Pro Elite Quarterly Report: First Quarter 08

May 22, 2008

View the complete quarterly financials here

Analysis: The company experienced a loss of $5.6 million during the first quarter of 08. The company continues to be plagued by high selling, general, and administrative expenses, much of that due to the sheer size of the company. The company did begin to see it’s first license fees from Showtime, totaling $1.2 million in the first quarter. These license fees will be a key to reaching profitability, in addition to PPV revenues. With increased exposure on CBS, the company should be able to better market their PPV efforts, which have accounted for minuscule amounts so far. Strong television feeding into PPV’s is the map for success in the MMA business, and PPV will have to be reintroduced as a revenue stream if the company is to reach profitability. If the CBS shows are successful I would expect PPV to resurface in the fourth quarter of 08, possibly in time for a Cung Le- Frank Shamrock re-match.

The company’s online component was once again a large drain on funds, with minimal revenues generated. After losing over $3 million on the site during 2007, the company posted revenues of roughly $26,000 against operation expenses of $725,000. Such losses may have been a harbinger of the recent resignation of President Kelly Perdew. The company has recently launched a Video on Demand service to better monetize their website, but the success of these efforts will depend greatly on the fight promotion portion of the company. Expending the vast sums they have on the website is a case of putting the cart before the horse, so to speak, as having a vibrant and prosperous fight promotion will be the driver of these other revenue streams.

Another significant cost was the expensing of options take by company executives. These items counted for almost $600,000 against revenue, which tend to distort the company’s performance. Factoring out these items, the company still generates a loss but some of their cost cutting measures, such as staff reductions, seem to be narrowing the deficits somewhat.

Notes:The company’s court battle with Wallid Ismail is ongoing and will go to trial in federal court on September 16th, 2008. This lawsuit stems from the start-up phase of Pro Elite, with Ismail claiming to have not been compensated for assisting during the initial raising of capital.

The company’s agreement with Mark Burnett concerning a reality show is reaching a critical phase, with their agreement becoming void if no license agreement is reached by June 15th. There is a two week window after the May 31st CBS debut to gauge the viability of this reality series, so expect to hear news soon in this area.

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