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.

10 Responses to “Exploring Why SVSE Walked Away from Strikeforce & MMA”

  1. jv on March 24th, 2011 6:01 PM

    Part of the problem here is that Strikeforce grew. SVS&E bought a company that was supposed to fill their arena and instead became a national MMA promotion. Before SF was bought I don’t think the investment scenario was any where near as dire as the story made it out to be. Oodles of shorts franchises lose money, that isn’t any thing unique to MMA and I bet the loss to investment numbers for SF aren’t any where near as bad as they are for the Sharks.

    For a sports franchise that was as young as they were the numbers for SF really aren’t bad especially considering the growth. With different owners that actually wanted to be national who knows where SF might have been in 2 or 3 years after a new TV deal?

    The part I am still trying to figure out is why Coker didn’t tell SHO earlier that they were for sale? Of all the entities that were likely to invest they would have seemed like the most likely.

  2. juan on March 24th, 2011 7:47 PM

    The arena management business is tough. Everybody wants events and sports that reliably fill the arena. So far the NBA and NHL are the only two that consistently do that. And each provides 41 home games each season, not counting any playoff games.

    But even 82 events a year still leaves hundreds more nights of empty seats. If you check out arenas they all feature mostly the same acts, sports, and events.

    For sports you have the NBA and NHL, and then college basketball, minor league hockey

    For events you got Ringling Bros Circus, WWE Raw and Smackdown, MonsterJam, Disney on Ice, top concerts. Cirque Du Soleil.

    All those empty nights are tempting for sports entrepreneurs. Arena football, indoor soccer, indoor lacrosse, bull riding, Arenacross, rodeo. My favorite crazy indoor sport is arena racing which tried to shrink down Nascar cars so they can race in an arena – hasn’t exactly taken the world by storm.

    The arena owners of America would love if some summer and fall indoor arena sports would take off. But so far no luck. Arena football has come the closest, I guess.

  3. Jose Mendoza on March 24th, 2011 9:34 PM

    jv:

    The situation wasn’t dire and Strikeforce was a growing and potentially profitable company, but the bigger they got, the more shows they had to do out of California and they were drawing less and less fans at the HP Pavilion. I think it’s just that it’s been SVSE’s dream to bring another pro franchise to San Jose, and this is their best shot at the moment when there are so many franchises on the brink of going under and needing a new city to lure them in. Staying in MMA, they would have had to compete with the UFC and keep investing in SF at risk.

    In terms of Showtime, there may have been a group trying to bid for them to keep in the fold but SVSE went with the best bid and offer. As Scott Coker put it, there were a lot of “paper” offers, Zuffa had the best cash offer.

    You are correct though and I wondered about it as well. Why didn’t Showtime protect their investment in MMA better?

  4. mmaguru on March 25th, 2011 5:23 AM

    I was always surprised that SVSE were part owner of Strikeforce. For them to part ways only makes sense. It’s also not that surprising that Zuffa were the buyers as they would be the only group capable of putting real money down for the deal to make it worth it for SVSE. Good article.

  5. Jose Mendoza on March 25th, 2011 10:11 AM

    Comment from my pal nottheface over at FightOpinion.com:
    http://www.fightopinion.com/2011/03/24/svse-strikeforce-sacramento-kings-nba/

    Most sports franchises don’t make that much in the way of profit. The real worth is the increase in value that owners see almost every year. Example: Wiilf bought the Minnesota Vikings in 2005 for $600 million and the franchise now estimated at around $800 million. This is what makes the UFC’s success so eye-popping, not only have they seen a dramatic increase in value, but all while paying out huge profits to the owners.

    Another interesting note brought up by MMAPayout – SVSE saw $85 million in revenue from the Sharks, with expenses running $89 million. They brought in $71(around $30 million of which was Strikeforce) from all their other ventures, with $68 million in expenses. With only $2 million in overall loses, it makes me think that if Strikeforce was losing money it wasn’t much.

  6. jv on March 25th, 2011 2:29 PM

    >”This is what makes the UFC’s success so eye-popping, not only have they seen a dramatic increase in value, but all while paying out huge profits to the owners.”

    That part isn’t surprising. They went out an borrowed $400M to pay the owners and it hasn’t been paid back. A trick learned from the Fertitas father I would guess.

    I would agree that the UFC’s growth has been pretty amazing.

    >”You are correct though and I wondered about it as well. Why didn’t Showtime protect their investment in MMA better?”

    Coker said he didn’t tell them until after the deal was done. The only way they could have protected them selves is having some thing in their contract with SF where they got some say in the case of a sale. The fact that Coker didn’t bring it up with them leaves me wondering how the relationship was between SF and SHO. Coker never airs his dirty laundry so it is hard to really say.

  7. Jose Mendoza on March 25th, 2011 4:41 PM

    jv:

    Remember all that talk about Showtime essentially running Strikeforce and basically owning them? Yeah, apparently that was a bit off :)

  8. D.A. on March 29th, 2011 8:15 AM

    Sadly, SVSE moved too late in attempting to get the Kings. They are going to go to Anaheim, not San Jose. Anaheim is going to have a press conference om today (3/29) and Sacramento has already send the Anaheim City Manager this letter.

    http://media.sacbee.com/smedia/2011/03/28/16/20110328151850799.source.prod_affiliate.4.pdf

  9. Jose Mendoza on March 29th, 2011 10:05 AM

    D.A.:

    San Jose is trying for the Hornets now, who should be up for auction this summer. Kings are long gone now, although having 3 teams in Southern Cali will be interesting.

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