No Need To Panic: An Analysis of the MMA Industry

September 3, 2008

In recent days we’ve seen a flurry of MMA business activity that has forced everyone within the community to re-evaluate the health of the industry. Individuals like Dana White will be the first to tell you that MMA is going to be more popular than soccer or the Superbowl, worldwide, by 2016. Yet, others are far less optimistic and hailing 2008 as the beginning of the end of MMA. However, the truth of the matter is that neither side is accurate in their assessment of the industry.

Looking beyond the exaggerations and severe panic attacks, the truth can be found somewhere in between both extreme points of view.

Where does the market for MMA really stand?

If the UFC’s 2008 results are any indication, the market for MMA is quite healthy.

The latest S&P credit rating reports for the UFC’s parent company, Zuffa, indicate that PPV buy rates are largely flat, yet revenue is growing due to the increased number of PPVs in a year and also an increase in the prices of those PPVs.

This tells us that while the market is currently experiencing little growth outside of its current audience, MMA has yet to reach a saturation level that would make additional PPVs or higher PPV prices unfeasible.

However, the stalled growth in PPV buy rates also suggests that MMA has possibly reached a plateau in its development cycle. The pessimists are going to point to this as a sign that interest is in the sport at its highest level is flattening. I’d argue that isn’t neccessarily the case.

Growth in any expanding industry is rarely linear; you’re going to have your up and down years, just like anything else. And while the UFC’s numbers may be evening out, I’d like to remind everyone that there’s more to the industry of MMA than just promotions. The popularity of MMA clothing brands is growing at a quickening pace, so much so that it’s gained absolute mainstream acceptance well before the actual sport has. Furthermore, the wealth of MMA training facilities sprouting up across the U.S. and Canada suggests that the grassroots formation of MMA’s next generation of fans is already taking shape.

The tendency of growth industries to expand in spurts could be a trend that MMA follows; and really, any number of factors could propel the sport into the next level of popularity, acceptance, and most importantly from a business standpoint, revenue generating potential:

  • The UFC on major network television
  • Further sanctioning in media hotbeds like New York and Massachusets
  • A new PPV draw capable of captivating the American audience much in the same way that combat sport athletes like Muhammand Ali, Mike Tyson, and Oscar De La Hoya have in the past.
  • Compelling match-ups with storylines and human interest pieces also capable of grabbing the attention of the American public.

Why have so many large MMA promotions failed?

Mis-management.

North American failures like the IFL, ProElite, and possibly even Affliction and the AFL have all suffered from fiscal, promotional, and organizational mismanagement. While no two firms are exactly the same, their failures mirror one another in the way each failed to form a solid foundation from which they could build themselves.

The IFL jumped straight to television with little prior history and virtually no brand recognition, all the while spending millions of dollars in production and fighter costs.

ProElite put the proverbial cart before the horse by trying to buy its foundation before it had even secured and cemented its own brand, EliteXC, as a profit-earning player on the major promotional scene.

Affliction tried and failed to leverage its clothing line into an instant juggernaut – in the process over spending by anywhere from $2 to $4 million on their first event. The sad thing is, had Afflcition gone about leveraging their product into a promotion properly, they likely could have built themselves into a major player down the road.

What would have been wrong with targeting a condensed, MMA-crazy region in the U.S. and holding a few mid-sized shows a year? At the very least the increased local exposure would have strengthened their clothing line and broke them even. At the most, it builds Affliction’s name both as a clothing line and a fight promoter, gives the firm experience in running a fight organization, and enough of a reputation with fighters that it can slowly up the ante in terms of its level of competition.

And while the jury is still out on the AFL, I’d encourage you to read MMApayout’s Robert Joyner on the subject of the AFL’s voodoo economics.

What does this colossal management failure mean for MMA?  It means that promoters and their investors need to be smarter with their money. Return tomorrow for No Need To Panic: A Realistic Future for MMA for a look at the true future of MMA, one that lies somewhere between the Superbowl and Doomsday predictions.

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