UFC 76: Business Preview

September 22, 2007

I thought the Countdown and All Access shows made a great late push for the show. Even with what has generally been regarded as a weak lineup, I think this show has the potential to surprise to the upside. 300,000 buys looks to be the baseline for the UFC these days, but Chuck drew 400,000 against Babalu last year. Headed into this week I thought 400,000 would be a good number, but after seeing the late push I wouldn’t be surprised to see 500,000 buys. This is a good test of just how effective the hype shows are at moving pay-per-views because I sensed very little momentum for this show heading into the week. Forrest Griffin got an especially effective push and could truly emerge as a major business force with a win this weekend. A quick look at the main card from a business perspective:

LIDDELL v. JARDINE – A Jardine upset is a complete disaster for short term business. The UFC has two million-plus buyrates riding on Liddell’s right hand (Liddell-Silva and Liddell-Jackson III).

RUA v. GRIFFIN – Griffin is already one of the most popular fighters on the roster and a win could launch him as a legitimate pay-per-view draw. It can’t be emphasized enough what a star Griffin looked like on the hype shows. Best case scenario for business is an all-out war that elevates both men. A Griffin win would put him in line for a title shot and setup another potential million-plus pay-per-view show. This is really a win-win as a Rua title fight should also do big business, especially if Jackson is the champ with the storyline of Rampage trying to avenge his previous loss to Rua.

FITCH v. SANCHEZ – Fitch can put himself in line for a Welterweight Title shot (behind GSP), but a Sanchez win means more for business. To me this is a bigger fight for Fitch than Sanchez. Sanchez has already made something of a name and could survive another loss. This is Fitch’s first time in the spotlight and as the old saying goes you never get a second chance to make a first impression. A loss here and he’ll be back to toiling away in anonymity on the undercard. They pushed this as a potential fight of the year on the Countdown special.

NAKAMURA v. MACHIDAMachida is undefeated, but fights an incredibly safe and boring points style. It’s amazing they’re putting him on the main card considering that in his last fight, against David Heath in Manchester, it was so bad that they cut it off the tape delayed broadcast even after pushing it on the Countdown special. It’s not clear to me where the winner of this fight goes. With a win Machida should in the title mix, probably in the king/contender maker role, but a boring fight here could bury his career.

TAVARES v. GRIFFINTavares is undefeated and Griffin is 9-1. The winner will enter the title picture at 155 pounds in what could be the fight of the night.

The show isn’t a sellout as the Southern California market continues to prove much tougher than originally anticipated.

UFC Fight Night 11 Payouts

September 21, 2007

UFC Mania has Payouts from Wednesday night’s show here. Bonuses should be out this weekend.

M & A, MMA Style

September 21, 2007

Consolidation has been the name of the game this year in MMA. The UFC has acquired the WFA, WEC, and Pride, while EliteXC recently purchased Icon, Rumble on the Rock, Cage Rage, and King of the Cage. Each company has its own separate agenda for the acquisitions it has made.

The UFC’s motives were/are a little more obvious and concrete:

  • WFA – bought in a fire sale for the fighter contracts, namely Quinton Jackson. At the time with Forrest Griffin’s loss they were without a contender to face Chuck Liddell in May. Enter Jackson, Liddell’s only unavenged loss and one of the most charismatic fighters in the sport, who defeated the Iceman in a fight that brought the company unprecedented mainstream media coverage and drew over one million pay-per-view buys.
  • WEC – bought in order to block a rival promotion from securing a television deal with the Verses network. This move was necessitated by the company’s exclusive contract with Spike TV which prohibits UFC programming on another channel.
  • Pride – it’s incredibly hard to intelligently discuss this deal because so much is still unknown. In the end the Pride tape library is about the only tangible thing the UFC got out of the deal. Most of the fighter contracts ended up being nonassignable, but buying the company did essentially make those guys free agents, ultimately allowing the UFC to sign them. The deal also provided the chance to break into the Japanese market with the established Pride brand, but that idea ultimately was nothing more than hubris as the company found it difficult to run a business in Japan as an outsider.

EliteXC’s acquisitions are a little more difficult to understand. It’s tempting to write these off as bad deals because they netted no valuable TV contracts and no major talent, but in the short term these deals provide easy content for Showtime shows as EXC can use the local fighters with EXC’s guys on top. In the long term this move apparently has a lot to do with internet pay-per-view. The EXC website currently features live fight cards, losing lots of money in the process. In the long term they, along with the IFL, are building to the day when internet PPV content can be fed into HD TVs. Therefore it looks like the thinking is, show a lot of free events on the website in order to begin conditioning people to the idea of watching content on their computers.

No one thus far has been able to make internet PPV work, but as the old adage goes every idea goes through three stages: first it is ridiculed, then it is violently opposed, and finally it is accepted as self-evident. At this point I think we’re still in stage one with no immediate time table for progression to stage three. It’s also an open question how long EXC can bury money into this new model before the well runs dry. They do have the benefit of Showtime’s financial support which will probably last as long as the channel thinks EXC moves subscriptions regardless of the financial results.

For details of the most recent EXC transactions and discussion of these issues, visit FightOpinion.

UFC Fight Night & TUF Ratings Flash

September 21, 2007

Dave Meltzer reports that the live UFC Fight Night did a 1.6, while the debut episode of The Ultimate Fighter: Hughes v. Serra did a 1.5.

UFC 78: The Panic Button

September 20, 2007

November 17 is getting closer, only about eight weeks away in fact, and UFC 78 is still without an announced main event. Originally Sean Sherk was to defend his Lightweight Title against B.J. Penn, unfortunately Sherk’s post-fight steroid test came up positive, leaving the UFC scrambling. Pay-per-view ads are generally submitted no later than 60 days from the show, so time is running out.

It’s a really complicated situation. The original idea was to put Penn against Joe Stevenson to crown a new Lightweight champion, but there were two complicating factors. First, Sherk is appealing his suspension with a hearing set for 10/31. The UFC won’t strip him of the title until the NSAC decides his case. Therefore, the pay-per-view ads, at least the early ones, wouldn’t be able to bill a title fight. Then Stevenson suffered a broken jaw putting him out of consideration for the spot. They are still considering doing Penn v. someone for the title.

Had Gabriel Gonzaga defeated Randy Couture for the Heavyweight Title they were going to bring him back on a quick turn around to defend against Antonio Nogueira. That of course went out the window when Couture stopped Gonzaga. Couture ended up suffering a broken arm in the fight, but wouldn’t have been available anyway because of his role in the Scorpion King movie.

They now apparently are working on the Tito Ortiz-Rashad Evans rematch, which while not finalized looks likely now that Tito has resigned. A Nogueira match to establish him as the number one contender was rumored, but now looks like it will wait till December with Frank Mir as the rumored opponent. Arlovski would have been perfect for a fight with Nogueira on the show but he only has one fight left on his deal which means he’s in the UFC’s version of purgatory until resigning. A Hamill-Bisping rematch would good for the show if they can turn around that quickly.

Whatever the main event ends up being, it looks like the show will struggle on pay-per-view. The most logical move would to bump Serra-Hughes up to November, but that can’t be done due to TUF.

UPDATEDave Meltzer reports:

UFC is looking at moving B.J. Penn’s next fight to 12/29, on the same show as Matt Hughes vs. Matt Serra and Wanderlei Silva’s debut (well, first in years as he did fight in UFC a few times before he became famous in Japan), in Las Vegas. If Chuck Liddell doesn’t lose and doesn’t get any kind of an injury tonight, the idea is to put Liddell vs. Silva on that show. We’ll know a lot more in the next 24 hours.

HDnet FiGHTS: Professional MMA

September 20, 2007

Mark Cuban made his rumored MMA project official last week with the announcement of HDnet FiGHTS. The promotion will hold it’s first card on October 13 in Dallas. Guy Mezger is the most prominent face in the new project, although it’s not clear whether he’s simply the group’s Joe Silva (UFC Match Maker) or something closer to Dana White (public face and prime mover of the company). Others mentioned in connection with the project include: Ed Fishman, Las Vegas promoter extraordinaire of Pride fame, Reed Wallace, President of White Chocolate Management who’s clients include Fedor and Rampage Jackson among others, and Ted Ehrhardt, who has made waves in recent months by signing college wrestling stars to train for MMA. Cuban also mentioned Vince McMahon of World Wrestling Entertainment as potential business partner, which makes some sense but would no doubt be very controversial in the MMA world.

Cuban said all the right things from a business perspective, indicating that he’s willing to invest whatever it takes to be successful and plans to start small. Initially the group will be working mostly with outside promoters, eventually promoting their own full scale events. Mezger has said that the group hopes to be promote 24 shows in 2008. Cuban enters the game with several inherit advantages including his own TV outlet (although HDnet is available in only 5% of homes nationwide), production company, and DVD distributor, as well as, and perhaps most importantly, his own vast personal fortune. As owner of the Dallas Mavericks he also brings instant credibility with the sports establishment that could open doors with mainstream advertisers and media that the UFC has had difficulty gain traction with.

Cuban lauded the UFC’s financial success but positioned it as an entertainment spectacle, whereas HDF would focus on presenting MMA as a professional sport. This was supported with a lot of the same talking points that Gary Shaw has followed about the UFC being about the UFC brand, whereas HDF would be about the fighters. Cuban wants to make it easier for fighters to train full-time, specifically mentioning a guaranteed salary that would represent a draw against their purses and health insurance. He also pushed the need for a fighters union.

The IFL has taken a similar approach to compensation on much smaller scale. While these criticisms hold a lot of water for UFC undercarders, the top fighters in the UFC are well compensated and seem very happy with their arrangements. Tito Ortiz’s recent resigning, despite personal animosity with White seems to confirm this assessment. There’s something to be said for using a salary draw system to balance out the feast or famine nature or getting paid per fight, but time will tell whether fighters prefer the security of the proposed HDF approach or the high ceiling, bonus laden UFC system.

The UFC’s insistence on exclusive contracts also came under fire. Cuban indicated that he wouldn’t ask for exclusivity and that HDF would focus on “defining [fighters] as pro athletes and letting them develop their personal visibility and careers.” “The way the contracts are structured, they don’t know when they’re going to fight or if they’re going to fight again, and unfortunately some folks hold their next fight over their head using it as pressure to extend a contract or using at pressure for any number of things and that really puts these guys in a bad position.”

The UFC’s use of exclusive contracts to me is a key factor in the growth of the sport. Unlike boxing, UFC is able to guarantee the fights the fans want to see. They also provide stability which allows the UFC to build big fights step by step, leading to bigger draws and better pay day for fighters. For fighters, exclusive contracts give promoters an incentive to protect fighters’ futures rather than merely focusing on the next fight with no regard to whats best for the fighter’s career in the long term.

One of the most interesting, and perhaps valid, critiques of the UFC was on the sponsorship front. The UFC’s greatest business failure has been the inability to attract blue chip sponsors which Cuban attributed to the Ultimate Fighter reality show which presents fighters as drunk and out of control. “That’s not going to get you a deal with Nike and a sponsor. That’s going to make you one of any number of guys who have 33 different names tattooed on their shorts. There is a market for the spectacle that the UFC and WWE created, but there’s also a market for serious athletes who wants to be treated seriously and who wants to be perceived as being a serious athlete, who wants to be full time at their craft.”

Cuban seemed to suggest a sponsorship model more akin to major professional sports leagues with league wide deals rather than the current model of individual sponsors. He specifically talked about working on an apparel deal with Nike or Addias. Cuban said that while fighters might not get paid under such a deal in the beginning, just the association with a respected brand would help establish fighters as professional athletes.

One of the most interesting names to surface in relation to the project is Vince McMahon. McMahon, and in particular his son Shane, has been rumored to be interested in getting involved in MMA since the UFC’s rise. There is some evidence to suggest that the UFC’s growth has been negatively correlated WWE’s decline, specifically in the pay-per-view arena. A case can be made that without the strong lead-in of McMahon’s WWE Raw for the first season of the Ultimate Fighter, the UFC as we now know it would not exist.

Cuban portrayed McMahon as a master promoter who can put together world class events, within the parameters of presenting a professional sport, while Cuban brings creditability to McMahon as a legitimate sport promoter. McMahon is undoubtedly one of the most accomplished promoters in the world, but he has failed miserably outside of pro wrestling, including his only attempt at legitimate sports, the incredibly short lived XFL. However, his experience promoting live events and television productions is second to none.

It will be interesting to see what HDF ultimately evolves into. Cuban specifically made the point that the effort would be a process and in the beginning they’re interested in learning what fighters want and what they can do provide a better platform for fighters to demonstrate their talents. To me the idea of promoting a more legitimate sports model is interesting, but I’m not sure it has the potential that the UFC’s brand center approached does.

There is no doubt that there is a core MMA fan base that is most interested in the fights, but they are a small, albeit devoted, group. They understand the technical aspects of fighting and are interested in who the best in the world is. They want to see the best fighters regardless of boring or unmarketable they are. They complained when Tito Ortiz got a shot at Chuck Liddell after beating Ken Shamrock twice. This group will find a more professional, no frills sports presentation very appealing.

The hardcore fan base is important, but the growth driver for the UFC, and MMA in general, is the causal fan. They were introduced to the sport during the The Ultimate Fighter boom. They watch for the stars, guys with dominant personalities. They’d rather watch a bad fight between two stars than a good fight between two unknowns. Getting this segment interested is the difference between doing 250,000 buys for GSP-Serra and Silva-Lutter and doing 1,000,000 for Liddell-Ortiz. This group is into the spectacle atmosphere of the UFC.

This of course raises the million dollar question facing the business today, namely are we in the middle of an MMA boom or a UFC boom? Is it the sport that’s growing in popularity or is it simply the UFC brand? Until someone other than the UFC manages to gain some traction (let alone make some money), I think you have to go with the latter rather than the former. But it took Z
uffa four years to turn around the UFC so we’re probably not going to know the real answer to the question for several more years.

The Ultimate Fighter: Season Six Preview & Future of the Series

September 19, 2007

In January of 2005 the UFC had lost $30 million, with very little to show for it. Dana White knew that television was the key to profitability, but had found a deal incredibly hard to come by despite the company’s embrace of regulation and the legitimacy it was supposed to bring. White had been pitching the idea for a Tuesday Night Fights style show for years with no success. He finally found a suitor in Spike TV, the re-branded Nashville Network, who was looking to establish itself as the television destination for young men.

Spike wasn’t interested in Tuesday Night Fights, but was looking to cash-in on the reality TV craze, and thus the Ultimate Fighter was born. To even get the show on the air the UFC had to agree to pay the $10 million production costs (talk about putting your money where your mouth is) and Spike had to get the blessing of Vince McMahon, whose pro wrestling program WWE Raw they planned to use as a lead in to the new show. The Ultimate Fighter debuted on January 18, 2005 and everything changed. Five seasons later, the UFC has completely turned its business around on the backs of the stars created, or perhaps more appropriately introduced, on TUF.

The sixth installment of the series debuts tonight with Matt Hughes and Welterweight Champion Matt Serra as coaches, building to their title fight at UFC 79 in December. The move to Wednesday reflects how dramatically the environment has changed. In 2005 the product was considered so weak as to need the strong lead in of Spike top rated show WWE Raw. Today the show is strong enough to hold its own with everything, except perhaps football which precipitated the move from Thursday to Wednesday.

Other than a new time slot, not much has changed. This season features a 16-man welterweight tournament with the winner earning a three year contract (believed to be the usual: 3 fights at 12,000, 3 fights at 16,000, 3 fights at 22,0000). The biggest change is the match making where instead of the winning team picking the next fight, “the hammer” will now rotate between coaches each week. The coach with the most wins will then pick the semi-final match-ups.

White has said that this is possibly the strongest season yet and that he expects UFC 79 to break the company’s pay-per-view record (provided Serra v. Hughes is complimented with Liddell v. Silva). Early reports indicate that Matt Hughes comes off as a major heel. Apparently Hughes was reluctant to do the show again and had to be convinced by his wife. In the publicity leading up to the debut he’s talked about being on the backside of his career with only six fights left before retiring.

I think the format of the show is starting to look overexposed and at this point needs really strong personalities to remain compelling. Fortunately, Serra and Hughes deliver in spades. In the future I think they’re going to have to consider mixing things up, at the very least I don’t see how they can continue doing two editions a year without completing burning the concept out.

I’m not sure that the logistics of the show (with the long production turn around time) allow the kind of flexibility needed in the fight game. For example, the Hughes-Serra fight has been held for months, creating a logjam at the top of the division. The format also prevents them from doing the logical thing and moving Serra-Hughes to the November show where they have no main event and no headliners available. Its a cost-benefit analysis as having two of the your top draws treading water for months is the price to pay for three months of television hype for their next match.

Also the show’s greatest strength, the creation of new stars such as Forrest Griffin, Rashad Evans, and Michael Bisbing, is in danger of diminishing as the years wear on. Today, with new promotions springing up all the time, the number of truly talented undiscovered fighters is very small. As Dave Meltzer recently said, today’s Forrest Griffin is most likely fighting in the IFL or has signed a contract with EliteXC. As it becomes harder and harder to find quality unknown fighters for the show, the incentive to freshen up the format will increase.

I think they could eventually move toward something similar to 24/7 De La HoyaMayweather focusing on different fight camps leading up to major fights, almost like a weekly Countdown or All-Access show. They could turn this footage around quicker (less lag time from real time to TV) and the show would more easily mold around the company’s business direction. For example, if Houston Alexander gets hot with two knockout wins and you want to build him for a big match, you can quickly work him into the show. This would be extremely useful in building up newly acquired fighters like Quinton Jackson. Think what six weeks of reality TV inside Rampage’s life and training camp could have done for Liddell-Rampage II’s already impressive numbers.

The obvious disadvantage of such a format is you lose the fight which is always the highest rated quarter each week on TUF. However, I think there is an argument to be made that with the increase in events (i.e. fights on TV) that pulling back on the actual fight content might be a good way to go. Fight Nights should draw more viewers if it’s the only opportunity to see first run UFC fights on TV. Also a sacrifice in the ratings from week to week is a small price to pay for increased pay-per-view revenue which is what one would expect to be the result of a well down show building the top fighters in the promotion each week in prime time. Furthermore, there is a better than fair chance that the increased star power of the show could more than makeup for the loss the fight quarter in the ratings.

For now the old adage if it ain’t broke don’t fix it probably holds true, but it will be interesting to see how this season holds up in the ratings. Without the excuse of competition from football and with the benefit of two strong personalities in Hughes and Serra and what looks from previews and advance screenings to be one of the crazist seasons in the house yet, the pressure is on to deliver in the ratings. One thing is for certain whatever happens to TUF from here, we wouldn’t be talking about the UFC today without it.

Zuffa's Credit Rating Outlook Cut

September 18, 2007

Last week Standard & Poor’s revised their outlook on Zuffa’s credit rating from stable to negative. Zuffa’s bonds currently carry a BB rating which means that Zuffa is less vulnerable in the near term than other lower-rated obligors. However, it faces ongoing uncertainties and exposure to adverse business, financial, or economic conditions which could lead to obligor’s inadequate capacity to meet its financial committments. Bonds rated BB and below are consider junk bonds due the risk of failure associated with the companies that issue them. S&P analysis below, with emphasis added in red:

“The outlook revision reflects Zuffa’s weak operating results over the six months ended June 30, 2007, which were meaningfully below our prior expectations,” said Standard & Poor’s credit analyst Guido DeAscanis III. In particular, the company incurred significantly higher operating costs, primarily related to its initiative to extend the Ultimate Fighting Championship (UFC) brand into the U.K.

Zuffa is the world’s largest promoter and producer of Mixed Martial Arts (MMA) sporting events through its UFC, World Extreme Cagefighting, and Pride Fighting Championship (Pride). UFC is the company’s flagship brand and the primary contributor to consolidated revenues and cash flow. Total debt outstanding as of June 30, 2007 was $325 million.

The ratings reflect the company’s relatively short operating history, potential revenue and cash flow volatility given its primarily event-driven business model, and vulnerability to changing consumer tastes. These risks partly are offset by the company’s historical success in growing its UFC brand, healthy free cash flow conversion, and modest expected debt leverage. Zuffa produces live and taped MMA content which is distributed primarily through pay-per-view and cable television. Roughly 75% of revenues are event based and depend largely on the number of pay-per-view buys and, to a lesser extent, tickets sold at the gate for the company’s MMA contests. The other 25% of revenues are committed through contractual arrangements with Viacom Inc.’s Spike TV channel, which extends through 2008, and various sponsors.

Final Word (?) on Zuffa's Acquisition of Pride

September 18, 2007

As a privately held company, we may never know the full details of Zuffa’s complex acquisition of Pride. We do know that because of the structure of the deal and the way things played out, the company ended up with little more than a tape library. However, the price tag apparently wasn’t anywhere close to the reported $65 million when all was said and done, thanks to the structure of the deal including the use of a third party holding company. Whatever the price and result, Zuffa admits no regrets. Dana White recently told Dave Meltzer:

The worst deal ever done in the history of business… [Pride] was totally bankrupt. They were out of money and had nothing. We wanted the company so we went in and bought it. It didn’t matter how fucked it was, how crazy the deal was, we got what we wanted.

Frank Shamrock Contract Dispute

September 18, 2007

Frank Shamrock and EliteXC are currently involved in a contract dispute. Shamrock owns a stake in the company per his original contract. Shamrock believed that he had the option to buy EXC if he got financial backing, but that clause does not appear in his contract. For now the dispute is a mute point since Shamrock is out the rest of the year rehabbing a knee injury. He is trying to avoid surgery which keep him out of action over a year.

Source: Dave Meltzer

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