No Need To Panic: A Realistc Future for MMA

September 4, 2008

What do the failures of so many organizations mean for MMA?

It means that promoters and their investors need to be smarter with their money.

And it’s not like there isn’t precedence within the business world for this sort of gross mismanagement either. I’m sure everyone remembers the dot-com bubble of the late 90s that burst in 2001. Investors had dollar signs in their eyes then, just as they do now, because of the gross potential of the internet and technology to be utterly ubiquitous in the everyday lives of people the globe over. Yet, these investors failed to do their due diligence in order to find appropriate business models to take advantage of that potential.

Thus, the same can be said for today’s investors blindly throwing money into fight promotions with poor business models that do not suit the current economic environment of the industry. The investors that jumped on the IFL and pushed it to $18 are a testament to this.

For as much flack as Dana White gets from the MMA community, I can’t think of any other man in the industry that can say “I told you so!” as often as he can. Granted, the NASCAR analogy is a little played out – and I, too, am tired of hearing it – that doesn’t make it any less relevant.

The business-end of things really isn’t that different from any other industry. The most crucial mistakes I see fight promotions make are the same crucial mistakes that misguided billion dollar enterprises make:

1.) They have no vision, no mission, and as a result no direction and no identity.

These promotions need to figure out who they are, what they do, and whom they cater to.

2.) Poor cost management that generally translates into bankruptcy.

The reality of any business is that revenues must exceed expenses. It’s elementary, but it’s absolutely shocking to see how people can get ahead of themselves and let their expenditures soar through the roof in order to build a “dream” promotion that will never get off the ground.

It’s all fine to dream of the perfect promotion, one complete with the best fighters, sold-out crowds, tons of hot chicks, and Ozzy Osbourne rocking in the background, but if it all costs more than it’s going to make, what the hell is the point?

3.) They haven’t established a foundation or re-invested their earnings.

This isn’t a short-term business! Too many promoters view this game as an easy cash grab, but the reality of things is that initial capital outlays are significant, even for small promotions, and it takes times to build the fanbase and fight rosters in order to grow into substantial profitability.

And the problem is only compounded when promoters try to cut corners at the highest levels, because the scale is so much larger, and thus so too are the losses. Instead of taking several, small losses to build a foundation, they take one or two big losses and are out.

4.) Failure to capitalize on the strengths of the industry.

Never, in my life, have I seen an industry so afraid to market and promote what it is!

MMA is about fighting and caters to the highest-revenue demographic there is: 18-34 year old males. It’s not just MMA’s demographic either, it’s the most coveted demographic in the world – nearly everyone is trying to get a piece of the student or young professional market that is about to come into spendable cash. If pitched properly, smaller organizations within this industry have the potential to reap large benefits just on corporate sponsorships – the companies that share and are looking to advertise to the MMA target audience.

5.) Little professionalism or consistency.

The consumer not only wants a tight, professional product, but also something that delivers on a regular basis. There’s something to be said for a quality presentation and event experience. They help to bring the whole package together.

Again, this is something that takes time and promoters often need a few shows to establish a formula that works (we see this even with the big promotions like EliteXC’s CBS shows), but the dividends are well worth the struggle.

Where do smaller organizations fit into all of this?

Small promotions have an opportunity to seize on the burgeoning MMA scene in most local areas, but are faced with all of the above difficulties that many promoters face. Additionally, they encounter fierce competition from other small shows that make it tough to establish any sort of brand recognition.

However, probably the toughest gig for small promotions is dealing with the fighters. Not only do they struggle to find a consistent roster of guys, but they also have to somehow meet the inflated expectations of fighters that expect to be getting UFC money.

You can debate until the cows come home as to whether the economics of the UFC warrant a pay raise for its fighters. However, it’s tough to argue that a show that manages to gross $60,000 should be paying fighters $3,000 or $5,000 just to show, in addition to travel and overnight expenses for the fighter and his corner.

The fact of the matter is, fighters need the smaller promotions just as much as the smaller promotions need them. The small, short-term sacrifice could potentially lead to big, long-term rewards should they work in partnership with the smaller promotions.

What’s a more balanced outlook for the future of MMA, then?

Step back from the ledge!

It certainly can’t be denied that the sport of MMA will face numerous, large and daunting challenges in order to continue the wild growth it has experienced over the last five years. Moreover, nothing lasts forever and I certainly don’t expect MMA – it’s promotions, clothing brands, training facilities, or the general lifestyle – to continue this breakneck growth in perpetuity.

However, the good news is that most of these challenges that fight organizations are encountering are self-inflicted. Investors and promoters are starting to learn a valuable lesson in creating and implementing a proper MMA business model; and the money that was once there and has now been pissed away, will not be there in the future unless the proper system is in place to make something of it. Essentially, the MMA promotional market has become sink or swim. You either get it or you don’t, and the ones that don’t will be out of business.

The suggestion that farm systems and talent pools are about to dry up is premature to say the least. It’s not as if the market for MMA is drying up or even that putting together a solid business plan is that difficult; the problem again lies in organizations cutting corners before they’ve established a foundation.

Perhaps if the organizations of the sport continue to flirt with another 10 years of bankruptcy we can then revisit the problem. Until then, I’m inclined to believe that there are enough competent and passionate individuals out there to take advantage of the market and develop the stable and healthy fight organizations necessary to cement MMA as a sport for the long-term.

Those competent and passionate individuals will likely be helped along by a possible surge in MMA’s popularity. At which time, does anyone truly believe that all the added mainstream attention isn’t going to bring with it the best business minds and substantial investment money from Wall St. in order to take advantage of the popularity? These are the very same individuals that are currently sitting on the sidelines, waiting for an effective model to be demonstrated.

As it’s been pointed out before, a Strikeforce promotional model is something that can be duplicated across North America and with that, the bottom that nearly fell out can be sewn back on again.

A confluence of factors are all likely to push MMA over the next hurdle and within the next two years, I’d expect that the UFC has leveraged its unique position with key demographics into a network television deal and some sort of regular Sportscentre coverage.

Unfortunately, though, the sport isn’t likely to eclipse the popularity of the NFL or european football anytime soon. We’ve all heard, the “transcending barriers” line before – hell I’ve even used it – but that kind of growth takes time.

The larger an industry gets, the harder it becomes to duplicate previous growth rates, because the amount of growth represents an increasingly smaller proportion of the industry. To reach NFL level revenues (estimated $7 billion, without TV contracts in 2007) would require a tremendous leap for MMA. Additionally, Superbowl XLII reached a peak viewership of 150,000,000 worldwide. It’s hard to imagine a UFC or any other MMA event drawing that much coverage under pay-per-view terms.

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