The UFC’s Challenges in China

October 12, 2010

I recently traveled to China with my fellow MBA students at the Warsaw Sports Marketing Center in order to consult with several sports leagues and firms doing business in the country. Not only was the trip very successful for the Warsaw Center, but I’ve personally returned home with a better understanding of the Chinese consumer and the key challenges facing the UFC as it looks towards expansion.

Traits of the Chinese Consumer

  • Exceptionally nationalistic
  • Historically very conservative, especially where violence in concerned
  • The average salary in urban areas is 4,000 RMB/month (~$600)
  • A great majority of their entertainment is consumed through free, state-owned television programming
  • Increasingly influenced by consumer trends in Japan and the US
  • Possess global aspirations in all walks of life; money, cars, clothes, etc.

While in China, I very much got the sense that the country is in the midst of a culture shift; much in the same way that the country has experienced somewhat of a paradigm shift regarding its political and economic ideologies. The rapid development of China’s economy and underlying infrastructure (in most areas) has generated tremendous wealth, but it’s also provided the Chinese with a sort of global aspiration: they want – and can now afford – what everyone else has (i.e., fast cars, fancy clothes, and good entertainment).

The traditional Chinese values pertaining to face, family, and country are still very much in place. However, the added element now is a young Gen Y group with the confidence, ambition, and wherewithal to adapt those core values to the Western world.

Key Challenges

1. Chinese conservatism

Despite China’s storied martial arts history and emerging cultural thaw, MMA will not be an easy sell in the country. The Chinese are still by and large a conservative and risk-averse group of consumers led by an extremely protective and controlling government. MMA is a very aggressive and violent sport that’s easily misunderstood.

The biggest challenge for the UFC in China will be obtaining buy-in at the governmental level. If it cannot cultivate key relationships within the government it can forget about television coverage, live event permits, and any sort of merchandising initiative. The Chinese still follow the cultural lead of the government in many ways, and if the government decides to throw its weight behind something, not only does that something get done, but people tend to take notice pretty quickly.

2. Revenue generation

The next biggest challenge relates to the UFC’s business model. Nearly 75% of the UFC’s revenue is event-related, but China is neither a PPV market or a significant spectator market.

The Chinese consume a great deal of their sports through free, state-owned television programming and are reluctant to pay for what they’ve always had for free – even despite the increase in the number of set-top boxes in the country. Various different sports properties have tried PPV or subscription models in the last couple years, but each have failed (including a group that bought the rights to the EPL for three years at some $70m and fell into bankruptcy two years into the deal).

The fact that it’s far more easy and cost-effective for the Chinese to stay at home and watch an event for free makes them less inclined to watch live, especially in the densely crowded and difficult to navigate urban areas. The high rate of television consumption contributes to the lackluster live-game experience at most sporting events, which in turn provides even less incentive for fans to attend. It’s a self-perpetuating cycle.

Nearly every sporting event taken to China has struggled at the gate – the Olympics, F-1, ATP, European TOUR, etc. In many cases the government often resorts to hiring groups of people or assigning army units to attend events as paid spectators just to beef up the look of the event for global television audiences. It’s a very difficult ticket sales market.

Perhaps the best way to be successful is to play on Chinese aspirations for the consumption of world class goods and services. If the UFC brings its best and brightest to China and sells it as such, it may gain an audience on the merit of simply providing its best offering to the country. It would be seen as a sign of respect to which reciprocation is almost guaranteed as a matter of courtesy and obligation.

3. Patience

In the late 1980s, the Commissioner of the NBA, David Stern, crossed the Pacific and sat in the lobby of the CCTV HQ with a box of tapes on his lap looking to accomplish one thing: get his product on television. More than 20 years later, basketball and the NBA have finally started to take hold.

There are many reasons for the NBA’s success in China – it wasn’t just Yao Ming – but perhaps the most important is the combination of effort and money over the period of the last 20+ years. If you look at the current foreign sports landscape in China, the most successful organizations are all those that have spent a good chunk of time in the country. I do not think this is coincidence.

This third challenge is one borne of patience. Is the UFC willing to make the necessary investments — concessions on rights fees to get on TV, localized manpower to cultivate government relationships, and enduring rather high opportunity costs to put on live events — in a market that isn’t likely to provide a solid return for at least another five years?

4. Others

The above three considerations are probably the biggest challenges facing the UFC in China, but it will also have to contend with a variety of other issues to establish itself in the country:

  • Navigating the sometimes very different distribution infrastructure within the country
  • Protecting its intellectual property
  • Implementing or supporting a national development program

Check back next week where I’ll expand a little further on China by taking a look at what I see to be the UFC’s roadmap for success in the country.

13 Responses to “The UFC’s Challenges in China”

  1. Tweets that mention The UFC’s Challenges in China : MMAPayout.com: The Business of MMA -- Topsy.com on October 12th, 2010 7:24 AM

    […] This post was mentioned on Twitter by Michele Whitney, Johnny Garland. Johnny Garland said: The UFC’s Challenges in China: I recently traveled to China with my fellow MBA students at the Warsaw Sports Marke… http://bit.ly/ajrFYn […]

  2. jv on October 12th, 2010 1:57 PM

    I keep wondering if the analysts are getting it wrong. Are the UFC really after the consumers or are they really more interested in the fighters? Sure every one would like a fat slice of 1 billion people. But the truth is that the vast majority of them couldn’t afford to watch it if it was free. The average wage in China is some thing like $2000USD a year, they work very long hours with little time to lolly gag and even when the Chinese have money they are frugal.

    But a country like that could provide an endless supply of fighters for dirt cheap. The last SRC show proved that there are some very good fighters in China. You wouldn’t have to wave much money around to get LOTS of people training seriously and you wouldn’t have to pay them a fat slice like you do Americans. That would help drive down the pay of western fighters.

  3. @RobertTheGenius on October 12th, 2010 2:47 PM

    This was a great article. You guys serve a nice niche here, one of my favorite sites.

  4. lope on October 13th, 2010 12:07 AM

    Im from ASIA

    This is a good article…ive written my comments on china a couple of months back.Dana White always tries to hype everybody so that everybody would jump on the UFC bandwagon…but thats not easy to do.

    China and asia in general is very conservative and nationalistic— SO They cheer sports in which theyre countrymen would be victorious against the best in the world…now who provides that kind of sport competition? OLYMPICS….and is MMA an olympic sport? no…..its a sport owned by 2 casino owners and managed by a marketing whiz….so they wont have the necessary bragging rights if they compete and win in the UFC….

    the sport of boxing though managed and ruled over corupt promoters and judges world wide…still get more respect from consevative countries because there is the amateur ranks…where people from different countries fight for the gold medal..and people follow these athletes up to when the win the GOLD medal and once they do—they are instant superstars and celbrities….if boxing promoters go to china and manage to get chinese gold medalists boxers to turn pro then its guaranteed HIT because he won the gold FOR THE COUNTRY in the amateurs

  5. shawn on October 13th, 2010 5:32 AM

    A dude from asia tell that to dana white about a gold medalist winner o wait there lots of asian judo and jujitsu gold medalist y aren’t they instant hits they might have been in japans pride fc but look all those guys come to ufc and get destroyd u wanna see the best fighters not cuase some dude won a gold medal shit mayweather jr is 1 of the best boxers he didn’t win gold he got silver medal lmao

  6. shawn on October 13th, 2010 5:36 AM

    A dude from asia tell that to dana white about a gold medalist winner he might pay u for some insight to asia remember there lots of asians in judo and ju jitsu that have won gold medals I mean is floyd mayweather jr big over there he won silver and right now he is the best u might pacman is better but pacs trainer admitted that they aint ready for floyd yet I know pacman is big there

  7. crazy on October 14th, 2010 7:34 AM

    shawn got it all wrong…the dude from asia is saying that people from different parts of the world like asia dont think like americans when it comes to sports… to them they follow athletes who compete in the olympics and represent theyre respective countries…plain and simple….no other reason…
    there is no connection to shawn’s logic that olympic athletes would beat mma fighters in theyre own sport…its the same thing an mma fighter wont beat an amateur boxing in amateur boxing for an mma fighter beating an olympic runner in running…
    i agree with lope..MMA should fist be in the olympics to get worldwide mainstream support as a SPORT..

  8. Kelsey Philpott on October 14th, 2010 1:17 PM

    There’s a joke among sports professionals in China that hits at Iope’s point:

    If you were to stick two turtles on the floor, draw a line on the other side of the room, and then slap a flag on one of the turtles…the entire nation would tune in to watch them race.

    They’re extremely nationalistic when it comes to sports, because they view it as a representation of their country to the world. So any competition on the national stage or with the world’s best athletes is going to draw a lot of attention.

    That’s why I talked about the opportunity cost for the UFC. It’s only got so many top fighters and the Chinese market will demand the best for a live event. Otherwise no one will care.

    …of course it also helps if you’ve got a few Chinese competing in there as well.

  9. mmaguru on October 17th, 2010 8:51 AM

    Nice piece Kelsey,
    It most have been quite an experience going to China as part of your MBA program.

  10. Larsenator on October 26th, 2010 1:59 PM

    The Muaythai vs. Sanda shows are getting increasingly popular these days and the Art of War MMA promotion has also been going for several years: They’ve added a quite unique theme to the Art of War promotion calling it freestyle Kung Fu and mentioning Sun Tzu (writer of the book “Art of War”) – click here to read about AOW: http://www.artofwarfc.cn/?q=node/31.

    I think Kelsey is on to something: If you put the Chinese MMA fighters up against top level, international opponent AND the Chinese are able to watch they will.

    Great piece Kelsey, thanks. :)

  11. cagelines on November 1st, 2010 8:54 PM

    In order to grow the sport, I agree that the UFC really needs some local talent that can compete. I live in Taiwan, which is culturally similar to China (China says it is part of China).

    The NBA is becoming popular over here because Jeremy Lin is in the league. He is undrafted and hardly gets any time for Golden State. He wasn’t even born in Taiwan! The people here are very excited to have an American of Taiwanese descent playing.

    Women’s tennis was big here last year when a Taiwanese duo was doing well internationally.

    Chien-Ming Wang (MLB) is more popular than the president of Taiwan.

    I also think intellectual property rights will be a huge stumbling block. The UFC takes a very hardline approach when it comes to making sure their product is paid for, and the intellectual property rights are not taken very seriously in China, especially in the interests of a foreign owned company.

  12. Danny on November 8th, 2010 7:21 AM

    In Vietnam I saw UFC “1 through 80″ for sale for about 13 American dollars. Vietnam is copying China’s model and pirating everything they can. UFC’s video library will become worth a lot less once the sport integrates in Chinese society.

  13. Kelsey Philpott on November 8th, 2010 12:55 PM

    Danny,

    That’s interesting. I’ve always maintained that MMA will know it’s relevant when we see Tapout knockoffs in the infamous Chinese markets scattered throughout the major cities.

    I question whether or not the 1-80 collection would even work, but either way I’m not sure it’s a huge deal. Piracy is an issue, yes, but I think the UFC is willing to put up with piracy if it aids the adoption of MMA in China or Asia in general.

    Kelsey

Got something to say?