TKO Group Holdings, Inc. Income Taxes Disclosure
15. INCOME TAXES
TKO Group Holdings, Inc. was incorporated as a Delaware corporation in March 2023. As the sole managing member of TKO OpCo, TKO Group Holdings, Inc. ultimately controls the business affairs of TKO OpCo. TKO Group Holdings, Inc. is subject to corporate income taxes on its share of taxable income of TKO OpCo. TKO OpCo is treated as a partnership for U.S. federal income tax purposes and is therefore generally not subject to U.S. corporate income tax. TKO OpCo’s foreign subsidiaries are subject to entity-level taxes. TKO OpCo’s U.S. subsidiaries are subject to withholding taxes on sales in certain foreign jurisdictions which are included as a component of foreign current taxes. TKO OpCo is subject to entity-level income taxes in certain U.S. state and local jurisdictions.
As discussed in Note 4, Acquisition of WWE, the TKO Transactions are accounted for as a reverse acquisition of WWE using the acquisition method of accounting in accordance with ASC 805. As a result, TKO recorded a fair value step-up on the acquired WWE net assets in the amount of $3.3 billion and deferred tax liabilities in the amount of $379.6 million, all of which was recorded through goodwill as of the Closing Date.
For the years ended December 31, 2025, 2024 and 2023, the effective tax rate was 12.2%, (17.7)%, and 19.9%, respectively.
Income (loss) before income taxes includes the following components (in thousands):
|
|
Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
United States |
|
$ |
574,626 |
|
|
$ |
(265,532 |
) |
|
$ |
124,736 |
|
Foreign |
|
|
31,998 |
|
|
|
55,327 |
|
|
|
42,247 |
|
Total income (loss) before income taxes |
|
$ |
606,624 |
|
|
$ |
(210,205 |
) |
|
$ |
166,983 |
|
As further described in Note 3, Recent Accounting Pronouncements, the Company has elected to prospectively adopt the guidance in ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures. Accordingly, the income tax disclosures in the applicable tables presented below for the current year are presented in accordance with the guidance in ASU 2023-09, while prior year disclosures are disclosed in accordance with guidance prior to the adoption of ASU 2023-09.
The income tax provision for year ended December 31, 2025 consists of the following in accordance with the guidance in ASU 2023-09 (in thousands):
|
|
Year Ended December 31, |
|
|
|
|
2025 |
|
|
Current: |
|
|
|
|
U.S. federal |
|
$ |
32,463 |
|
State and local |
|
|
10,977 |
|
Foreign |
|
|
40,475 |
|
Total Current |
|
|
83,915 |
|
Deferred: |
|
|
|
|
U.S. federal |
|
|
(1,053 |
) |
State and local |
|
|
(6,082 |
) |
Foreign |
|
|
(3,009 |
) |
Total Deferred |
|
|
(10,144 |
) |
Total provision for income taxes |
|
$ |
73,771 |
|
The income tax provision for years ended December 31, 2024 and 2023 consists of the following in accordance with guidance prior to the adoption of ASU 2023-09 (in thousands):
|
|
Year Ended December 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Current: |
|
|
|
|
|
|
||
U.S. federal, state and local |
|
$ |
38,510 |
|
|
$ |
5,694 |
|
Foreign |
|
|
68,162 |
|
|
|
28,280 |
|
Total Current |
|
|
106,672 |
|
|
|
33,974 |
|
Deferred: |
|
|
|
|
|
|
||
U.S. federal, state and local |
|
|
(62,439 |
) |
|
|
(7,883 |
) |
Foreign |
|
|
(6,978 |
) |
|
|
7,105 |
|
Total Deferred |
|
|
(69,417 |
) |
|
|
(778 |
) |
Total provision for income taxes |
|
$ |
37,255 |
|
|
$ |
33,196 |
|
The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company’s effective rate for the year ended December 31, 2025 in accordance with the guidance in ASU 2023-09.
The Company’s effective tax rate differs from the U.S. federal statutory rate primarily due to partnership income not subject to income tax and withholding taxes in foreign jurisdictions that are not based on net income. The effective tax rate based on the actual provision shown in the consolidated statements of operations differs from the U.S. statutory federal income tax rate as follows (in thousands):
|
|
Year Ended December 31, 2025 |
|
|||||
|
|
Amount |
|
|
% |
|
||
Earnings from continuing operations, before income tax expense |
|
$ |
606,624 |
|
|
|
|
|
U.S Federal Statutory Tax Rate |
|
|
127,392 |
|
|
|
21.0 |
% |
United States |
|
|
|
|
|
|
||
State and Local Income Taxes (1) |
|
|
3,199 |
|
|
|
0.5 |
% |
Federal |
|
|
|
|
|
|
||
Effect of Cross-Border Tax Laws: |
|
|
|
|
|
|
||
Foreign Derived Intangible Income Deduction |
|
|
(6,502 |
) |
|
|
(1.1 |
)% |
Other |
|
|
6,205 |
|
|
|
1.0 |
% |
Tax Credits |
|
|
|
|
|
|
||
Foreign Tax Credit |
|
|
(15,686 |
) |
|
|
(2.6 |
)% |
Changes in Valuation Allowances |
|
|
(986 |
) |
|
|
(0.1 |
)% |
Non Taxable or Nondeductible Items |
|
|
|
|
|
|
||
Nondeductible compensation (162M) |
|
|
9,599 |
|
|
|
1.6 |
% |
Partnership Income Not Subject to Tax |
|
|
(68,531 |
) |
|
|
(11.3 |
)% |
Equity-based compensation |
|
|
(8,178 |
) |
|
|
(1.3 |
)% |
Other |
|
|
1,388 |
|
|
|
0.2 |
% |
Other Adjustments |
|
|
(803 |
) |
|
|
(0.1 |
)% |
Saudi Arabia |
|
|
|
|
|
|
||
Withholding Tax |
|
|
15,677 |
|
|
|
2.6 |
% |
Other |
|
|
(13 |
) |
|
|
(0.0 |
)% |
Other Foreign Jurisdictions |
|
|
11,512 |
|
|
|
1.9 |
% |
Changes in Unrecognized Tax Benefits |
|
|
(502 |
) |
|
|
(0.1 |
)% |
Income Tax Expense |
|
$ |
73,771 |
|
|
|
12.2 |
% |
The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company’s effective rate for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09 (in thousands):
|
|
Year Ended December 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
U.S. statutory federal income tax of 21% |
|
$ |
(44,142 |
) |
|
$ |
35,066 |
|
Partnership income not subject to tax |
|
|
40,115 |
|
|
|
(60,382 |
) |
Tax impact of foreign operations |
|
|
42,970 |
|
|
|
42,898 |
|
UK ORIP Tax |
|
|
2,894 |
|
|
|
1,215 |
|
Provision to return |
|
|
1,333 |
|
|
|
2,145 |
|
Permanent differences |
|
|
2,863 |
|
|
|
2,029 |
|
Nondeductible officers compensation |
|
|
7,943 |
|
|
|
4,465 |
|
Equity method investments |
|
|
435 |
|
|
|
(2,686 |
) |
Third party ownership reversal |
|
|
— |
|
|
|
(167 |
) |
Opening balance remeasurement |
|
|
— |
|
|
|
4,270 |
|
Valuation allowance |
|
|
20,551 |
|
|
|
(1,180 |
) |
Unrecognized tax benefits |
|
|
2,428 |
|
|
|
3,836 |
|
U.S. state and local taxes |
|
|
(7,921 |
) |
|
|
176 |
|
Foreign tax credit, net of expiration |
|
|
(25,606 |
) |
|
|
— |
|
Other |
|
|
(6,608 |
) |
|
|
1,511 |
|
Total provision for income taxes |
|
$ |
37,255 |
|
|
$ |
33,196 |
|
Principal components of deferred tax assets and liabilities are as follows (in thousands):
|
|
As of December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Compensation and severance |
|
$ |
16,037 |
|
|
$ |
14,382 |
|
Net operating loss, capital loss and tax credits carried forward |
|
|
47,643 |
|
|
|
50,853 |
|
Lease liability |
|
|
30,427 |
|
|
|
35,404 |
|
Accrued expenses |
|
|
15,500 |
|
|
|
30,880 |
|
Other |
|
|
3,689 |
|
|
|
6,077 |
|
Total gross deferred tax assets |
|
|
113,296 |
|
|
|
137,596 |
|
Less: valuation allowance |
|
|
(44,958 |
) |
|
|
(36,616 |
) |
Net deferred tax assets |
|
|
68,338 |
|
|
|
100,980 |
|
|
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
||
Property, buildings, and equipment |
|
|
(28,257 |
) |
|
|
(35,022 |
) |
Loss contracts |
|
|
— |
|
|
|
(7,793 |
) |
Intangible assets |
|
|
(291,497 |
) |
|
|
(374,606 |
) |
Lease asset |
|
|
(29,068 |
) |
|
|
(34,201 |
) |
Investments |
|
|
(10,424 |
) |
|
|
(7,755 |
) |
Other liabilities |
|
|
(6,305 |
) |
|
|
— |
|
Net deferred tax liabilities |
|
|
(365,551 |
) |
|
|
(459,377 |
) |
|
|
|
|
|
|
|
||
Total net deferred tax (liabilities) assets |
|
$ |
(297,213 |
) |
|
$ |
(358,397 |
) |
As of December 31, 2025 and 2024, the Company had net operating losses of $89.6 million and $71.4 million, respectively, which expire over various time periods ranging from 5 years to no expiration. In addition, as of December 31, 2025, the Company has foreign tax credit carryforwards of $27.8 million, which expire in years 2032 through 2035.
ASC 740 requires that a valuation allowance be recorded against deferred tax assets when it is more likely than not that some or all of the Company’s deferred tax asset will not be realized upon available positive and negative evidence. After reviewing all available positive and negative evidence as of December 31, 2025 and 2024, the Company recorded a valuation allowance of $45.0 million and $36.6 million, respectively, against foreign tax credits and certain net operating losses.
The Company had unrecognized tax benefits of $36.7 million, $38.0 million and $39.3 million, respectively, as of December 31, 2025, 2024 and 2023. The aggregate changes to the liability for unrecognized tax benefits, excluding interest and penalties, were as follows (in thousands):
|
|
Year Ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Beginning balance |
|
$ |
37,962 |
|
|
$ |
39,250 |
|
|
$ |
34,749 |
|
Acquisitions |
|
|
— |
|
|
|
— |
|
|
|
2,549 |
|
Gross increases |
|
|
7,144 |
|
|
|
10,042 |
|
|
|
9,268 |
|
Gross decreases |
|
|
(3,119 |
) |
|
|
(4,335 |
) |
|
|
(274 |
) |
Lapse of statue of limitations |
|
|
(5,540 |
) |
|
|
(6,946 |
) |
|
|
(7,472 |
) |
Translation adjustments |
|
|
206 |
|
|
|
(49 |
) |
|
|
430 |
|
Ending balance |
|
$ |
36,653 |
|
|
$ |
37,962 |
|
|
$ |
39,250 |
|
The Company recognizes interest and penalties related to uncertain tax benefits in its provisions for income taxes. The Company had accrued interest and penalties of $14.4 million and $12.9 million as of December 31, 2025 and 2024, respectively.
Of the $51.0 million combined unrecognized tax benefits and accrued interest and penalties as of December 31, 2025, $42.3 million is subject to an offsetting indemnity asset, as set forth in the Endeavor Asset Acquisition Agreement, which is included as a component of Other assets on the Company's consolidated balance sheets.
The Company is regularly audited by domestic and foreign taxing authorities. Audits may result in tax assessments in excess of amounts claimed and the payment of additional taxes. The Company believes that its tax return positions comply with applicable tax law and that it has adequately provided for reasonably foreseeable assessments of additional taxes. Additionally, the Company believes that any assessments in excess of the amounts provided for will not have a material adverse impact in the consolidated financial statements.
The Company is subject to taxation in various state and foreign jurisdictions. As of December 31, 2025, the Company is generally subject to review by U.S. federal taxing authorities for the years 2020 through 2022.
ASU 2023-09 also requires disclosure of disaggregated income tax payment which is shown below for the year ended December 31, 2025. Refer to the accompanying consolidated statements of cash flows for the disclosure of income taxes paid for the years ended December 31, 2024 and 2023.
|
|
Year Ended December 31, |
|
|
|
|
2025 |
|
|
US Federal: |
|
|
|
|
Federal |
|
$ |
10,372 |
|
State |
|
|
6,913 |
|
Foreign: |
|
|
|
|
Saudi Arabia |
|
|
14,908 |
|
Canada |
|
|
3,693 |
|
Other |
|
|
21,438 |
|
Total income taxes paid |
|
$ |
57,324 |
|
Other Matters
On August 16, 2022, the United States enacted the Inflation Reduction Act of 2022 ("IRA"). The IRA, in addition to other provisions, creates a 15% corporate alternative minimum tax ("CAMT") on adjusted financial statement income for applicable corporations. The CAMT is effective for tax years beginning after December 31, 2022. The Company will continue to assess the potential tax effects of the CAMT on the Company’s consolidated financial statements.
In December 2022, the Organization for Economic Co-operation and Development ("OECD") proposed Global Anti-Base Erosion Rules, which provides for changes to numerous long-standing tax principles including the adoption of a global minimum tax rate of 15% for multinational enterprises ("GloBE rules"). Various jurisdictions have adopted or are in the process of enacting legislation to adopt GloBE rules and other countries are expected to adopt GloBE rules in the future. While changes in tax laws in the various countries in which the Company operates can negatively impact the Company’s results of operations and financial position in future periods, the Company’s impact related to the adoption of the GloBE rules was not material to the Company’s consolidated financial position. In June 2025, the G7 and the U.S. Department of the Treasury issued a statement that outlined a shared understanding to exclude U.S. parented groups from certain aspects of the Pillar 2 global minimum tax rules (the "G7 Statement"). The Company will
continue to monitor developments related to the G7 Statement, which has not yet been incorporated into the OECD framework. As countries continue to enact and refine the Pillar 2 rules, the Company will evaluate the impact on its financial position. Recent G7 Country (Canada, France, Germany, Italy, Japan and the UK) statements released a side-by-side (SbS) safe harbor that exempts certain U.S.-parented groups from these rules. The side-by-side Safe Harbor provides that Multinational Enterprise Groups with an Ultimate Parent Entity (UPE) in a jurisdiction with qualified SbS regime will not be subject to the Income Inclusion Rule and Undertaxed Profits Rule if they elect the SbS Safe Harbor, applicable as of the beginning of 2026. The Company continues to monitor United States and global legislative actions as well as administrative guidance related to Pillar Two for potential impacts.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 27, 2024 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.