Payout Analysis: The Strikeforce Death Knell?

October 12, 2011

Zuffa created a subsidiary called Forza LLC to control Strikeforce who was taken over from Silicon Valley Sports and Entertainment in March of this year. Since then, there’s been much debate as too whether Zuffa/Forza will continue to operate the promotion or just kill it off.

Strikeforces’ television contract with Showtime expires mid-February 2012 and both sides have been relatively quiet as to the future the promotions programming on the network. However, UFC President Dana White recently commented on the Strikeforce/Showtime situation at the UFC 135 pre-fight press conference:

“Who knows what’s going to happen? The way this thing works is, it depends on Showtime. The ball’s in their court. They need to decide whether they want to keep Strikeforce around or not”

Showtime has yet to comment on their plans moving forward. They do have an option to extend the deal through 2014, however, the ball that’s been left in their court doesn’t have much of a bounce left.

Over the past 5 months Strikeforce had their top draws cherry-picked by the UFC, an impressive list that includes former Strikeforce heavyweight champ Alistair Overeem, former welterweight champ Nick Diaz and Strikeforce light heavyweight champ Dan Henderson. It’s almost certain the Strikeforce lightweight champ Gilbert Melendez will join them. By hollowing out the promotions champions, Zuffa’s actions speak louder then words and Showtime should be getting the message now loud and clear.

So is there even a business case left for keeping Stikeforce around in 2012? Using the publicly available data we took a closer look at the performance of the two Strikeforce ownership groups, Silicon Valley, and Zuffa/Forza. We sampled data from the last 9 events under Silicon Valley ownership, between October 9 2010 to March 25 2011 that included 5 major tier 1 events and 4 smaller tier 2 Challengers events. We compared the average TV Ratings, Attendance, Gate and Payroll to the first 9 events under Zuffa ownership, between April 1 2011 and September 23 2011 that included 4 major tier 1 events and 5 tier 2 events.

Payout Perspective:

In the midst of losing their top talent, the rough estimation is that Strikeforce has seen TV ratings dip 5%, attendance drop 32%, live gate profits down 11% and an increase of 26% in fighters payroll since Zuffa took control in March 2011.

From Showtimes point of view, the ratings are stagnant and Zuffa is (or has) impeded the ability for Strikeforce to improve upon their ratings. Showtime is drawing approximately 2.5 times more viewers with boxing programming then with Strikeforce. M-1 Global, who also broadcasts MMA events on Showtime will air their next to last event on October 14th. With no word on a Showtime/M-1 contract renewal, perhaps Showtimes focus will shift solely back to boxing leaving the MMA programming by the wayside.

For Zuffa, they’re in a position where they have just signed a huge network television contract for the UFC with FOX, which includes distribution on the cable channels FX and Fuel TV. Plus, Spike TV appears set to continue broadcasting UFC content, counter-programming or not, throughout 2012. So for Zuffa’s primary brand there’s no shortages on the television front. There has been zero push for Strikeforce since the ownership change and none look to be in sight. The numbers aren’t terribly good and there is no momentum, I see little benefit for Zuffa to continue their support for Strikeforce. It’s plausible they would continue to broadcast Strikeforce on Showtime in an attempt to help limit potential competition but I think if Showtime is to continue with MMA programming, it won’t be under the Zuffa/Forza/Strikeforce banner.

15 Responses to “Payout Analysis: The Strikeforce Death Knell?”

  1. CAINtheBULL on October 12th, 2011 12:04 PM

    Zuffa is making Showtime a deal they have to deny. Showtime/Viacom is clearly playing hardball (payback) by not allowing Gil Melendez to come over to the UFC.

  2. Diego on October 12th, 2011 12:35 PM

    I love how Dana accuses Spike of not honoring the “spirit” of their deal, and then guts Strikeforce while saying that it will be up to Showtime whether or not they want to renew their deal.

    You’re right EK and Cain that actions speak louder than words. Zuffa is acting with Showtime like I used to with my past girlfriends. I was a complete prick until they broke up with me – which is what I wanted.

    For the record the death knell was when the deal to purchase SF was announced. It’s all over but the shouting.

  3. Machiel Van on October 12th, 2011 1:55 PM

    Diego, that comparison doesn’t work because Zuffa never made a deal with Showtime, they were merely obligated to honor an existing contract between their newly acquired asset (Strikeforce), which they purchased from SVSE and Coker. I’m certain that Zuffa would’ve cut the cord on Showtime when the purchase occurred, had they been legally able. It’s like voting for a bill you want to pass even though there is an undesirable initiative attached.

    You’re absolutely right about the death knell for Strikeforce being when it was purchased. It was completely obvious right from the beginning; it was amusing seeing MMA journalists and readers speculate about possible “uses” for the promotion under Zuffa, and that they only “might” shut it down. The goals were written on the wall from the beginning: acquire the nation’s second most visible MMA promotion (just couldn’t bring myself to write “competitor”), and acquire attractive fighter contracts. Strikeforce events have been losing money: instant, undeniable reason to get rid of it.

  4. BrainSmasher on October 12th, 2011 2:39 PM

    A few points i want to make.

    First amazing how the use of Peak numbers disappeared when Zuffa took over. Almost over night. It was a meaningless attention grabber and i said so from the star and i was the crazy one. Now we are back to average viewers. As it should be.

    Yes, Zuffa took all the bounce out of the Strikeforce Ball. But what option did they have? Coker signed a crap deal that is far below Zuffa standards for what they get with their brand and their talent. Why keep valuable talent in SF when you cant maximize that potential? So the Zuffa keeps Reem, Gilbert, Diaz, Hendo, etc in Strikeforce so Showtime can pick up the option to lock SF in for another year of a non lucrative deal?

    Showtime has made no commitment to MMA. The UFC isnt on Showtime because they wanted a cheap alternative they could control. They sign desperate promotions who couldnt prosper with their deal. Now Zuffa is supposed to take over a long line of poor Showtime deals and make Showtime more money while they get nothing? All while using talent to make nothing in SF that could make then a lot of money in the UFC. That isnt very smart business any way you look at it.

    Showtime needed to resign SF for a meaningful deal and they have refused to do so. The Zuffa wasnt going to give them a Golden Goose for peanuts. Now the Zuffa dont care if they pick up the option or not. Now Showtime will get what they are paying for.

    SF is now a WEC level promotion to match the WEC/Verses type deal they have.

    Lets not forget under the current deal SF made a lot of provisions Zuffa will not accept on a new deal and even SF was unhappy with them. Showtime has creative control. SF and the announcers and fans HATE Gus Johnson. He doesnt know what he is doing and Mauro and SF want him out but are powerless.

    Strikeforce was always a deadend as long as Showtime made no commitment to the sport. Before Zuffa took any fighter there were rumors of it happening. Showtime should have signed a nore deal with SF once Zuffa took over and worked out an agreement to keep SF and its roster intact. They didnt do that. They rode out a 1 sided contract as long as they could.

  5. BrainSmasher on October 12th, 2011 4:14 PM

    To go along with the above comments.

    It is believed the SF deal was 3 years for basically 23.75 million. It averages out to roughly 500K per event on Showtime. Im not exactly sure of production cost but it was costing the IFL close to 1 million to run a live event in production.

    Lets just say SF can break even or make a little on the challenger events. But on the main Showtime events they would easily lose over a million each.

    $25 million(23.75 after pro elite fee) over 48 events is not a commitment to the sport of MMA and not a profitable contract for a Fight promotion. That is a great deal for a Wild Bill’s Fight Night. But it is a deal that doesnt allow you to grow. SF wanted to build stars like Overeem, Diaz, Shields, Gilbert, etc. That contract doent allow you to have stars without running out of business.

    In short Showtime forced Strikeforce into being a dead end promotion. You now are getting ratings but those ratings will cause Showtime to pick up the option that causes you to lose money for another year. You get bad ratings they dont resign you at all.

    By comparision the UFC puts on less shows with UFC events that are ussually smaller by comparison to the big SF events. Yet Spike was paying $33 million per year for less events.

  6. Marty michaels on October 12th, 2011 7:48 PM

    Does showtime really care about a 5 per cent decrease in ratings? Their business is a subscription business…nobody actually pays for ratings in a pay tv model …There’s no advertisers except on the ground/ring….

    As for spike…let’s assume that 33 million number is right…it includes 2 seasons per year of TUF…two tuf fights…4 or so fight nights…monthly prelims, countdowns, various specials, new episodes of unleashed and what seems like unlimited use of the ufc library…and probably more things like ufc primetime I’m not even thinking of…if you think about all the volume and thus income spike got out of that deal it was probably an amazing deal for spike…the point being that there a no way to compare a subscription model to am advertiser supported model because the economics are entirely different.

  7. ABCD on October 13th, 2011 3:12 AM

    BrainSmasher should stop talking a bunch of crap

    Showtime pays 700 K for big cards and 300 K for challengers

    ADDITIONALLY they also pay for television prduction

  8. mmaguru on October 13th, 2011 6:24 AM

    BrainSmasher,

    Prior to the Zuffa purchase, Scott was on record as saying they lost money on a few events. Two of the events would likely have been the ones that showcased Fedor and one was likely the event that Dan was headlining. I believe Coker was running a pretty tight ship and knew how to keep costs reasonable, as evident by the payroll comparisons between Zuffa owned SF and Coker owned SF.

    More impressive is Silicon Valley Sports understanding of the economics of the sport and potential foresight to “get out of the business” before the recent downturn.

    As it stands now, only Zuffa is in the proper financial position to keep the sport going strong while buy rates and seat sales decline (excluding Toronto of course) and costs continue to rise.

  9. Diego on October 13th, 2011 7:05 AM

    MV,

    Zuffa didn’t make the deal with Showtime, but they did buy into it when they purchased SF. What get’s me is Dana’s insistence that it’s all up to Showtime, when Zuffa have been purposely railroading the deal by poaching all the top talent.

    Brain,

    I don’t agree that Showtime didn’t make a commitment to MMA. They were very committed and would still be committed if SF wasn’t Zuffa owned – or at least if Zuffa wasn’t poaching all the SF champions for the UFC. It’s unfortunate that it had to end this way for them because now they probably will pull their commitment – and that’s bad for the sport.

    The only network that had shown a bigger commitment to MMA than Showtime was Spike (before the Fox deal obviously). You keep criticizing Showtime, but I guarantee you that without the Showtime commitment allowing SF to become a national brand (and yes MV a competitor) Zuffa would not have purchased SF.

    I agree that it makes sense for Zuffa to do what they’re doing, but then stop pretending that the decision is all up to Showtime while Zuffa actively seek to poison the deal.

  10. Diego on October 13th, 2011 7:11 AM

    Brain,

    I love how now you refer to SF as a “Golden Goose” when before you always thought Coker should have shut down the promotion and left the business.

    And yes fans hate Gus, but Goldy and Rogan aren’t exactly embraced by the MMA community either. MMA is still looking for it’s Lampley.

  11. mmaguru on October 13th, 2011 7:51 AM

    Diego, after last week’s PPV, the only way to describe “Goldy” is atrocious.

  12. BrainSmasher on October 13th, 2011 3:40 PM

    Guru

    Coker did run it very well. But keep in mind things were about to change. He was fine while everyone was under non Showtime contracts. The fighters were making names for themselves. Now Fighters contracts were coming to an end and SF is still on a contract with Showtime that had them breaking even under old fighter pay. Coker lost Shields, Overeem wasnt even under contract to finish the GP, Diaz wanted more money. Cost was about to go up and SF was about to lose its talent. Zuffa are now paying those extra costs for all the fighters. That is why the payroll has went up. Not because Zuffa just started giving money away for free. Showtimes contract doesnt allow for SF to have very many stars and still break even.

    Diego

    Who cares that Showtime forced Zuffa to buy SF? How did that help MMA? So Showtime allowed Coker and a bunch of businessmen to get money from Zuffa the one company who give us consistent great MMA. Yes UFC got big name fighters but they would already have had them if not for “competition”. Like Guru said Coker calimed to have lost money on a couple while making a little on others. The cost of one event to another is not that much. So if they lost money on one then they couldnt have made much when they didnt lose money. Showtimes “commitment” you speak of was paying the price of fighters contract who were not fighting on TV. Who no one knew the names of. As the fighters grew the money wasnt there. Showtime never tried to restructure the deal to keep SF viable. NEVER. Showtime saw SF lose Shields and knew they would lose Overeem and they knew it was because SF wasnt making enough from Showtime to sign them and they did nothing.

    Diego II

    You might want to work on the reading comprehension. When someone is making you lots of money through subscriptions(i bought Showtime too) and you pay them next to nothing. Then SF was a Golden Goose for Showtime. Also i never said Coker should shut down and leave. I said i didnt agree with his decisions and he dont know what the hell he is doing. Which is why he sold out and now is propped up like the dead man on Weekend at Bernies. Because he has no authority and is just window dressing until SF folds. Coker can run a small MMA promotion but he cant grow one. As the SF monster grew he couldn’t keep the deals coming in to keep the monster fed. Coker didnt ask himself “What happens in 4 years if this is a success?” “How much will pay roll be in 4 years?” He signed a deal that made success impossible and when that time come was unable to supplement that cost through other medians.

    What was Silicon Valley Sports reasoning for selling to Zuffa? SF got to big for them.

  13. BrainSmasher on October 13th, 2011 3:53 PM

    Marty Michaels

    The number is right. Spike signed the UFC for 3 years 100 million. You are right at what Spike got. It was a great deal for both involved. Unleashed doesnt cost the UFC much of anything. It is past PPV fights that have no new production cost that the UFC already made millions off on PPV buys. Also the prelims dont count either i dont believe. Those came well into the deal and like Dana said he just wants to get those fights to the people. He just gives those for free when Spike has an opening to give them(or they have to use facebook, UFC.com, or Ion.

    But you see my point. The UFC gets 33 million for TUF and some UFNs. Those cost a lot to make but they also make a lot of money too. The library rights are almost always included. Showtime will own SF for a period of time too. But the UFC gets 33 milion and SF puts on shows that have a more expensive payroll at times and have to run many times more live events, 16 per year. And get paid much less, 8 million.

    BTW, im not comparing ad base programs to subscription based. Im comparing two fight promotions. Strike Force couldnt not compete for survive on the peanuts Showtime was paying them. It is very fare to compare those. SF cost for thise live events rivaled the cost of the UFC. But the UFC was getting payed well for it. I doubt even with the UFC deal with Spike if they could afford to give Overeem and Fedor away for free. But Showtime expected SF to do it and many more event for 1/4 of what the UFC couldnt do it for. I dont call that a commitment from Showtime. I sorry.

  14. The Fight Nerd | Friday Link Party – October 14, 2011 on October 14th, 2011 10:32 AM

    […] MMA Payout Analysis: The Strikeforce Death Knell? Over the past 5 months Strikeforce had their top draws cherry-picked by the UFC, an impressive list that includes former Strikeforce heavyweight champ Alistair Overeem, former welterweight champ Nick Diaz and Strikeforce light heavyweight champ Dan Henderson. It’s almost certain the Strikeforce lightweight champ Gilbert Melendez will join them. By hollowing out the promotions champions, Zuffa’s actions speak louder then words and Showtime should be getting the message now loud and clear. […]

  15. Diego on October 17th, 2011 9:47 AM

    Brain,

    I’ll be sure to start working on my reading comprehension just as soon as you work on your spelling and grammar.

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