Money Being Left On The Table?

May 29, 2008

While the UFC is certainly flush with cash at this point in their growth, reading this interview Dana had with Sergio Non, I couldn’t help but be left with the impression that, due to a poverty of imagination, some potential marketing opportunities were being left untapped. This particular passage struck me the most….

Dana White: Are you kidding me? It’s like me saying I’m going to go out tomorrow and start a T-shirt company and compete with Affliction. The f*** do I know about selling T-shirts?

SN: Actually, you sell quite a few of them, don’t you?

Dana White: Yeah, well, that’s different. Selling my T-shirts at my big event is one thing. Me going out and trying to talk to Nordstrom and Dillard’s and trying to come up with a name to compete with Affliction – seriously, it’s really crazy that people even ask me that.

With the marketing muscle and overall branding acumen of the Zuffa folks, I have to ask – Why isn’t the UFC trying to leverage it’s brand into other areas – like expanded merchandising of things like t-shirts? Affliction are able to sell t-shirts that retail between $40-$60 not because the quality of their product (I’m not impugning their product) but because of the brand awareness and value that they have generated over time. The UFC would easily be able to use these same attributes to open up what is currently a minor revenue stream. Why aren’t they trying to talk to Nordstrom and Dillard’s, getting their UFC branded items into major retail?

Another area that would have been an avenue to pursue would have been a publishing deal. During the first half of 2008, we have seen the publication of books by Matt Hughes, Chuck Liddell, and Tito Ortiz. Setting up an imprint with a publishing house and using the power of the UFC marketing machine to hype up the books would have been a boon for all involved – $$$ for the UFC and higher book sales for the authors. Again, this seems to be a missed opportunity owing to a lack of vision in extending the UFC brand.

Integrated Live Coverage of EliteXC & the Importance of Network Support

May 29, 2008

EliteXC’s debut on CBS won’t be confined to network television broadcast. CBSSports.com will stream the undercard of EliteXC Primetime free of charge this Saturday Night from 7-9PM EST. The undercard will also be available on CBS Sports Mobile. The main card will air live on CBS at 9PM EST.

Integrated live coverage across all three platforms is a subtle, but important demonstration of CBS’s commitment to EliteXC. One of, if not the, most important factors in EliteXC’s ultimate success or failure on network television will be level of support it receives from CBS. A significant investment from a supportive media partner is a prerequisite to success in the sports and television industries.

It is not an exaggeration to say that the UFC might not even exist today, let alone be as wildly successful as it is, without Spike’s support. Spike has invested significant resources into the UFC in the form of sales and marketing, particularly in the form of promotional time and money devoted to establishing the brand. Furthermore, it is advertising cross buys on Spike that made the UFC’s Bud Light and Edge sponsorships possible according to industry sources.

Billboard Rec-Sports DVD Chart – 6/7

May 29, 2008

  1. WWE: Twist Of Fate: The Matt & Jeff Hardy Story
  2. WWE: Triple H: The King Of Kings
  3. EliteXC: Renegade
  4. NFL: Super Bowl XLII Champions New York Giants
  5. WWE: The Best Of Raw: 15th Anniversary 1993-2008
  6. UFC 80: Rapid Fire
  7. TNA: Destination X 2008
  8. UFC: Best Of 2007
  9. WWE: The Legacy Of Stone Cold Steve Austin
  10. Pride Fighting Championships: Shockwave 2006

NOTE: A strong debut for EliteXC’s first DVD title released by Image.

UFC Roster Moves Could Make Dollars and Sense [Part 1 of 2]

May 29, 2008

Lost among all the headlining stories from UFC 84 were the impressive debuts of some very talented prospects. Shane Carwin, who knocked out Christian Wellisch, and Rousimar Palhares, who won submission of the night for his armbar victory over Ivan Salaverry, lead an impressive group of rookies that all put an early stamp on the organization.

The debuts also marked the continuation of a growing trend in the UFC: a plethora of new talent to match the mass exodus of UFC veterans. In the last three months alone the UFC has seen impressive fighters like Cain Velasquez, Mac Danzig, Demian Maia, Brock Lesnar, and Tim Boetsch join the UFC ranks. Concurrently, the organization has also seen the likes of Tim Sylvia, Randy Couture, as well as potentially Andrei Arlovski and Tito Ortiz jump ship in search of greener pastures.

At this point in time the UFC finds itself in a state of transition, whereby the initial torch bearers are gone, going, or nearly over-the-hill. Couture and Ortiz are both possibly finished, even if they return, how much longer will either of them remain relevant? Furthermore, Liddell, Hughes, and Franklin all appear to be fringe players within their respective title scenes.

Despite being the big dog of MMA, the financial reality of the organization in 2008 doesn’t support a free agent signing frenzy. As MMAPayout.com reported in late April, the UFC recently underwent a large staffing layoff in Las Vegas, and over the past few months it has also trimmed its active roster significantly. Last fall, Standard & Poor’s debt rating agency downgraded Zuffa’s credit rating to a BB- , signalling a slight concern on behalf of creditors that the UFC may have a more difficult time in repaying its debt. Add to all of this a downturn in the economy and reduced consumer spending, and it’s easy to see why the financial outlook has changed a little bit.

Perhaps what is most remarkable, however, is just how much the current roster situation resembles the plights that many professional sports franchises have experienced in the modern salary cap era. In order to produce superstars and maintain a competitive roster, the UFC is employing a “building through the draft” strategy of its own. Not too dissimilar from the New England Patriots or Detroit Red Wings, the UFC is doing its utmost to find and sign the best prospects in the world before they hit other, large organizations. Then, to complement the roster even further they’ll look to make select free agent additions when and if the price is right.

The obvious advantages to this strategy are two-fold: the UFC gets its hands on the best fighters before they blow up and is also able to keep these fighters out of the hands of its competitors. Getting a fighter before he hits the mainstream is quite similar to getting a rookie hockey or basketball player on an entry-level contract – it’s cheaper. Additionally, it gives the UFC full control over the prospects development and marketing. Keeping a fighter away from the competition is almost as important as having him in your own. While many people believe Ortiz is no longer relevant to the UFC’s light heavyweight division, an Ortiz to the EliteXC light heavyweight division gives them instant credibility.

However, from a business perspective there is another, not-so-obvious, benefit to using a prospect strategy when building a fight roster and that is the creation of negotiating leverage. EliteXC, Dream, and Affliction are all promotions which have the ability to pay six figure fight salaries and that means for the UFC leverage is quite hard to come by these days. In constantly topping up its division with the best prospects in the world, the UFC is bettering its bargaining position when it sits down to negotiate or renegotiate with fighters.

One of the keys to negotiation is understanding your position from the perspective of alternatives; if a deal cannot be reached, what is your best alternative? In this case, the UFC’s alternatives become numerous. It was likely a combination of Tim Sylvia and Andrei Arlovski’s recent lacklustre performances and the addition of heavyweight prospects like Cain Velasquez, Shane Carwin, Neil Wain, and Brock Lesnar that enabled Dana White and the UFC to feel comfortable walking away from the two former heavyweight champions.

Furthermore, the UFC also improves its bargaining position with an appeal to competition, which in effect reduces the negotiating leverage of other organizations. In other words, it tempts a fighter to sign and fight where the competition is, prove himself, and then look for a big pay day.

CONTINUED: UFC Roster Moves Could Make Dollars and Sense (Part 2 of 2)

EDITOR’S NOTE: This is Kelsey Phillpott’s first contribution to MMAPayout.com. Kelsey is a fourth year student at the I.H. Asper School of Business at the University of Manitoba. It is my pleasure to have him as a contributor to the website. You may contact him at: kelseyphilpott@hotmail.com.

UFC Revenue Sharing Follow-Up: WWE Comparison

May 29, 2008

One comparison notably absent in the revenue sharing figures presented yesterday was WWE. UFC President Dana White has made no secret of his admiration for WWE, and the two companies’ promotional models are remarkably similar.

Dave Meltzer, editor of the Wrestling Observer Newsletter, told MMAPayout.com that the talent’s share of WWE’s gross revenue is roughly 15-18%.

EliteXC's CBS Debut: Three Angles to Watch

May 29, 2008

MMA will make its major network primetime debut this Saturday night when EliteXC presents Primetime on CBS at 9PM EST. The following are three angles worth following after the show unfolds:

(1) RATINGS:

The buzz in the industry is that its not the headline household number that matters as much as the demographic breakouts. While network television ratings as a whole are in a continuing decline, it is the younger viewers that advertisers crave in particular that are slipping away. This is particularly the case at CBS which skews older than other networks. Enter MMA, the great white hope.

All eyes will be on males 18-49 and more specifically males 18-34. Some context of what good demographic numbers will look like: for the week ended May 18, CBS averaged a 2.6 in adults 18-49 (third behind leader Fox at a 3.5) and a 1.7 in adults 18-34 (third behind leader Fox at a 3.0).

That said the headline number obviously matters and the network has publicly set a 3-4 million viewer threshold. For some perspective, UFC 75 is currently the highest rated television broadcast of MMA. The event drew 4.7 million viewers on Spike last September. The general consensus is that anything about a 3.0 would be a considered a homerun and anything below a 2.0 without amazing demographics would be a failure. And it’s not just EliteXC’s future that is riding on the results. A strong showing could open the flood gates for MMA on network television.

(2) FINANCIAL FOLLOW-UP:

The 5/31 show is shaping up as a make or break show for the company. According to ProElite’s SEC filings, it is clear that the company is low on funds and seeking additional capital. All indications are that the company has “bet the farm” so to speak on its CBS debut. It is critical that the company put up a number that creates the momentum necessary to raise the capital needed to survive and advance.

(3) POLITICAL BACKLASH:

One of the most under discussed angles in MMA’s major network television debut is the potential political backlash the sport may face. “Cagefighting” will arrive on the national stage for the first time this Saturday and the reaction is assuredly going to be mixed. Some pundits will no doubt seize the opportunity to hammer CBS for peddling blood and violence, but the biggest danger lies in a potential political backlash in the vein of John McCain’s “human cockfighting” crusade of the mid-90s.

While the sport is in little danger of returning to the dark ages of untelevised, unsanctioned events, the potential for political grandstanding against MMA, particularly in an election season is very real. For a sport not yet established as acceptable in the mainstream, that may be all it takes to stifle the growing influx of blue chip sponsors and mainstream acceptance.

The inclusion of a women’s MMA bout as part of America’s introduction to an already violent sport has done the industry no favors in this regard.

UFC Media Credentialing Practices Questioned

May 29, 2008

Perhaps the only thing hotter than a cageside ticket for a UFC event is a media credential. The UFC’s credentialing policy, and its media strategy generally, has been a source of controversy among journalists for sometime. Los Angles Times blogger Richard Abowitz went public with his complaints about the company’s credentialing policy after being denied access to UFC 84.

Abowitz believes that his poking and prodding at UFC President Dana White for an interview about on-going spats with Tito Ortiz, led to his receiving “a credential application with all sorts of stipulations required for a press pass,” including “the trivial, forbidding my wearing certain clothes, to the ridiculous, controlling where and when I was allowed to write about the event forever more.”

Abowitz says he corresponded with UFC events manager Diann Brizzolara who told him:

“We have the right to protect our brand and how coverage taken from our events is disseminated. Other sports leagues, such as the NFL, have similar regulations printed on the back of their press passes.”

The difference according to Abowitz was the fact that his credential application required a signature, which essentially made it “contract.” Whereas regulations printed on the back of a credential by other organizations essentially amounted to a wish list.

Based on my experience this practice is indeed rare in other professional sports. When I was a radio reporter in college at Hofstra’s WRHU, I was routinely given access to MLB and NHL games, without having to even fill out an application. Typically, a request on company letterhead sufficed.

Mickey's Teams With BJ Penn

May 29, 2008

Miller Brewing Company’s Mickey’s brand recently announced a new partnership With UFC Lightweight Champion BJ Penn. Penn is the second MMA star to sign on as a promotional partner with Mickey’s. Former UFC Light Heavyweight Champion Tito Ortiz signed a similar agreement with the brewing company in April.

Mickey’s was the official malt liquor of the UFC until recently being replaced by Anheuser Busch’s Bud Light brand. Mickey’s seems to be engaged in an end around of sorts; with the UFC Brand no longer available to them they are choosing to go directly to the athlete in developing promotions, events and packaging with a MMA-centric twist. This is a much more advantageous situation for the athlete, as they will see larger proceeds from a direct sponsorship as opposed to mainly appearance fees under the UFC deal. The athletes also will have input into all phases of the marketing process in the new relationship as opposed to little control in the UFC-Mickey’s deal (due to the surrendering of their ancillary rights per their UFC contract).

With Miller and Coors/Molson planning to finalize their joint venture for US operations sometime in 2008, it will be interesting to see if the new mega-brewer will make further moves in the MMA market. They could continue the pattern set by Mickeys in signing individual fighters or possibly make a larger play, teaming with some other MMA promotion to act as a counterweight to the UFC/Anheuser Busch pairing.

Spike.com to Feature MMA Girls

May 28, 2008

According to a MediaWeek report, the revamped Spike.com will feature a new online series devoted to MMA:

Spike TV announced plans to launch several original Web series this year as part of an extensive redesign of Spike.com launched today (May 28), marking the completion of the year-plus melding of the site’s previous incarnation and iFilm, the video hub MTV Networks acquired back in 2005.

Among the originals in the works are an advertiser-friendly collaboration between Spike.com and Playboy.com that will result in a yet-to-be-named series which will run on both sites. In addition, the site plans to unveil the young-males-behaving badly series The Crew (described as making “Jackass look like pre-school” by Jon Slusser, senior vp, Spike digital and video games) and The MMA Girls, which features a pair of comely young women demonstrating mixed martial arts fighting techniques.

The MMA Girls home on Spike.com can be found here. Spike.com joins ESPN.com in launching MMA new media projects this season.

Underpaid?: Revenue Sharing in the UFC

May 28, 2008

The UFC’s pay scale has been in the news again lately as part of the Tito Ortiz-Dana White feud. At the UFC 84 post-fight press conference Ortiz went so far as to say that “fighters are treated like slaves” by the UFC. MMAPayout.com has compiled the total disclosed payrolls from the last five UFC events for which payroll figures were made public as well as estimates of the gross revenue (pay-per-view plus live gate) generated by each event:

EVENT PAYROLL REVENUE FIGHTERS’ SHARE
UFC 76 $1,074,000 $11,388,125 9.4%
UFC 77 $812,000 $8,991,875 9.0%
UFC 79 $1,399,000 $16,885,000 8.3%
UFC 81 $1,132,000 $15,885,000 7.1%
UFC 82 $1,112,000 $9,504,375 11.7%
TOTAL $5,529,000 $62,654,375 8.8%

NOTE: Gross revenue estimates are based on reported live gates and preliminary buy rates (assuming a 50/50 split of pay-per-view revenue between Zuffa and cable and satellite operators). Payroll figures are based on officially reported payouts as well as disclosed bonuses.

The most immediate qualifier that must be offered concerning these figures is that the UFC regularly pays substantial undisclosed bonuses in the form of contractually specified pay-per-view bonuses and discretionary performance bonuses. Some of the contracts for the company’s top stars also reportedly include downside guarantees that significantly exceed their disclosed payouts.

However, it is also important to consider the other revenue streams not included in the above revenue estimates, including: closed circuit television, DVDs, video games, television rights fees, sponsorships, advertising, on-demand new media purchases, and other merchandising. Many of these revenue sources rely on the infamous ancillary rights clause found in the company’s standard contract. Per the clause, fighters essentially sign away the rights to their likeness and are not entitled to any compensation when it is used. The clause has been a source of contention in the company’s disputes with Randy Couture and Ortiz.

As a rough comparison to boxing, last year’s HBO Boxing event featuring Oscar De La Hoya v. Floyd Mayweather produced $165 million in total gross revenue. De La Hoya and Mayweather alone combined to take home $73 million for 44.2% of the gross revenue generated. However, it should be noted that De La Hoya’s Golden Boy Promotions was also the promoter of the event.

For the sake of comparison, in a testament to the power of collective bargaining, the percentage share of gross revenue player’s receive in other major sports: 59% in the NFL, 57% in the NBA, 55.6% in the NHL, and 53% in MLB.

Ortiz has indicated that he believes that 30-40% of gross revenues for fighters would be fair.

UPDATE: UFC Revenue Sharing Follow-Up: WWE Comparison

SEE ALSO: Boxing v. MMA Pay Scale & Business Model

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