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 –┬áit’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.

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