MMA Investors Searching for Viable Competitor, Is It Worth the Risk?
March 16, 2011
This weekend’s Zuffa-Strikeforce purchase announcement shook up the MMA landscape in such a way, that many fans, fighters, and sponsors were left in limbo as to what the future will hold for the sport and business of MMA. The announcement also created a huge void for a number 2 promotion in the market, an opportunity which some MMA investors are already analyzing and moving some money around.
Why would investors be interested in MMA at this point after Strikeforce was just purchased by Zuffa? Well, lets take a look at the events that lead to Strikeforce’s sale to understand why.
Showtime, which was a part owner of ProElite, spent a good amount of resources and budget to build up and kick-off MMA on the network. They were fairly successful in making stars within the promotion, such as Kimbo Slice, Gina Carano, Robbie Lawler and Nick Diaz, though they spent way too much money and accumulated debt of around $55 million, which lead the company to to almost file for bankruptcy, but instead chose to sell off it’s assets to recuperate some of the losses for Showtime.
Strikeforce and CEO Scott Coker were in the kickboxing promotion business all the way up to 2006, when they promoted their first MMA event in California, which was hugely successful and still holds the U.S. paid attendance record for MMA. Before their first MMA event, they had a strong regional fanbase and following in San Jose. SVSE along with Scott Coker struck a deal and created a partnership which slowly built up the company to the point where they were well positioned enough that when the Showtime was looking for a new MMA promoter, they were able to strike a deal with Showtime and Pro Elite to acquire their assets. Sherdog had the details back in February 12, 2009.
Strikeforce parent company Explosion Entertainment LLC purchased selected assets of Pro Elite Inc. for $3 million, according to a United States Securities and Exchange Commission report released Wednesday.
As part of the multi-million dollar purchase announced last week, Strikeforce acquired valuable fighter contracts, media assets that include the ProElite fight library and inventories that include all EliteXC-related DVDs. Various promotional and marketing materials were also part of the deal.
The asset purchase also lead Strikeforce to signing a TV deal with Showtime/CBS, a deal which was estimated to pay Strikeforce $25 million dollars in license fees over the course of the three-year deal.
In October of 2009, the Stratus Media Group acquired a 95% stake in ProElite for $2 million after the companyalmost filed for bankruptcy earlier in the year. Although they sold most of their valuable assets to Strikeforce, they still maintained rights to the brand name ProElite (ProElite.com), Cage Rage, Spirit MC, and most importantly the EliteXC brand. The ProElite group, who put a bid for Strikeforce back in December of 2010, was composed of some original ProElite members such as Doug De Luca, William Kelly, Glenn Golenberg, along witch newly appointed Chairman of the board Paul Feller from the Stratus Media group. It was said they raised enough capital to place a bid for $40 million dollars, though it wasn’t enough and was eventually outbid by Zuffa.
The other bidder for Strikeforce was from a group headed by Shelly Finkel, who is Mike Tyson’s manager and has been one of the most powerful managers in boxing for the past 30-plus years. Finkel officially announced that he was leaving the sport of boxing back in June of 2010, citing politics of the sport as the reason he was driven away to where he got his start, music promotion under Empire Sports and Entertainment. Although Finkel left boxing, he continued to act as an advisor to heavyweight champions Wladimir Klitschko and Vitali Klitschko, with whom he has worked for several years. Empire Sports and Entertainment’s mission was said to become a leading media and entertainment company known for promoting the best events in concerts, music festivals, pay-per-view specials and sporting events around the world.
If we look back at some of those figures, it took an investment of $3 million dollars from SVSE and Explosion entertainment back in February of 2009 to cash out on March of 2011, span of 2 years, to be bought by Zuffa for above $40 million dollars. Being the #2 promotion or the “next competitor to the UFC” paid off for Strikeforce, and I think many other promotion are looking at their model to try and accomplish the same.
On Monday, just a couple of days after the Zuffa-Strikeforce purchase was announced, ProElite stock (one of the bidders for Strikeforce) opened at less than $0.01/share and closed at a 52 week high of $0.06 /share with a volume of just under 1 million. The average volume over the past 3 months had been around 14,000. On Tuesday (the following day March 15, 2011), ProElite stock closed at $0.19 /share and had a day high of $0.24 /share. What the numbers are saying is that investors and MMA fans have already started looking for a viable competitor for the UFC in the MMA market, and as Strikeforce proved in the span of 2 years, money can still be made in the market without being the #1 promotion as long as you have a platform for your product (Showtime) and a unique selling point you offer to fans.
If Zuffa ends up deciding that they do not want female MMA in the UFC, another promotion could build a solid stable of female fighters and scoop whatever talent is left out there not under the UFC umbrella (see Bellator) to start the process all over again. FX, Fuel TV, G4, FSN, and other networks have shown recent interest in MMA programming, and all it takes is the right deal to present itself to a promotion for a shot at the #2 spot. With that being said, the risk in the market has grown exponentially high this time around, as UFC has taken a dominant share of the market and has the majority of the top fighters in MMA.
Strikeforce is said to have roughly 140 fighters under contract in addition to UFC’s current 260 fighters, which is a whopping 400 fighters under the Zuffa banner at the moment. It is expected that a good portion of those fighters will be cut and out of the UFC by 2012, since Zuffa has said before that they feel comfortable with a roster of around 200-220 fighters. The UFC will also have to sign many foreign fighters as they keep reaching new international markets (trying to find the GSP of each country they visit), which only guarantees that many domestic fighters will be getting cut in the next 12 months. This bodes well for the promotions such as Bellator, MFC, Shark Fights, Titan FC, & Tachi Palace Fights in the States, BAMMA, Cage Wars, & Cage Warriors in the UK, and KSW in Poland to name a few. It also bodes well for a station like HDNet who has TV contracts with MFC, Shark Fights, and Titan FC. These promotions have shown a great deal of potential in the last couple of years and the talent pool quality of MMA fighters should be increasing in the next year. One of those could make the next step up or it could be an investment group, like the ones behind ProElite to assume the #2 spot in the market. It will definitely be a risk for any investor to jump into the current state of the market, but fans and investors seem eager to give it another go.