14 for 14: No. 1 the UFC antitrust lawsuit

January 1, 2015

In a lawsuit that may change the structure of the UFC and the MMA business as a whole, fighters have sued Zuffa for alleged violations of section 2 of the Sherman Antitrust Act.  The fighters intend to seek class action status as 5 law firms have joined together to represent the plaintiffs.

The UFC recently retained Boise Schiller & Flexner to defend itself in the lawsuit.

Attorneys for the UFC have yet to file responsive briefing in the three lawsuits filed by 7 fighters (so far) that claim that the UFC was both a monopoly and monopsony in violation of antitrust laws as it suppressed fighter pay as well as other incentives that the fighters believe that they could have received but for the UFC’s business practices.

The dollar amount of what the plaintiffs are seeking has not been identified and will not be until economists  and other experts opine about the issue.  But, under the antitrust laws, the plaintiffs may seek three times the actual amount of damages proven.

Payout Perspective:

Unless the UFC can get the lawsuit dismissed or the parties somehow decide to settle, we probably will see this go through 2015 with no resolution.  Recall, the Zuffa lawsuit filed against New York in 2011 is still pending a summary judgment motion with no trial date set. This lawsuit will be one to watch and if it gets to the discovery phase, we could see some damaging documents (i.e, Zuffa emails, financial information, etc.) which could turn out to be a public relations disaster.  On the other end, look for Zuffa lawyers to paint the plaintiffs as malcontents looking to make a “quick buck” because they were never good enough to make it in the UFC.

But even before we get to the juicy stuff, there may be some procedural hurdles that the plaintiffs may need to go through.  2015 will certainly be a year to brush up on the terms monopoly and monopsony.

14 for 14:

2.  UFC-Reebok announce uniform deal

3.  Bellator 131/Bellator on PPV

4.  Zuffa downgraded by Standard & Poor’s

5.  CM Punk signs with the UFC

6.  Rebney replaced by Coker

7.  UFC Fight Pass a success in first year?

8.  TRT banned by NAC, UFC

9.  UFC PPVs down

10.  WSOF airs on NBC

11.  UFC continues global expansion

12.  Rousey wins CSAC arbitration against Fight Tribe

13.  Cung Le drug suspension overturned

14.  Gil re-signs with the UFC

14 for 14: No. 2 UFC-Reebok announce uniform deal

December 31, 2014

There was much speculation as to when the UFC would broker a uniform deal.  The long-awaited deal will begin during International Fight Week in July 2015 according to the joint announcement on December 2nd.

Details of the deal are outlined here.

ufc and reebokThe deal is estimated at 6 years for $70 million and offers a unique distribution deal which the UFC touts will give back to its fighters based on UFC rankings.  However, with the announcement of the UFC-Reebok deal, it also means that all other fight sponsors would be eliminated from the Octagon.  There will no longer be fight banners or any other sponsor patches on shorts or t-shirts.  Fighters may not wear other sponsors during UFC related promotions leading up to an event.  This information led to many concerned fighters.  Brendan Schaub indicated that he lost 6 sponsors in light of the Reebok deal.  The Heavyweight stated that he made twice as much from sponsors as his fight purse from the UFC.  It also means the end of many sponsors we are familiar seeing such as Dynamic Fastener.

On the other end of the spectrum, Jon Jones and Ronda Rousey signed individual sponsorship deals with the brand.  The two join Johny Hendricks and Anthony Pettis as those fighters with sponsor deals with the company.

The UFC indicated it reached out to fighters about the deal prior to its announcement although a list of those fighters has not been disclosed to the public.

Payout Perspective:

It will be interesting to see how the deal will play out.  While many knew of the impending uniform deal, they did not know that fighters would be paid based on their UFC ranking.  The rankings are based on media vote which adds a layer of uncertainty to the whole situation.  One might surmise that any controversy about fighters getting paid from this deal will be immediately deflected to those media members that choose the rankings.  Then again, the entity that chooses the media members that votes on the rankings…the UFC.  Moreover, at this point, it does not seem like any of the fighters know how they will be compensated or what to expect based upon fighter rank.  Also, if you are an unranked fighter, will you be making more or less with the Reebok deal?  It will be interesting to see how this deal will play in the current antitrust lawsuit filed by fighters against Zuffa.

14 for 14:

3.  Bellator 131/Bellator on PPV

4.  Zuffa downgraded by Standard & Poor’s

5.  CM Punk signs with the UFC

6.  Rebney replaced by Coker

7.  UFC Fight Pass a success in first year?

8.  TRT banned by NAC, UFC

9.  UFC PPVs down

10.  WSOF airs on NBC

11.  UFC continues global expansion

12.  Rousey wins CSAC arbitration against Fight Tribe

13.  Cung Le drug suspension overturned

14.  Gil re-signs with the UFC

14 for 14: No. 3 (tie) Bellator 131 scores ratings, Bellator hits PPV

December 31, 2014

A pair of Bellator events make it to the top 3.  First, Bellator 131 has its best ratings.

Bellator 131 on SpikeTV

November 15, 2014 was the biggest event in Bellator history to date.  As we know, Bellator 131 took place in San Diego, California with Tito Ortiz taking on Stephan Bonnar in the main event.  The main card took place on Spike TV and scored the largest rating ever for the organization.

Ortiz-Bonnar drew an average of 1.8 million viewers on SpikeTV with a peak of over 2 million which made it the most-watched and highest-rated MMA fight on cable in 2014.  The overall telecast of 3 hours and 16 minutes drew a rating of 1.24 million viewers.  Each of the fights on the Spike TV card drew over 1 million viewers and it was the clear winner of the night compared to the UFC 180 Prelims and WSOF card which portions of those shows aired at the same time as Bellator 131.

The great ratings for the event were based on strong promotion of the card which included shoulder programming on SpikeTV and, of course, Tito Ortiz and Stephan Bonnar.  While their “bad blood” stemmed from a pro-wrestling-like skit, the build was promoted well by Bellator.  Although the actual fight was not a classic, Bellator got what it wanted, an audience willing to tune in.

Payout Perspective:

Bellator 131 was a reflection of the Scott Coker-era and his new strategy.  Based on the ratings, it seemed to work.  On a night opposite a UFC PPV, Bellator seemingly won the night.  We will see if its strategy of placing quarterly tent pole events will continue to work.

Bellator finally on PPV

In May, Bellator decided to test the waters of PPV.  After its initial plans were set aside due to an injury by headliner Tito Ortiz, it went ahead with another try in May.

Unfortunately, its co-main event fell through as Eddie Alvarez had to pull out due to an injury.  In his place to face Michael Chandler was Will Brooks.  With a Rampage Jackson-Mo Lawal headliner the question was whether the card was strong enough to remain on PPV.

The PPV’s price point was between $35 and $45 which some believed was overpriced for the talent the event was offering.

It turns out, the PPV was a small success as multiple reports had the PPV at 100,000 buys.  The number was confirmed by Spike TV’s president Kevin Kay.

Payout Perspective:

Although the PPV was a success, it appears that Bellator will step back from any further attempts at PPV for now.  If the 100K PPV buy rate is correct, it’s a testament to the promotion and shoulder programming by Spike which supported the event.  It also played up the rivalry between Jackson and Lawal.  Once again, known talent (Jackson) and a hot rivalry helped bring in the PPV buys.  We’ll see if Coker’s strategy will include another Bellator PPV down the line.

14 for 14: No. 4 Zuffa downgraded by Standard and Poor’s

December 31, 2014

This fall Standard & Poor’s downgraded Zuffa’s credit rating and then its business outlook over a month later.

The downgrade in credit rating from “BB” to “BB–” was due to “greater EBITDA volatility.”

S&P issues credit ratings for the debt of public and private companies and is one of several credit agencies that is designated as a nationally recognized statistical rating organization by the Securities and Exchange Commission.

From our write-up in October:

In its overview, S&P concluded that Zuffa “will experience a 30% decline in EBITDA (Earnings Before Income Tax, Depreciation and Amortization) in 2014 and greater EBITDA volatility over time than we previously had anticipated.”  Despite the gloomy outlook, it stated that Zuffa’s outlook is stable and 2015 will be a recovery year for the company.  This is based on the belief that injured fighters return and PPV buys and ticket prices increase.

The report identifies Zuffa having $535 million in credit with $60 million in “senior secured revolving credit facility due 2018 and a $475 million senior secured term loan due 2020.”

Zuffa’s credit rating had maintained a “BB rating” since December 2010.  It was previously downgraded in November 2007 from BB to BB-.

Just over a month later, S&P revised its outlook on Zuffa from “stable” to “negative” with the forecast that Zuffa’s earnings would decline “approximately 40%”

Via S&P press release:

“The negative outlook revision reflects our updated forecast for 2014 EBITDA to decline approximately 40% (compared to a decline of 30% previously), primarily due to a change to a marquee fight card in the fourth quarter of 2014 as a result of another fighter injury causing anticipated pay per view (PPV)  buys and event ticket prices to decline further, as well as higher remarketing expenses for the event, and additional costs related to the company’s international expansion,” said Standard & Poor’s credit analyst Stephen Pagano.

Payout Perspective:

When we see the UFC using the hashtag #thetimeisnow, you can almost interpret it for the UFC business as well as the impending fights happening in the first quarter of 2015.  Since S&P’ handed down the news to Zuffa, we’ve seen an increase in business activity.  It has forged a deal with Reebok making it the exclusive clothier of the UFC, the signings of CM Punk and Rampage Jackson and the potential sponsor signing of Monster Energy Drink.  Add these business happenings with three big PPVs to start off the first quarter and the hope is that business is picking up.  If this were to happen, Zuffa may stave off another bad review by S&P in the first quarter of 2015.

14 for 14: No. 5 CM Punk signs with the UFC

December 30, 2014

It’s rare that a hyped-up announcement lives up to expectations.  But, the signing of Phil Brooks (aka CM Punk) did when he came on during the UFC 181 PPV to announce his intent to fight in the UFC.

Punk’s announcement left many UFC fans wondering about the direction of the UFC.  Some like the signing seeing it as good business as Punk is a “needle mover.”  Others, like Nate Diaz and Jon Jones questioned the signing.  For those fighters that had to fight and scrape their way to make it to the UFC, seeing Punk, a 36 year old without any MMA fights under his belt, entering the UFC was a joke.

Jones provided sound reasoning for his anti-Punk sentiment (via MMA Fighting):

“Every day I’m [Jones] at the gym watching these kids training. These guys have no money and they’re training their tails off, giving up everything to be a fighter.  Living in the gym, eating turkey and peanut butter, bare minimum to chase this dream and then a superstar like him just gets to jump into the UFC just because he knows the right people and has a name.”

Punk stated at the initial interview that he had not decided on a place to train and what weight division he would compete in.

The signing came shortly after Punk was on the Colt Cabana Podcast detailing health issues including admitting to 12 or 13 concussions.  One would think that this concern will come into play if a commission will have to sanction Punk’s first fight.

Payout Perspective:

Can Punk draw ratings and PPV buys for the UFC?  The day after UFC 181, the name CM Punk drew over 100,000 in U.S. google searches.  A Fox Sports Live which featured a CM Punk interview drew more than the usual amount of viewers.  One might conclude that there is a definite interest, or should we say curiosity, about whether Punk can actually fight.  Sure, he is great in the gym and trains with a lot of MMA fighters, but there are a lot of basketball players that are great in the gym but horrible in actual games.  Will Punk be able to translate his athletic ability in the Octagon?  Although Brock Lesnar was able to make the switch to MMA, he was a decorated college wrestler.  He also had at least one pro fight before entering the UFC.  Thus, the Punk signing is a gamble.  Moreover, the Punk signing reflects a move by the UFC to focus on the spectacle aspect of its business.

14 for 14: No. 6 Rebney replaced by Coker

December 29, 2014

Bjorn Rebney was relieved of his duties as the head of Bellator in June of this year. He was replaced by former Strikeforce head Scott Coker.

In addition, Bellator president and COO Tim Danaher was let go by Viacom.  According to MMA Fighting, the replacement of Rebney was dependent on waiting out Coker’s Zuffa’s non-compete clause.

Rebney indicated that he had differed “on views of the right strategic direction.”

A week or so before the change Rebney announced a change to its title fights which allowed for former tournament winners to challenge for a title.  They would no longer have to enter a tournament again to regain a chance for a title fight.

Looking back, one might infer a difference of opinion with the Bellator tournament structure.  In fact, this was one of the changes made by Coker upon him taking power.

Coker produced the biggest event in Bellator history in November with Bellator 131 with the main event of Tito Ortiz and Stephan Bonnar.  The change in promotion philosophy looks to have the company turning the corner as it competes with the UFC in the MMA landscape.

Payout Perspective:

The move from Rebney to Coker looks to have worked out in the short term.  He’s focused on the “less is more” strategy with the goal of producing 16 shows next year while focusing on quarterly “big events” which would include title fights along with headline names.  Per MMA Fighting, Coker plans on concentrating on promoting the company’s monthly shows on Spike TV along with focusing on a three month marketing campaign for its “big events” which will air on Saturday nights.  With word that it will actively try to sign more free agents including Brock Lesnar after his WWE contract expires, one might assume that Viacom is willing to expand its budget for Bellator.

14 for 14: No. 7 UFC Fight Pass a success in first year?

December 28, 2014

In its first full year of UFC Fight Pass, the company’s over the top digital network, it can be seen as an overall success despite some initial flaws, ongoing administrative issues and a more serious security breach.

It recently came under attack by a group known as “Anonymous” which has posted a link on its twitter account containing login credentials and credit card information of subscribers.  It appears that the attack may be associated with a Christmas Day attack on Xbox Live, PlayStation Network and Amazon.  In addition to the security breach, it has had issues with respect to charging customers that were trying out Fight Pass during their free trial period.  For the most part, it has been responsive in rectifying charging errors.  Yet, it still charged customers and if you didn’t check your credit card statement, you might have been charged without knowing.  There were also issues with functionality of the interface which have been addressed.  In my opinion, while both UFC Fight Pass and the WWE Network are viewer friendly, Fight Pass is superior.

The digital network launched on December 28, 2013 with a two month free trial before it began charging $9.99 per month.  The company held multiple Fight Night events (starting last January) on Fight Pass in addition to prelim fights for other televised events and/or PPVs.  It also carries InvictaFC live events.  It has also added original content throughout the year as well as showing Nevada Athletic Commission hearings.  The hearings were an interesting add as many tuned in to watch the monthly proceedings including the Cormier-Jones post-media fight hearings, and the hearings of Chael Sonnen and Wanderlei Silva

The original price point for the service was $9.99 per month although it has offered the service at lower price points including $8.99 per month and $6.99 per month.  The lower price points were usually associated with a year’s subscription.

According to Yahoo! Sports Kevin Iole, the UFC “generates $1 million in gross revenue per month for every 100,000 subscribers.”  The UFC has not indicated how many subscribers there are and the “churn” of its subscribers.  It also has not disclosed how much it spends to run the Fight Pass.  It is available in 178 countries and expanded internationally far faster than the WWE Network.

This past October, Iole reported that Conor McGregor and Jon Jones were the most searched fighters on Fight Pass. Also, the most-watched UFC fight on Fight Pass through October 2014 was Jon Jones-Alexander Gustafsson at UFC 165 in September 2013.

Payout Perspective:

Despite the initial apprehension of subscribing to the network, the amount of fans gravitating to Fight Pass has been very good.  One of the reasons for its popularity may be its expansion overseas and the fight libraries it has on the network.  We will see what the UFC will do to keep the digital network fresh to retain and increase its number of subscribers. Fight Pass has to be one of the biggest assets for the company going into 2015.

14 for 14: No. 8 TRT banned by NAC, UFC and others

December 28, 2014

In February 2014, an investigative report by ESPN on testosterone replacement therapy (TRT) in MMA revealed the practice of fighters utilizing a diagnosis of low testosterone for the usage of synthetic testosterone.

Not surprising, Dana White called out the ESPN report as an embellishment.  He noted that 5 fighters had TRT exemptions out of the “500 guys under contract.”  Still, the UFC issued a ban on the use as well.

It started with the Nevada Athletic Commission in February when it unanimously voted to ban TRT in MMA.  The UFC also decreed a ban.  In addition, other states including California and also Brazil followed suit with a ban on therapeutic use exemptions (TUE) for testosterone replacement therapy (TRT).

If Dan Henderson’s performance against Daniel Cormier at UFC 173 is an indication as to what happens after a fighter (Henderson benefited from the TRT exemption) comes off of TRT, the ban may have an effect on future fights and fighters.

Notably, Vitor Belfort, the next challenger to Chris Weidman’s light heavyweight title benefited from TRT.  ESPN highlighted Belfort in its February expose on the practice.  Belfort withdrew from his title fight against Weidman earlier in the year due to the Nevada ban on TRT.  Belfort chose not to apply for a license for the fight and Lyoto Machida stepped in.

Belfort was awarded a license by Nevada in July provided he would concede to random blood and urine testing.  However, Belfort was only tested once since July to the consternation of Chris Weidman.  His fight against Chris Weidman was moved to California where the CSAC will take over testing of Belfort.

Payout Perspective:

The ban on TRT in MMA was a step in the right direction for the sport in 2014.  It offered legitimacy to the sport as the use of TRT was perceived as cheating by many.  And while the ban may not be fair for a fighter like Antonio “Bigfoot” Silva, it was likely the right move.

14 for 14: No. 9 UFC PPVs down

December 27, 2014

UFC PPV buy rates are down from 2013 as an increase in the number of events, injuries and lack of star power have contributed to find the company’s prime business in decline.  This year’s average is at a lowly 256,000.

Standard & Poor’s downgraded Zuffa’s credit rating and its financial outlook this past fall citing in part the PPV business decline as a reason.  Dana White acknowledged the decline of PPV business in 2014 at the NeuLion Sports Media Technology Conference in November.  While the PPV model is a big part of the UFC business model, White stressed in November that the UFC was “much more” than PPV.  The promoter that he is, White stated that when “big events happen, the pay-per-view numbers will come back.”

As all of the PPVs for 2014 have occurred, the biggest event this year was UFC 175 in July which drew 540,000 PPV buys.  There were 4 events in 2013 that exceeded 540,000 PPV buys.  The previous high was UFC 168 in December 2013 with 1,025,000 PPV buys.  Outside of UFC 175, no 2014 PPV drew over 400,000 PPV buys.  It also had to cancel UFC 176 in August due to injuries.  Although there is a lot of hope for UFC 182 in January, it’s unlikely that event would eclipse UFC 168’s number or even UFC 175.

UFC PPVs in 2014 (main event in parentheses)

UFC 169 (Barao vs. Faber II) 230,000

UFC 170 (Rousey vs. McMann) 340,000

UFC 171 (Hendricks vs. Lawler) 300,000

UFC 172 (Jones vs. Teixeira) 350,000

UFC 173 (Barao vs. Dillashaw) 215,000

UFC 174 (Johnson vs. Bagautinov) 115,000

UFC 175 (Weidman vs. Machida) 545,000

UFC 177 (Dillashaw vs. Soto) 125,000

UFC 178 (Johnson vs. Cariaso) 205,000

UFC 179 (Also vs. Mendes II) 160,000

UFC 180 (Werdum vs. Hunt) 185,000

UFC 181 (Hendricks vs. Lawler II) 380,000

UFC 2014 PPVs

UFC PPVs averaged 256,000 PPV buys which is off from 2013’s PPV buy rate average of 468,000.  2013 did see two appearances by UFC PPV bell cow Georges St. Pierre.  It also benefited from UFC 168 which featured the dual main event of Rousey-Tate and Silva-Weidman II.  2013 had one more PPV due to the cancelled one this year.

UFC 2013 PPVs

2014 did not do as well as 2012 (448K PPV avg over 13 events) or 2011 (413K PPV avg over 14 events).

Payout Perspective:

 One may argue what’s been the cause for the poor PPV buy rates this past year.  On the one hand, there is the amount of UFC events which allows the fight fan to pick and choose which PPV events to purchase.  On the other, there are the many injuries which cause fighters and fights to be re-shuffled.  Then, there’s the lack of star power (i.e. GSP).  There’s not an easy answer to the PPV issues unless the UFC decides to pull back on the number of PPV events (which does not look likely).   With three big PPV events in 2015, we will see if the PPV buy rates increase from 2014’s dismal average.

14 for 14: No. 10 WSOF airs on NBC

December 27, 2014

The World Series of Fighting debuted on NBC on Saturday afternoon July 5th in the first of two airings on network television in 2014.

The second airing on NBC occurs today, December 27th with a “Best of” show.

The debut show on NBC in July drew 781,000 average viewers for its Saturday afternoon card.  The card featured Jon Fitch defeating Dennis Hallman and Justin Gaethje defending his lightweight title against Nick Newell.

Notably, the biggest demo during the WSOF’s debut on NBC was males over 50 years of age which is not the norm when it comes to MMA.  One may assume that the demo is based on the time of day that the WSOF event aired.  The event occurred the same day as UFC 175.

In addition this year, WSOF added international broadcast deals thanks to IMG media.

Also this year, WSOF renewed its broadcast agreement with NBC.  The 4 year extension is not a “time-buy” or a rights fee deal. according to SBJ’s John Ourand  But, NBC will cover some of the costs of production.

WSOF also announced what it characterized as a “game changer” with a unique PPV revenue structure model which it plans to implement in the second half of 2015 with an anticipated PPV later next year.

Payout Perspective:

Can the WSOF garner a bigger audience by appearing on NBC?  The 781,000 viewers on NBC was the best television rating for the organization but did not do as well as boxing in a similar time slot on the network.  From what appears as a crowded television landscape for MMA, WSOF finds itself a second (or third) choice for MMA viewing on any given event by the company.  We note WSOF 15 airing on NBC Sports Network drew just 161,000 viewers on November 15th, the same night as UFC 180 and Bellator 131.  Its replay on NBCSN did better ratings-wise than the live broadcast.

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