments I just made around a more cautious consumer convenience channel being down in general. Gas prices have been elevated and so people are just having a bit less extra discretionary change in their pocket, end quote. This is one time. And, well, I'll just say I'm not buying this at all. I think there is a large scale cultural shift that's also happening as these prices increase where people are thinking more about what's going in their food. I'll throw it back at you. How about you?

Nick Scipal (9:11)

Yeah, I mean, I sort of agree with Bark Smocker, but I also agree with you. So I feel like the packaged food CEOs, I feel like they're all saying, pretty much all of them are saying that they're not seeing a material impact from, from GOP ones. Now, of course, those CEOs have an incentive to say that and we should take that with a grain of salt. But for me personally, I'm not so sure that the GLP1 drugs will cause a meaningful impact for these big food companies. But to your point, I think the much bigger threat is that cultural shift to healthier eating. I mean, just anecdotally speaking, like, there's an overwhelming amount of health centric podcasts and health influencers out there that I think are really kind of resonating with younger consumers. And you know, as somebody in their 20s, I've definitely noticed that with my, myself and my friends. I mean, a lot of my friends have completely stopped drinking alcohol and, and are much more focused on, you know, eating healthier, having a healthier lifestyle, healthier diet. And I think that cultural shift is, is really the thing to watch moving forward and how that impacts the, the big food companies.

Anthony Chavon (10:15)

So let's talk about how Hershey's trying to deal with this. So, so Hershey, you know, it sees convenience stores. That's a big channel for a, for that big food company, you follow? And they're trying to boost sales across, across convenience stores by at least 40% with something called a gold standard planogram, which uses data to determine details such as the best mix of king and standard size candy candy bars on a given, on a given store. I want to get your thoughts on this because to me this feels like, you know, are we using Palantir software to determine the best arrangement of deck chairs on board the Titanic? Like you can this mix as much as you want, but you're fighting against some large scale cultural shifts here.

Nick Scipal (11:00)

Yeah, I mean, Hershey's convenience store channel has definitely been under pressure in recent months. And you know, I've personally definitely noticed a change in, in their convenience store strategy in recent months. You know, I, I'm a big Wawa customer, so I got a Wawa lot. And I've noticed a few months ago, like Hershey advertisements were, were everywhere. The Hershey bars, chocolate, their sweets portfolio, everywhere. And now they've kind of pulled back on that a little bit. I think a large part of that is that, you know, cocoa prices are so high, consumers are price conscious and Hershey's really trying to find that balance between, you know, offering a good product but off, but offering it at a more affordable price. So you're seeing them things off. You're seeing Hershey offer things like the big cup where it's a much smaller pride, much smaller, you know, Reese's cup, but it's at a much more affordable price. So I think that's really what they're trying to target in that convenience store channel.

Anthony Chavon (11:56)

There's also political pressure happening with, and it's a part of the cultural pressure. But you have Robert F. Kennedy Jr. Is HHS Secretary. He's got the demand to make America healthy again. He's going to steak and shake and eat and tallow fries. He also wants to ban artificial food dyes. And there's calls to get soda and candy off of snap benefits off of food stamps if that happens. That would not be good for Hershey. That would not be good for Coca Cola. It's probably good for people's health. But, you know, with all of these forces against big food right now, are you still a bull on Hershey?

Nick Scipal (12:30)

I'm still a bull on Hershey for the long term. And that's because the main driver of Hershey's business, its chocolate business, has never really tried to label itself as healthy. So I don't think, you know, chocolate is going to be in the crosshairs to the same extent that something like breakfast cereal might be. I mean, cereal is literally just grains and sugar and for the most part it's marketed as a, as a healthy meal. So I think that's probably might be a bigger threat to, for the new administration, bigger target for them to look at. And you know, when I look at Hershey, a large portion of the large portion of their sales revolves around things like social gatherings and holidays. So like Valentine's Day, Easter, Halloween, Christmas. And so I'm just trying to think myself, like, is the fire truck gonna stop throwing out candy at the Halloween parade this year? I'm willing to bet against that. So I'm still bullish on Hershey for the long term, but I mean, there's definitely some headwinds that they're facing. For now, sure.

Anthony Chavon (13:27)

Yeah, you're not giving out dental floss in, in Pennsylvania for this. For this next round of Halloween coming up. We'll leave it there. Anthony Shaban, thanks for being here. Appreciate your time and your insight.

Nick Scipal (13:35)

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Anthony Chavon (14:15)

There are plenty of reasons for a company's insiders to sell shares. But there's really only one reason why they buy them. Up next, Nick Scipal joins me to talk about TKO Group, the operator of the WWE and the ufc. We talk about the company's new boxing league and some interesting buying actions from the company's executive team. The leader in professional wrestling and mixed martial arts is looking to add boxing to the mix. TKO Group, the parent company of the ufc, WWE and Professional Bull Riders, is partnering with Saudi Arabia's General Entertainment Authority for the creation of a new boxing league. Nick, I know you follow this company closely. It's your largest personal holding. What are you expecting from this league? Is this something you're excited about as a fellow shareholder of tko?

Ricky Mulvey (15:06)

Sure. Great to be here with you, Ricky. I think this boxing league, something that was not a very well kept secret, has been rumored for the better part of a year that maybe tko, Dana White looking at getting into boxing in partnership with the Saudis. I think this is going to become one of the biggest boxing promotions, if not the biggest boxing promotion in the world. Sheikh Turkey, who's the head of the Saudi General Entertainment Authority, has essentially taken over the high end boxing world the past few years, booking fights with folks like Tyson Fury, Alexander Usyk, Canelo Alvarez, gonna fight in May, among others, really has gobbled up all the biggest fighters and they're partnering up now with UFC president Dana White, WWE President Nick Khan. Both of these folks have experience in the fight sports business actually being able to make money in this world, not just throw cash at fighters. And I think those folks are arguably the best positioned executives in the world to scale up a new boxing promotion. So you're combining really great talent in the kind of fight sports business world with a big pile of money that's certainly very interested in boxing. I think they're going to make a big splash. If you look at boxing as a sport, it's really been fractured for the best part of the past few decades. There's lots of different belts, hard to make stars, hard to really follow the sport if you're a fan. But still there's been lots of demand out there. All you have to do is point back to the fall when Jake Paul fought Mike TYSON on Netflix. 108 million people tuned in worldwide. The most streamed sporting event of all time. It's a testament to the interest there still is in boxing. Also a testament to just how broken the sport is that the biggest boxing fight ever is a 58 year old man fighting a YouTuber. But if this new league can create stars and get meaningful distribution, I think it can tap in some of that interest in Boxing and really can make a big splash in the entertainment world as a whole.

Anthony Chavon (16:40)

Yeah, I think that's important that this was not the heavyweight championship. This was an exhibition sparring match between Jake Paul and Mike Tyson that grabbed so much attention. This is a sport that is having a tremendous amount of difficulty making new stars. Dana White, he likes to do things himself. He likes to be in control of combat sports promotions. He's the boss of the ufc. So why is he partnering with Saudi Arabia's General Entertainment Authority and Shake Turkey to do this?

Ricky Mulvey (17:09)

I think that the big thing is that Shake Turkey, the Saudis have lots of interest in the sport, certainly throwing a lot of cash at the business, and they would like to go into business with Dana White. Dana has talked about for years that boxing is sports that's broken, needs to be kind of rebuilt from the ground up. But it would cost a heck of a lot of money to get into the boxing business, especially in a world where you've got folks that maybe don't carry the same economic incentives as the other participants out there in the market. If you get the opportunity to kind of partner with those folks that cash and they'll pay you to run the sport, you don't have to worry about fronting the capital. It's really the perfect setup for Dana White to really bring his talents to bear. It's something that you could argue he did in the past with the ufc, partnering up the Fertitta brothers, taking that sport from nothing to, you know, one of the biggest fight sports in the world today.

Anthony Chavon (17:49)

So one of the key differences between boxing and mixed martial arts right now is the Ali act, which there's been proponents of bringing that to mixed martial arts. And what it does is, in a lot of ways, it separates promotions from managers from titles. And it seems that a boxing league would fly directly in the face of that. Does the Ali act have any implications for this league versus the way that Dana White has traditionally run the ufc?

Ricky Mulvey (18:16)

It does. If you're going to see a league set up in the way the UFC is, where fighters are exclusively signed to the organization, the organization has its own titles. You know, the UFC lightweight champion, the UFC heavyweight champion. In boxing, you have independent promotions, the wba, those sorts of things that put those. Those belts out there, and the Ali act doesn't. Really doesn't allow you to. To merge the promotion with the. With the belt, that sort of thing. Although I think a lot of folks would say it doesn't really make sense why you couldn't do the same thing. In boxing that you do for the ufc, I think near term you're probably going to see the sport promoted in a similar way to where you've seen boxing in the past. When they have their first event, it's rumored to be in September, likely to see big stars like Canelo Alvarez or folks like that, maybe folks on the lower part of the card be these folks that are independently signed to this TKO boxing promotion. But long term, if you see a change in the law, perhaps you see independent. The TKO have its own belts. Also perhaps the Saudis own Ring magazine. They have a belt that's been used historically. Maybe you could use the Ring Magazine belt in place and of course, maybe you could change the law. Dana White, good friends with The President Linda McMahon, founder of WWE, former CEO is the current education secretary. Ari Emanuel, the CEO of the TKO Group, was once Donald Trump's agent. Lots of folks who can make a phone call and maybe, maybe nudge a change in the law, but in any event, they also have the opportunity to just hold these events outside the US as well. So I don't think it will be an impediment to the growth of the sport. If they don't want it to be.

Anthony Chavon (19:39)

Maybe don't bet against Dana White in a fight. So one of the reasons I've been, I would say two reasons I've really been buying this stock, one is honestly talking to you and Jim Gillies about it, and the thing you, you all drew my attention to is the insider buying and just how, how dramatic it's been for tko. And that's different from a lot of companies where there was a while where the CEO Ari Emanuel had set up this automatic stock buying plan. And usually when you see insiders set up an automatic buying or selling plan, it's is automatic selling. The other experience I had was I went to UFC Denver last year and this was like a regular fight night. And Ball arena, the NBA arena in Denver was completely packed from start to finish. There was a tremendous amount of excitement where I could see that this sport is really growing. So let's focus on the insider buying. Unless you want to spend a few minutes on my time a year ago watching the UFC at Ball Arena. But break it down for the listeners. What's going on with the insider buying at tko?

Ricky Mulvey (20:42)

Yeah, so certainly has been a lot of insider purchases, a lot of Form 4s. If you look back over the course of really January and February, basically every name you could think of was listed on there. Part of that really comes down to Ari Emanuel. Egon Durbin, the board member and the head of Silver Lake. A lot of those folks had to put Form 4s out there, but really the purchasing was made by Endeavor Operating Company. It's a subsidiary of Endeavor. All those folks have to report because Endeavor is the controlling shareholder of the TKO Group. I think when they started this buying, owned about 55% of the stock. Now in about 60% of stock, that 10b5 plan, over just a few weeks in January and February bought about 300/ million dollars in shares. We've also seen a board purchase recently of multimillion dollars. So certainly quite a bit of buying. Also, as you mentioned, I'd never seen before a 10B5 plan where you've got folks blind buying out there in the market. Often you see folks wanting to have that safe harbor to sell some shares and lots of reasons why somebody could sell stock. Maybe they have things going on in their personal life, their wife wants to buy a house, what have you. The only reason you want to buy shares in a company is because you think that the stock is going to go higher. Lots of catalysts potentially on the horizon for TKO Group we talked about in the past. The UFC rights deal with ESPN expires at the end of this year. You also have the deal in the US with WWE for premium live events which currently air on Peacock. That deal expires in March of 2026. So you've got a couple big rights deals on the horizon that potentially could be catalysts for the stock to move higher. Maybe that's why they're buying. Maybe there's any other reason. But I' a good sign to see.

Anthony Chavon (22:14)

Let's talk about the meteorite stuff because ESPN just canceled its deal with Major League Baseball. And this could signal a few things. The first of which is that ESPN is sort of distancing itself almost from, from some of the live sports business. It doesn't want to spend a lot of money on rights. And you know, why do that when you can have a bunch of sports talk shows that fill up airtime and, and do okay. The second is that maybe it's clearing the way for bigger deals. It's not doing business with the MLB because it's, it's sort of a stagnating audience and it's not driving subs to the ESPN plus platform. What did you take from that? From ESPN canceling its deal with Major League Baseball. Do you think it signals anything for the rights, the next rights deal with the ufc?

Ricky Mulvey (22:55)

Yeah, I don't have any concern about the Baseball rights deal being canceled by espn. Maybe it gives them extra cash for the ufc, but I think that the UFC ESPN partnership has been a great one going back. You know, I think it's 2017 when they signed their original deal. I think it's driven tons of subscribers to ESPN plus. It's going to continue, I think to be an important part of ESPN. ESPN's offering. As they start to offer that, that over the top independent ESPN app later this year, I think it just more naturally fits in I think with what ESPN is trying to do in streaming and can drive more urgency to add subscribers and more consistency to keep them year round. If you think about it's a great big off season for mlb, whereas there's going to be UFC fight Nights and UFC numbered events all year round. One other thing I will point out on ESPN deals as well that I think is worth noting. In February, ESPN canceled its deal with top ranked boxing. They had been in a relationship going back again, once again, I believe back to 2017. That deal actually was negotiated by Nick Khan, the current WWE president who's likely going to be negotiating the rights deal for this new TKO boxing league. That deal was canceled between ESPN and Top Rank back in February. Now their relationship set to end in August. That lines up pretty conveniently when the first TKO boxing event is set to take place in September. So maybe that is clearing the deck for a potential rights deal for this new TKO boxing league between them and espn.

Anthony Chavon (24:19)

And while we've talked a lot about the combat sports side of TKO makes sense given the name, there's some side businesses on location is like this luxury ticketing operation that still doesn't make a ton of sense to me being in this company. And the other is professional bull Riders which does make a little bit more sense because you've seen TKO essentially rent out arenas for a full weekend where they'll do a professional bull riders event, the wwe, the UFC and then another WWE event. So how important are these side businesses to TKO as a company? How much, how much attention are you giving these?

Ricky Mulvey (24:53)

The main driver of the company's revenue and earnings is going to be that the media rights deals that they sign for WWE and ufc. That said, I think there's certainly opportunities for these new businesses they acquired from Endeavor. Another one to mention is the IMG kind of sports marketing group that represents really all the big sports leagues worldwide. You know, with pro bull riding they can kind of package in those deals with cities as they've already begun to do, I believe in Kansas City to Kind of book out arenas and maybe get better treatment there. You know, opportunities to cross promote stars on the different properties. But it's just not going to be as big as boxing, professional wrestling or the ufc. But I think for these on location and the IMG businesses actually think do make a little bit of sense when it comes to hospitality promoting the business kind of selling these ultra premium events. If you're going to festivalize these, these kind of weekends as a kind of UFC, WWE weekends, being able to kind of add really premium hospitality, I think can, can be, can be value added. And also I think with with img, the marketing relationships that they have selling ad deals and kind of sponsorship deals for all the major leagues really gets them lots of of tendrils to use those relationships to continue to grow the advertising and marketing business for tko. So you know, while these businesses aren't going to be kind of core to success, I do think there's some, there's some synergies and I don't hate to see them part of the TKO company, but it's not core to the analysis of the business.

Anthony Chavon (26:15)

As we wrap up. I know you have a large personal position in TKO Group. Why is this a company that you have such high conviction in? Why is this one that you own, own a lot of shares of?

Ricky Mulvey (26:25)

I've owned TKO Group through WWE going back to you know, 2020, 2021. The general thesis at that time was that this is a company that the content that WWE is in and by extension UFC and others really fits extremely well with streaming. This is a year round content that keeps folks on the platform and also it's eventized in a way that folks subscribe to the platform to get access to this content. So maybe you add Peacock to get access to WrestleMania in the same way that I just added Apple TV so that I could go watch Severance. I think this is the type of content that, that really resonates in the streaming world. You've also got folks leading this business that are among the best in monetizing sports and entertainment assets in the world. Nick Khan, you know, was one of the most important sports agents working with ESPN prior to taking over the wwe. RA Manual has long been one of the most important and influential agents in, in Hollywood. I think there's still lots of ability to continue to monetize these rights not just through TV distribution, but also through marketing, advertising and rights fees. So I continue to have the same basic thesis for TKO today that I had when we first bought wwe. We've just got more assets under the umbrella and and even more talented folks running that playbook. And I'm excited to see where where negotiations end up finishing out for the rights fees this year.

Anthony Chavon (27:46)

Nick Seiple I could go for another hour on the UFC star problem. Maybe we could preview some upcoming matches and pay per views, but I think we'll leave it there for this show. Appreciate you being here. Thanks for your time and your insight.

Ricky Mulvey (27:56)

Thanks Ricky.

Anthony Chavon (28:01)

As always. People on the program may have interests in the stocks they talk about. The Motley fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and are not approved by advertisers. The Motley fool only picks products that it would personally recommend to friends like you. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.