Inside the Standard Zuffa Contract

October 31, 2007

I have a new story posted at Sherdog.com, Inside the Standard Zuffa Contract. The article provides the most comprehensive look yet at some of the most interesting and potentially controversial clauses found in standard Zuffa contracts.

A companion feature, Inside the UFC Bonus System, can be found below.

Inside the UFC Bonus System

October 31, 2007

The standard Zuffa contract provides that “the Fighter’s purse and Win Bonus, together with the Incidentals (defined below) shall be the sole compensation due to or claimed by Fighter on account of this Agreement, the Rights, and Fighter’s participation in any Bout or any activity related thereto.” However, the existence of an extensive undisclosed bonus system has long been the subject of speculation within the industry. As a result of the recent dispute between Randy Couture and Zuffa, substantial details of the bonus system have begun to emerge.

At his press conference on October 25, Couture produced an unsigned bout agreement which in addition to listing his previously disclosed downside guaranteed ($250,000), also detailed the previously unknown pay-per-view bonus scale. Prior to the disclosure, reports and rumors had suggested that the bonus was between $1-2 per pay-per-view buy, however, the pay-per-view bonus system turned out to be more complicated and lucrative than previously thought.

The scale provided by Couture was an escalator bonus system. Couture was entitled to $1 per buy on buys 100,000 through 175,000, $1.50 on buys 175,000 through 300,000, $2 on buys 300,000 through 330,000, and $3 per buy on buys over 330,000. With most UFC shows now believed to do over 330,000 buys, under the scale fighters would be entitled to $322,500 plus $3 per buy for every buy over 330,000. While not confirmed, it is believed that the scale is not unique to Couture and instead represents the standard arrangement with other top fighters in the company.

Couture also shed light on another much speculated about source of compensation, locker room bonus checks. It has long been speculated that many fighters were the recipient of undisclosed locker room bonuses following strong performances. Couture confirmed that this is a standard practice of the company and that he received a $500,000 bonus following his fight with Tim Sylvia. In its press conference, the UFC referred to these bonuses as “discretionary bonuses” – entirely at the managers discretion, over and above contracted compensation. Sherdog.com recently reported that these lock room bonuses have reached as high as $1 million.

Zuffa’s use of signing bonuses has also come to light during the dispute. Couture pointed to large signing bonuses paid to Matt Hughes and Tim Sylvia as one of the ways that he felt disrespected by the company. The exact figures of these bonuses are unknown, but Hughes’ bonus is believed to be seven figures.

Based on information made available by Couture, roughly 85% of Couture’s total compensation for the Sylvia fight ($1,642,500) was paid in the form of undisclosed bonuses.

UFC Press Conference: Couture's Compensation Roughly $3.0 Million This Year

October 30, 2007

The war of words between Randy Couture and Zuffa over Couture’s departure from the UFC continued at a press conference this afternoon in Las Vegas attended by Dana White, Lorenzo Fertitta and Zuffa CFO John Mulkey.

Mulkey stated that Randy Couture’s total compensation package from the company will come to roughly $3.0 million this year. That figure represents what the company is characterizing as a $500,000 signing bonus (half up front, half after the Sylvia fight), $200,000 per year from an employment agreement, $56,000 in commentating fees, $1.186 million for the Sylvia fight ($250k downside, plus PPV bonus based on 534,000 buys), and $1.072 million for Gonzaga fight ($250k downside, plus PPV bonus based on 485,000 buys).

White opened the press conference by saying that he hates talking about money and believes that athletes talking about money is the biggest problem with professional sports today. “Most of our guys don’t like to talk about money,” was a line that White reiterated at several points during the press conference. Fertitta said that the company was forced to protect itself by holding the press conference because of gross misrepresentations made by Couture.

White dismissed the idea that public disclosure of compensation might make sense moving forward, saying that most of the fighters do not want there compensation public. White added, “I hate talking about money, it makes me sick.”

When asked about his initial reaction to Couture’s comments, White said, “I felt like I got kicked in the throat last week when this happened.” However, he left the door open for reconciliation, “If Tito Ortiz and I can work things out, I’m sure me and Randy Couture can.” White mentioned Couture’s comment that he was “not necessarily a bad guy” several times during the press conference and was clearly personally hurt by the remark.

Quick Notes on Jay Larkin's Conference Call

October 30, 2007

IFL President Jay Larkin held a conference call this afternoon regarding this weekend’s IFL Grand Prix. Larkin will be supervising the first live prime time network broadcast of MMA from England where he will also be fulfilling a previous commitment to HBO Sports to produce the Calzaghe-Kessler bout.

  • Being live is “incredibly important” because of the internet.
  • Larkin is “comfortable” that the IFL’s relationship with MyNetworkTV will continue.
  • Overall ratings are only one way to judge success, have to consider not only how many viewers, but who is watching. IFL delivers good demographics.
  • This Saturday’s event represents the first time the network has sold out the IFL’s commercial inventory. Larkin believes being live has a lot to do with it.
  • Discussions for live coverage of 12/29 Grand Prix Finals will begin next week, but obviously a lot depends on what happens this weekend.
  • Larkin said he has had causal talks with HBO. Regarding the UFC on HBO, “whoever let the UFC-HBO deal fall apart made a major mistake.” Deal would have elevated MMA.

MMAPayout.com will have more details from the Larkin conference call later today.

Strikeforce Update

October 30, 2007

  • The 9/29 show at the Playboy Mansion drew a crowd of 500 at $1,000 a ticket for a $500,000 gate. The event was considered a huge success. For 2008 they are planning two major shows in San Jose, another show at the Playboy Mansion, and expansion into several new markets including Honolulu and Seattle.
  • The San Jose shows are slated to feature Frank Shamrock v. Renzo Graice in April and Shamrock v. Cung Le later in the year. Both events would be co-promoted with EliteXC and Showtime as pay-per-view events, even though EXC and Strikeforce aren’t on the best of terms.
  • The promotion is making a strong play for Bob Sapp, planning to build towards Sapp v. Daniel Pruder in Hawaii where there is no athletic commission to stop the fight due to the weight difference. Outside of the UFC, every other major promotion in the country has interest in Sapp, including EXC who has discussed Sapp v. Butterbean, but the EXC offer is not as lucrative as Strikeforce’s offer.
  • They recently received approval from the CSAC to bring back the one night, four-man tournament format. All fights will be two, five-minute rounds with a three-minute overtime period in the event of a draw.

SOURCE: Dave Meltzer

TUF Rating – Week 5

October 30, 2007

Dave Meltzer reports that the 10/17 episode of the Ultimate Fighter posted a 1.09 rating (1.3 million viewers). The demographic breakdown was a 1.47 in Males 18-34 and a 0.95 in Males 35-49. The fight quarter did a 1.22.

The season average is a 1.18 rating through the first five weeks.

2008, A Space Odyssey: Potential Money Fights & Pending Challenges for the UFC

October 29, 2007

It’s never too early to start looking forward in business, even in an industry that changes as rapidly as MMA. Upsets, injuries, new additions, and potential labor disputes not withstanding, here is a very preliminary look at what the top of the UFC’s pay-per-view events might look like in 2008 along with a discussion of looming challenges facing the company. This projection assumes the best case scenario for business and is not necessarily a representation of which fighter would be expected to win.

  • 2/08 – Las Vegas – Tim Sylvia v. Antonio Nogueira for the Heavyweight Title, Sean Sherk v. BJ Penn for the Lightweight Title, Brock Lesnar’s debut.
  • 3/08 – Columbus – Quinton Jackson v. Chuck Liddell for the Light Heavyweight Title, Tito Ortiz v. Wanderlei Silva.
  • 4/08 – Montreal – Matt Hughes v. Georges Saint Pierre for the Welterweight Title, Forrest Griffin v. Rashad Evans.
  • 5/08 – California – Anderson Silva v. Dan Henderson for the Middleweight Title, BJ Penn v. Joe Stevenson for the Lightweight Title.
  • 7/08 – Chicago – Antonio Nogueira v. Andrei Arlovski for the Heavyweight Title (provided Arlovski and the UFC can reach an agreement), Shogun Rua v. Tito Ortiz.
  • 8/08 – Atlanta – Quinton Jackson v. Forrest Griffin for the Light Heavyweight Title.
  • 9/08 – Las Vegas – Anderson Silva v. Matt Hughes for the Middleweight Title.
  • 10/08 – California – BJ Penn v. Diego Sanchez for the Lightweight Title.
  • 11/08 – Boston – Andrei Arlovski v. Brock Lesnar for the Heavyweight Title.
  • 12/08 – Las Vegas – Quinton Jackson v. Tito Ortiz for the Light Heavyweight Title.

There has been some concern about a lack of big fights on the docket for the company heading into 2008, but this projection would setup six shows that have the potential to do big numbers on pay-per-view. Jackson-Liddell III, Jackson-Griffin (or Liddell-Griffin for that matter), Arlovski-Lesnar, and Jackson-Ortiz would all be expected to do strong numbers, assuming Jackson matures into the company’s top star and Lesnar turns out to be the real deal. Hughes-GSP III and Silva-Hughes would also have a chance to do very good business.

The lineup would also set up well for the major market debuts that are planned for next year. Hughes-GSP is perfect for Montreal, Chicago features Arlovski as the hometown hero, Atlanta features Griffin who has ties to the city along with Jackson who is from nearby Memphis, while Arlovski-Lesnar is the kind of big match they need to enter the Boston market with. It should be noted that outside of the Montreal date, these date and venue pairings are all speculation.

Of course the major caveat is that, as this year has demonstrated, this business is all about expecting the unexpected. That is why we’re still waiting to see GSP-Hughes III, and why we’ll probably never see Couture-Cro Cop. With so many ways to win, or lose as the case may be, the odds of the company running the table are slim to none. That said, outside of Hughes over GSP and Ortiz over Rua, the rest of the projections look fairly solid on paper.

The company has a lot riding on Jackson. Stability on top is the key to doing business in individual sports (see Tiger Woods in golf), but particularly so in combat sports. The company will need Jackson to mature into the role that Chuck Liddell is in the process of vacating as the face of the company, at least for 2008. In the long term, whatever that turns out to be in an industry where its hard to stay on top, Griffin or Jackson are good candidates for the top spot.

Looking even further ahead, into 2009, this projection would set them up with either Jackson or Griffin as the face of the company at 205 pounds, a very marketable Heavyweight Champion (either Arlovski or Lesnar), and solid draws in Anderson Silva and BJ Penn. However, looking that far into the future in this business is close to worthless as anything more than an academic exercise. At this point in 2005 who would have predicted any of the current champions, especially Randy Couture and Matt Serra?

Regardless, 2008 is shaping up to be a very important year for the UFC. We are witnessing a changing of the guard in the company as the first generation stars that fueled the current boom (Couture, Liddell, Hughes, and you could argue Ortiz) are on their way out. The company has to build new stars in order to sustain, much less build on, its current success. As the projection above demonstrates, the company is fairly well positioned to make the transition if things go even remotely smoothly.

So despite what some have said in light of recent events (Couture’s resignation, collapse of the HBO negotiations, string of drug test failures, upsets, etc.), the sky isn’t falling, and the odds of a collapse of the UFC in the near future are extremely remote. Should such a collapse happen, it would likely represent an implosion of the entire industry rather than the failure of Zuffa.

The only thing on the horizon that could have such a dramatic effect would likely be an in ring death, but as the number of events continues to rise, and with it the number of less skilled competitors/promoters/referees/etc., the odds of the first death increase as well. If the sport continues to grow and thrive, the sad truth is that someone will die in competition, and the reaction that follows will determine the future of the industry. The good news, or bad news depending on your disposition, is that such an event is largely out of the industry’s control. Even with the best precautions, it’s almost an inevitable occurrence if the sport is here to stay.

Outside of a catastrophe, the advantages Zuffa enjoys cannot be overstated. The company is well funded, supremely positioned in the current market, and generally is brilliantly led by Dana White. The fact that so much has been made of the company’s recent “failures” is testament to just how flawless its execution has been since its purchase of the UFC in 2001. However, that’s not to say that 2008 is looking like smooth sailing. The company seems to be facing several potentially serious challenges, namely increasing labor costs, growing competition, and product oversaturation (see: The Big Picture in Buzz Words & Bullet Points).

Only time will tell how serious these challenges prove to be. The Couture dispute could turn out to be an isolated event that quietly goes away, or it could be the catalyst to a more widespread talent revolt. If the industry is to have any longevity outside out an initial boom and bust, then one of company’s competitors will eventually break through and begin to affect the company’s business model. 2008 may or may not be the year it happens. As the product (both the UFC’s and its competitors) continues to increase its presence on television because of its success, there will eventually come a saturation point at which point the law of diminishing returns will set in, maybe next year, maybe three years from now when the UFC launches its weekly live fight series.

Who knows what exactly the future may hold, but 2008 is shaping up to be an important and interesting year not only for Zuffa, but for the entire industry.

MMA in Street & Smith's Sports Business Journal

October 28, 2007

Another sign of the growing stature of MMA is the increasing coverage the sport is receiving in Street & Smith’s Sports Business Journal. The influential publication boasts a circulation of 17,000, comprised mainly of business executives from across the sports industry. The October 22-28 issue featured a front page story on a new deal between TapouT and Creative Artists Agency (see: MMA Goes Hollywood).

The October 15 issue featured a three page special advertising section titled “The Changing Fight Game: Alternatives to Traditional Boxing on the Rise.” The section’s lead reads, “take a look around at the world of fisticuffs, and one thing quickly becomes abundantly clear: It’s not your father’s fight game any more.” The section features on four short vignettes: “IFL: Delivering a League Structure to MMA,” “Sun Delivers Art of War,” “TNA: The New Face of Pro Wrestling,” and “WBL: A New Structure to Lift Boxing,” in addition to a full page ad for the IFL.

The September 24 issue featured a short article on the growth of the sport titled “Mixed Martial Arts Scrapes with Finances.”

Fight Opinion Radio # 66

October 27, 2007

I was a guest on this week’s edition of Fight Opinion Radio to discuss Thursday’s dueling press conferences and some of the issues surrounding Randy Couture’s dispute with the UFC. The segment begins around the 26 minute mark. Thanks to Zach Arnold and Jeff Thaler for inviting me on. I always start my day with the news roundup at Fight Opinion.

IFL Ratings Update

October 27, 2007

The IFL on MyNetworkTV for the season averaged a 0.6 rating on Mondays (roughly 850,000 households) and a 0.4 for the Saturday repeat (about 450,000 households). Those numbers represent approximately a 20% increase over previous MyNetworkTV programming.

On Fox Sports Net, the IFL averages a 0.3 rating per show with a cumulative rating of roughly 0.9 (a statistic used to reflect the fact that the program does not air at the same time each week in each market). Those numbers represent roughly a 25% increase above FSN programming over a similar time period.

Taken together, approximately 2.2 million viewers tune in to IFL programming each week.

Dave Meltzer reports that the IFL on MyNetworkTV on 10/6 did a 0.34 rating with 488,000 viewers, followed by Inside the NFL which did a 0.37. On 10/13, Inside the NFL moved to 8PM and did a 0.47, with the IFL posting a 0.35 rating with 451,000 viewers.

Originally, the IFL was slated to move to 8PM on Saturday nights, followed by Inside the NFL at 9PM. This would have resulted in the IFL receiving the benefit of the UFC’s syndicated program Wired as a lead-in in many markets. However, MyNetworkTV flipped the schedule as of 10/13 with Inside the NFL at 8PM, followed by the IFL at 9PM.

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