Exploring Why SVSE Walked Away from Strikeforce & MMA
March 24, 2011
Last week’s shocking Strikeforce sale is still resonating through the MMA landscape as it left fans and media with many unanswered questions. MMAPayout will explore why Strikeforce was sold, SVSE’s future plans, and why they decided to walk away from MMA.
In an interview with HDNet’s Bas Rutten, Scott Coker revealed that Silicon Valley Sports & Entertainment (main financial partner behind Strikeforce) wanted to bring another sports franchise to San Jose, ultimately deciding that in order to do so, they wanted out of the MMA business to focus on that as well as continue to build their San Jose Sharks NHL franchise.
Frank Shamrock told MMA Fighting’s Ariel Helwani the following regarding the relationship between SVSE and Strikeforce:
“I can’t say I saw it coming but I know the demands of Strikeforce were high and I knew the financial partners were strained and weren’t interested in the big risks,” Shamrock said. “I knew change was coming, I didn’t know we were going to change that much.”
According to Shamrock, Coker spent a lot of money to compete in the marketplace. For SVSE, Strikeforce became too much of a risk.
“They got tired of writing big checks and not seeing the big return,” he said. “For them [the older established sports model is] the kind of business they wanted to be in. They didn’t want to be in the visionary, high-risk startup kind of MMA business.”
In regards to the sports franchise that SVSE is looking at to bring into San Jose, it has been speculated since the end of 2009 that they have diligently pursued an NBA team to occupy the NBA-ready HP Pavilion. Former SVSE/San Jose Sharks CEO Greg Jamison, who stepped down from his position in October of last year, was said to be looking at the Sacramento Kings NBA franchise and was in talks with their owners, the Maloof brothers, for a good portion of 2010.
Greg Jamison, chief executive of Silicon Valley Sports & Entertainment, which manages the Pavilion and owns the San Jose Sharks hockey team, said his company has talked to “a number of teams” over the last year about relocating to San Jose.
A source familiar with the situation said Jamison in recent months has met with the owners of the Sacramento Kings, who are looking for an alternative to aging Arco Arena.
Though it’s far from certain that the Kings will ever play a game in San Jose, things have apparently moved far enough ahead that the San Jose City Council as early as month’s end will vote on a “memorandum of understanding” that would guide negotiations with any National Basketball Association team.
Back in September of last year, MMAPayout reported on rumors of a Strikeforce sale tied to Greg Jamison’s decision to step down as CEO of SVSE. Nearly three months later, Strikeforce was searching for financial partners to keep the MMA promotion going. It was a clear sign at the time that SVSE was changing their strategy and vision for the future, and they couldn’t sustain high-risk ventures that were not profitable (though both had potential to become profitable investments in the near future) in the San Jose Sharks and Strikeforce.
Jamison, who has worked in the NBA’s Dallas Mavericks and Indiana Pacers in the past, has vast experience dealing with the NBA and was the front man in the negotiations with NBA franchises. Although he has stepped down from his position as CEO from SVSE, it is said that Jamison still serves as a San Jose Sharks representative for the NHL and is still a minority owner of the team. Under his ownership, the San Jose Sharks have been widely regarded as one of the best managed teams in the NHL according to Forbes magazine back in 2009. In the NHL, the team earned a league-wide reputation for quality and thoroughness from the bottom up. Without the television dollars and revenue sharing other leagues enjoy, the Sharks and SVSE helped turn HP Pavilion into a top 5 event destination and made some key investments in local ice hockey rinks, the Strikeforce MMA promotion, tennis tournaments, and driving successful merchandising and publishing arms.
Although the news is all positive regarding management, Forbes also noted that they weren’t profiting (something very common in the NHL), and were hoping to be doing so by 2012. They also point out that the San Jose Sharks brings them $84 million out of the $155 million total revenue accounted for back in 2009 (compared to the $30 million revenue that Strikeforce brings).
Of SVSE’s revenue of $155 million, NHL hockey brings in $84 million. The rest comes from things like a chain of ice rinks, three professional tennis tournaments, a mixed martial arts circuit and an apparel company. Last year the team’s hockey operations lost $5 million, but the profits from the other businesses cut that loss to an estimated $2 million. Gregory Jamison, a Sharks co-owner who’s in charge of day-to-day operations, sees the combined businesses turning a profit in two to three years.
In May 2008 SVSE acquired a 50% position in cage-fighting outfit Strikeforce. Since then revenue for the fighting operation has shot up tenfold to an estimated $30 million. Thanks to the credibility and broadcast experience of the Sharks’ owners, Strikeforce’s fights will now move from a 2 a.m. time slot on NBC to prime time on CBS and Showtime. The TV deal, signed in February, would not have happened without the Sharks on board, says Strikeforce founder Scott Coker.
Going after another major league franchise and bringing it to San Jose would easily bring in over $100 million in revenue to SVSE and to the city of San Jose in addition to the $84 million the Sharks bring in, although luring an NBA team has not been an easy task, failing to do so over the past couple of years. Dropping unproven high-risk investments in order to focus on acquiring an NBA team and growing the San Jose Sharks makes the most business sense for SVSE and for the city of San Jose, as Strikeforce attendance numbers were dropping since they started to host events back in 2006, when they drew an amazing 18,265 fans for their debut event in the HP Pavilion.
Along with the Sacramento Kings (who are now rumored to be moving to Anaheim instead of San Jose), there have also been talks with the New Orleans Hornets, with the help of one of the richest men in the world – Larry Ellison, who is the co-founder and CEO of the Oracle Corporation (net worth is around $40 billion dollars). According to the Mercury News:
The NBA/San Jose advantages: Ellison’s billions, the handful of teams in financial distress, and the existence of HP Pavilion, which is NBA-ready.
In January, Ellison, one of the richest men in the world, confirmed that he bid on the New Orleans Hornets, but the league chose to take the team over at that time and said it was seeking local ownership.
But it’s probably safe to assume the NBA will wait until after this summer’s labor negotiations, then put the Hornets back up for sale…
Of course, any Ellison/San Jose effort would involve Silicon Valley Sports & Entertainment, the company that runs the Sharks and the arena and has sought an NBA co-tenant for years.
Although luring an NBA franchise is a huge task to take on, there are plenty of other barriers that would have to be settled before an NBA team could move to San Jose. One being that the Golden State Warriors, who reside in Oakland (40 miles away from San Jose), have a 75-mile NBA “marketing rights” zone, but could potentially be waived if the NBA Board of Governors chooses to do so. Other concerns include TV deals and splitting the fanbase in the area with two NBA franchises. Although there are obstacles, there is no doubt that SVSE made up their mind on what their next move was going to be. MMA and Strikeforce were not in the plans any longer and choosing a more proven and lucrative venture is most likely the right call, but it also raises red flags to any potential MMA investor with deep pockets hoping to jump into a market which is now heavily dominated by the UFC. High-risk, high-reward will continue to be the saying in MMA for years to come.