The Case for Legalization: Quantifying Economic Windfalls

June 19, 2009

By Kelsey Philpott

While I may have argued for a fundamental shift in MMA’s approach to seeking legalization, I’m not naive enough to believe that the economics of the sport do not have a role in the legalization process.

The fact of the matter is it’s simply not enough to preach the virtues of MMA as a sport and expound its comparable safety record to all the public naysayers and fence-sitters. It’s now time to broach the topic of economic windfalls – MMA’s veritable ace in the hole.

We’ve all heard it countless times, “UFC events mean millions for their host communities, governments, and regulatory bodies.” But what does that really mean in layman’s terms and what about non-UFC events?

In order to understand the true economic potential of MMA, you’ve first got to understand the root of MMA’s commercial success: its appeal to the male 18-34 demographic.

It’s a demographic characterized by young people that are just coming into significant quantities of disposable cash. They don’t yet have the types of cash burdens (mortgages, children, retirement plans) that will accompany them later on in life and thus, as a group, their purchasing power is literally unmatched.

And on the strength of this demographic and its purchasing power, MMA has become much more than a sport; it’s become a lifestyle complete with its own vernacular and way of dress. MMA has been able to branch out well beyond its fighting roots and into various other industries – clothing, collectibles, entertainment, and nutrition – to form what is collectively referred to as the MMA industry.

While the UFC may be the only promotion raking in hundreds of millions in yearly revenue, but it’s not the only company within the industry to do so. Tapout, for example, earned nearly $120 million in revenue last year and hopes to make it $250 million this year.

But how do you quantify what all of that means to MMA’s host communities?

You first have to acknowledge that the size of the economic windfall to any host community isn’t just going to depend on the size and calibre of the event, but also the size of the community itself. In other words, a UFC event in Toronto is going to create a much greater windfall than a regional show in London, Ontario.

In regards to windfalls, the greatest strength of the UFC is that its shows have the ability to increase tourism for a certain community: anywhere between 40% and 70% of the patrons at UFC events are from out of town. If you consider that the UFC could easily sell-out either of the 20,000 seat arenas in Toronto or New York City, for example, that means anywhere from 8,000 to 14,000 in attendance would be using local public transportation, local restaurants, local hotels, local shopping malls, and local nightclubs for an average of two days during that UFC event.

If the average amount that each individual spends during that weekend is $500, the economic windfall from that one UFC event is likely to be in between $4 million and $7 million. If you bump that average up to $1,000 over two days – which is certainly possible given the natural inflation seen in bigger markets like T.O. and NYC or the sheer number of things to do in both cities – the economic spinoff fits into the range of $8 to $14 million.

Further consider the percentage of  the crowd (30%-60%) that consists of local fans – all of whom are also spending money on public transport, restaurants, and bars – and the economic windfall to surrounding business and local governments becomes even larger.

However, MMA is much greater than its flagship promotion and there are countless other organizations out there just chomping at the bit to get into areas like Ontario or New York – all of whom would also make significant contributions to local economies.

I know that Canada’s largest promotion, the Maximum Fighting Championship, is already in talks with several Ontario-based casinos – in cities like Windsor, Hamilton, and London – about the prospects of hosting MMA events in the province should the sport be legalized. Mark Pavelich runs a tight ship in Edmonton and has a great deal of experience that he could quite easily parlay into a successful Ontario venture if given the opportunity. I’d also expect a slew of start-ups in Ontario the minute they open for business.

The same can also be said for any number of promotions in the US that would all take a hard look at the state of New York – cities like Buffalo, Albany, Rochester, and Syracuse, in addition to the Big Apple – as locations for their shows.

In cases such as these, the windfalls to local communities are smaller but not insignificant. Some of the venues at these proposed sites could hold anywhere from 5,000 to 10,000 people and that’s a legitimate amount of money (even if each person only spends $50 that evening).

(I encourage anyone interested in further exploring the economic potential of MMA events to check out this detailed impact study.)

The Argument from Community Development

MMA events, big and small, also do their part to help stir up the demand for infrastructure necessary to revitalize local communities.

It’s simply a numbers issue whereby venue managers have an additional booking option at their disposal in order to increase patronage. Those booking options can then create further demand and community support for re-investment in infrastructure that can go a long way towards propping up local businesses. I’ve seen this type of development in many places, including my hometown of Winnipeg, Manitoba.

In Winnipeg, the demand for a new entertainment facility was so great that the Province of Manitoba and City of Winnipeg combined to build the new MTS Centre downtown. It’s a state of the art facility that’s now host to several world class events on a monthly basis – Coldplay and The Offspring this week alone.

And the effect the MTS Centre has had on the surrounding restaurants, bars, and shopping malls has been tremendous. It’s helped to pick up a previously forgotten and very much downtrodden area of Winnipeg, while also fighting back against a bit of the urban sprawl that has plagued the city for years.

The Argument from Competition

And it’s not just that Ontario and New York are currently going without these economic windfalls and development stimulants, but also that they’re passing them onto their competitors.

Toronto and New York consider themselves legitimate players on the international stage, yet they’re ceding these tremendous opportunities to other world-class cities like Los Angeles, London, Dublin, and Tokyo that have all legalized the sport.

Knowing the international stage as the very cut throat and competitive environment that it is, neither city can afford to fall behind the rest of the world. The same argument could also easily be made from a national perspective.

Conclusion on the Case for Legalization

It’s very important for the MMA community to establish the sport’s legitimacy and safety record before further arguing its case with economic incentives.

I say this because no one likes to feel as though they’ve been bought or forced to sacrifice their morality. Feelings of this nature are certainly a breeding ground for the resentment, negativity, and the perpetuation of falsehoods that MMA fights on a daily basis.

Moreover, why should MMA have to buy its way into any state, province, or country? The integrity of the sport should demand acceptance, not a purchased tolerance.  

However, as I’ve illustrated, there is a definite place for arguments based upon the economic windfalls in the case for MMA’s legalization. These are arguments that need to be better explained and quantified before they can be exploited to their full use.

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