December 31, 2016
The UFC was sold for approximately $4.2 billion this summer changing the face of the largest, mixed martial arts company.
Despite internal and external denials, it was clear that Zuffa was set to sell the company. Perhaps we should have seen this coming the year prior. Subtle changes made to the brand logo and broadcasts, making Reebok the official clothier of the company and adding a drug testing component likely solidified the company as prime for purchasing. One of the things that appealed to the buyers was the strong brand and making investments in its brand pre-sale helped the eventual transaction.
WME-IMG made the purchase. The deal was backed by private equity firms Silver Lake, Kohlberg Kravis Roberts and the investment firm of Michael S. Dell. The price tag of $4 billion was surprising considering that the sport is still considered a niche.
Via our post this past July
The purchase price of $4 billion represents a 22 multiple of the UFC’s earnings before interest, taxes, depreciation and amortization. On $600 million in gross revenue from 2015, UFC’s EBITDA is $180 million. $180m x 22 =$3.96 billion. The hope is that with a new media rights deal, the multiple will lower to 13-14 range which would make it a much better purchase.
The Fertitta brothers, Dana White and Flash Entertainment cashed out on their ownership interests. White signed back on with the new owners for 5 years and 9% of the company’s net profits. Ari Emmanuel and Patrick Whitesell are the new faces of the UFC. They were No. 4 on a list of most influential in sports business for 2016.
The transaction was scrutinized by government regulators for its questionable buyout-loan strategy. The Fed warned Goldman Sachs and Deutsche Bank AG, the entities that marketed the debt to investors, of abuse in inflating earnings before interest, taxes, depreciation and amortization. The EBITDA for the UFC was pegged at $170 million but then was estimated up to $300 million when presented to debt investors helping finance the sale. The higher EBITDA allowed WME borrow $1.8 billion for the deal without running afoul of the guidelines which prevent borrowing for more than 6x a company’s EBITDA. A WSJ article stated $48 million in expected “future step up payments to television contracts and other licensing agreements,” helped bring the EBITDA up to $300 million. Under the new owners, it is looking for $450 million per year for 10 years in next media rights deal. This would have bolstered the anticipated EBITDA of the company. Whether or not the UFC could garner $450 million is yet to be seen. We’ll see if there are buyers on the market this time next year.
Regulators made a second reprimand to Goldman Sachs earlier this month.
The sale included incentives for WME-IMG which included a $175 million contingent payment upon achievement of $275 million in EBITDA (but not earlier than June 30, 2017 and $75 million payable upon achieving $350 million of LTM EBITDA (but not earlier than December 31, 2018).
A Sports Business Journal poll of its readers found 66% of the responses thought that WME-IMG overpaid for the UFC while only 3% of the responses found it underpaid. Another 30% thought it paid the right amount. 26% of SBJ readers polled thought the UFC to be the hottest sports property of 2016. The NBA, NFL and NCAA were ahead of the UFC (in that order).
As far as changes, the new regime is looking to institute corporate discipline in cutting costs. The new owners trimmed staff which included consolidating overseas operations in what seems to be a focus on domestic events. Matt Hughes and Chuck Liddell were let go by the UFC. Perhaps indirectly, long-time PR exec Dave Sholler found a job with the Philadelphia 76ers and Joe Silva announced he was leaving the company at the end of 2016. Also, Mike Goldberg called his final UFC fight at UFC 207. In its new media rights deal, it indicated that its partner would be in charge of production of events whereas the UFC had been in charge of it in the past.
The sale also sparked more fighters to express their discontent with the organization over pay. With the news of the purchase price, fighters wondered their worth to the company. The interest in organizing an association or union for the UFC came to the forefront this year as we saw a willingness by fighters to publicly state their views. But, with an incentive to increase revenues to hit their EBITDA goals by the end of June 2017 and December 2018, the UFC will seek to cut more costs which does not bode well for fighter benefits.
2017 will be an interesting year to see how the new owners will manage the company and deal with the evolving issues that will come up.
16 for 16
5. UFC 200
14. Bellator 149
15. CM Punk debuts
December 31, 2016
Two movements seeking to organize fighters launched this year as the discontent over pay and benefits grew. Whether or not either one will be successful is yet to be determined.
In addition to the PFA and MMAAA which announced their intent to organize UFC fighters. The Professional Fighters Association, led by Jeff Borris, seeks to organize UFC fighters to establish a union and a fighters’ association to collectively bargain with the UFC. Borris, a baseball agent, made the announcement in August. However, the PFA has experienced troubles in just 4 months of attempting to reach out to fighters. Its labor lawyer, Lucas Middlebrook and one of its core supporters, UFC fighter Leslie Smith left PFA due to disclosures made about a fighter board that was released in an MMA Junkie article. Smith believed those names were confidential. Borris denies that he leaked the names.
Notably, a press release sent out on Friday by PFA noted that it would cease efforts if it was unable to obtain the requisite number of fighter signatures by April 2nd.
On November 30th, MMAAA announced its intent to organize fighters behind former Bellator head Bjorn Rebney. The press conference included Georges St. Pierre, Tim Kennedy, Donald Cerrone, Cain Velasquez and T.J. Dillashaw. The fighter presence gave credibility to the organization and they indicated that they would actively recruit more fighters to join. Rebney indicated that they would intend to collectively bargain on behalf of the UFC fighters. Curiously, he stated that MMAAA would focus on an association rather than a union. There were no specifics given on how they would achieve its goals.
Of course, Rebney’s involvement did not sit well with many. Fighters and managers spoke out about him and questioned whether he was the right person to be lending advice.
A week later, lawyers on behalf of the former UFC fighters in the antitrust lawsuit in Nevada sent a “cease and desist” letter to Rebney and MMAAA stating that they stop their attempt to organize fighters by December 9th. No word on whether the parties have settled or legal action is pending. The letter indicated that Rebney met with the lawyers on behalf of the plaintiffs at CAA offices in New York to discuss working together. However, Rebney and his attorneys wanted to share in any recovery for use to repay investors and fund MMAAA. They also wanted to participate in any settlement negotiations with the UFC.
MMAAA denied the allegations set forth in the letter and stating that the lawyers in the antitrust lawsuit were just interested in attorney fees and not the long term benefits of the fighters.
Notably, MMAFA, a long-time organization working for better conditions for fighters, have supported the litigation against the UFC.
Will there be any chance that there will be a collective effort for MMA fighters to organize? At this point, it’s more likely that we’ll see a lawsuit between the class action plaintiffs’ attorneys and Rebney’s MMAAA before we see an organized effort by fighter to collectively bargain with the UFC or any organization.
16 for 16
5. UFC 200
14. Bellator 149
15. CM Punk debuts
December 30, 2016
Thus, on September 1st the sport became legal and regulated by the state.
Assembly votes shown in this picture. Green is good.
— jim genia (@jim_genia) March 22, 2016
After much lobbying, time and effort, the UFC opened up with the first major card at Madison Square Garden on November 12th.
Notably, the UFC 205 Countdown show included a part dedicated to showing Sheldon Silver indicted on corruption charges. He is currently appealing his prison sentence. It was one final shot at the individual that Dana White blamed for not allowing a vote on the bill for years.
The UFC debut did not disappoint as it enjoyed the richest gates in company history.
Not long after the initial joy of legalizing the sport, boxing promoters began to complain about the hefty tax needed to insure fighters for events. A new insurance premium that would cover $1 million for each fighter on the card would be required for operation in New York.
In October, Promoter Lou DiBella canceled the remaining cards he was planning in the state due to the new requirement that has a $1 million minimum for each fighter in the event the fighter suffer a traumatic brain injury. The UFC paid approximately $1,675 per fighter and approximately $44,000 overall. It paid $40,200 for the Albany, New York show on December 9th. This does not include the standard $50K medical and $50K accidental death insurance policies.
Of course, one has to wonder whether or not boxing lobbied against the MMA bill due to the new insurance requirement. The new requirement does stem in part from a 2013 post-boxing incident in the state which left boxer Magomed Abdusalamov fighting for his life and a commission report found issues with the handling of the event.
New York set a tax of 8.5% on gross receipts in addition to other tax terms for MMA events. Thus, the state collected approximately $1.5 million in taxes from UFC 205 according to the reported gate of $17.7 million.
Despite the hefty tax paid by the UFC, it reported the best merchandise sales ever for an event.
Look for the UFC to hold big events in the New York to offset the insurance and taxes it needs to pay. Notwithstanding the cost, the final hurdle to legalize the sport in the state was a monumental hurdle the company overcame. One might consider it a factor in the sale of the company.
16 for 16
5. UFC 200
14. Bellator 149
15. CM Punk debuts
December 29, 2016
In May 2016, Oklahoma Republican Congressman Markwayne Mullin introduced an expansion of the Muhammad Ali Boxing Reform Act to include MMA. A Congressional Subcommittee hearing was conducted in December to discuss the issues related to mixed martial arts and how the introduced law would help fighters.
In addition to Congressman Mullin, it is co-sponsored by Democrats including Joseph P. Kennedy of Massachusetts and Mark Takano of California. Overall, 5 Republicans and 2 Democrats have put their name to the bill.
The UFC opposes the expansion and hired a lobbying firm to influence legislators into voting down the amendment to the existing law. Several op-eds have come out to oppose the law citing government overreach among other reasons. It attempted to strong-arm the December hearing by indicating it would not participate if Randy Couture testified. It backed off and Jeff Novitsky represented the UFC at the hearing.
The amendment to the Ali Act mirrors the current law with few changes but for the inclusion of combat sports. Earlier this year, I outlined the issues with the expansion of the Ali Act which included a variety of cases where boxers sued promoters and came up with a loss. Notably, there could have been more done with the Ali Act to ensure functionality to allow fighters an alternative to needing to file a lawsuit under the Act.
Currently, the Ali Act is in the House Education and the Workforce Subcommittee. There is no word on whether there will be additional hearings on the subject or what the next move will be on the bill.
With the new UFC ownership and its previous relationship with the incoming administration in January I do not know how successful passage will be. At this point, there seems to be a lot more work to do before it comes to a vote in the House.
16 for 16
5. UFC 200
14. Bellator 149
15. CM Punk debuts
December 28, 2016
Ronda Rousey and Conor McGregor were thought to be shoe-ins for this event at one point. But, a set of circumstances had Miesha Tate and Amanda Nunes as the headliners for the biggest event in company history.
Rousey was not ready to come back to the Octagon for UFC 200 due to scheduling and her want to take time away from the sport. McGregor lost at a power play with the Fertittas as he attempted to broker less media for the event. Instead, he claimed to have retired and the UFC moved to Jon Jones versus Daniel Cormier as the headliner. Also, Brock Lesnar returned to the Octagon.
This all sounded good as there would be two title fights plus Brock Lesnar.
The only problem was that a Jon Jones out of competition USADA test was flagged just days before the event and Jones was provisionally suspended due to the test. In a hastily put together press conference, Jones proclaimed his innocence despite the failed drug test.
Dana White was upset as Jones’ drug test failure caused the company extra expense to repackage UFC 200 and scramble to find an opponent for Daniel Cormier. Embedded caught up with White when he broke the news to Cormier and the light heavyweight champ was devastated. White got Anderson Silva to take the fight without any preparation. Maybe a couple years ago, Silva would have drawn interest, but he was more of an afterthought and did not do much in his fight with Cormier.
Lesnar was impressive against Mark Hunt and even showed some humanity in his post-fight speech, unlike his rant 100 UFCs ago. Of course, this did not have a happy ending as Lesnar USADA tests were flagged and the only reason he was able to compete was that the results were not made known until after the fight. It brought up the issue of USADA allowing a waiver to Lesnar of being a tested UFC athlete.
Lesnar made $2.5 million for his fight against Hunt. After news of Lesnar’s drug test failure, Hunt was outraged and demanded a portion of Lesnar’s purse. Hunt made $700,000 at UFC 200.
The event drew criticism as there were reports of a lot of empty seats for the prelims and then people leaving before Tate-Nunes.
UFC 200 was the debut for the company at the T-Mobile Arena in Las Vegas and was the culmination of International Fight Week. Despite the pre-event issues, the attendance and gate were record-setting making the event the largest MMA gate in Nevada history. It drew 15,154 for a gate of $10,746,248.
It was a landmark event for the company as it had produced 200 PPV events. An unthinkable achievement several years prior. And as we now know the big announcement didn’t occur until Sunday after the fights.
December 27, 2016
Conor McGregor showed the world why he continues to dominate and elevate the sport of MMA.
McGregor lost in March at UFC 196, scoffed at having to do media for UFC 200 and retired, unretired and returned to avenge his loss at UFC 203 and then headline UFC 205 in New York.
At every stop, McGregor has set records and pulled huge buy rates. He’s also elevated the career of Nate Diaz. It was Diaz that upset McGregor at UFC 196. Diaz’s victory meant at least a rematch with McGregor. The two met again in a 5-round war in August at UFC 202. McGregor pulled out the victory in the rematch. Most believe there will be a trilogy at some point.
In the meantime, McGregor headlined UFC 205 as the company debuted in New York. McGregor defeated Eddie Alvarez to win the UFC lightweight title. He became the first fighter to hold two titles at the same time. He would later agree to relinquish the featherweight title.
McGregor’s star appeal was apparent this year as he pulled out huge numbers for each of his PPV fights.
UFC 196 – 1.3 million PPV buys
UFC 202 – 1.65 million PPV buys
UFC 205 – ~1.3 million PPV buys
Attendance and Gate
In addition, UFC had the third-highest-ever gate in Nevada for UFC 196. It drew 13,412 for a gate of $8,197,628.00 at the MGM Grand Garden Arena in Las Vegas. Their rematch in August at UFC 202 drew the fourth-highest-ever gate with 12,657 for a gate of $7,700,810.60. Notably, Conor stars in 4 out of the 5 top gates in Nevada.
UFC 205 set a gate and attendance record with $17.7 million before a crowd of 20,427. It was the largest gate since the stadium show at UFC 129.
McGregor has been a crossover success. Notwithstanding the constant rumors about a mythical fight with Floyd Mayweather, he is on the mind of the mainstream. He was regularly featured on ESPN, lampooned on Saturday Night Live and a Chris Jones Esquire feature on him made 2016’s Best American Sports Writing.
While not everything worked out for McGregor this year, including his loss to Diaz in March, a fine assessed by the NAC (which he is appealing) and a power play which failed and cost him UFC 200, he has had a remarkable 2016. McGregor was the first UFC fighter to have made a reported $3 million for his August fight with Diaz.
With McGregor likely taking some time off, his return should only mean bigger numbers for 2017.
December 26, 2016
Benson Henderson, Rory MacDonald and Chael Sonnen signed with Bellator MMA this year reflecting a new age of free agency for MMA. Fedor Emelianenko was also signed by the Viacom-owned company in 2016.
Bellator continued with its strategy of signing fighters with some fan notoriety to headline as well as sign accomplished amateur wrestlers to groom for the future. Three-time NCAA Division 2 wrestling champ Romero Cotton signed an exclusive MMA contract with Bellator in November.
In addition to Cotton, Bellator added Joey Davis, Jarod Trice and Tyrell Fotune. Ed Ruth, a Penn St. amateur wrestler signed in 2015 and made his debut in November 2016. Aaron Pico also signed with Bellator but has yet to make his debut.
Henderson signed with Bellator after his contract ended with the UFC. Thus far, Henderson has not fared well in Bellator. He was thoroughly dominated by Andrey Koreshkov in his Bellator debut at welterweight. He moved back down to lightweight to challenge for Michael Chandler’s title. In a fight to see who would face Chandler, he defeated Patricio Pitbull Freire due to an injury by Pitbull. Henderson went on to lose to Chandler this past November for the lightweight title.
Rory MacDonald signed this August after his contract expired in June. He has yet to fight in Bellator but it appears he will compete at middleweight and welterweight for the company.
Sonnen may have been the surprise since he has been out of action since 2013. He signed with Bellator in September and now is scheduled for a tentpole event in January 2017 against Tito Ortiz.
The Fedor signing should be a big deal for many international and Strikeforce fans that want to relive the glory days of The Last Emperor. Coming out of retirement, it’s likely that we won’t see him in any title fights but just features with handpicked opponents.
The strategy of signing ex-UFC talent seems to work. Certainly, Sonnen-Ortiz will draw big ratings especially since the UFC moved its event off of the same day. While using the former UFC fighters to draw in fans for name recognition, it allows the company to allow the young former amateur wrestlers get fights under their belt without the pressure of being a featured fighter.
We’ll likely see more UFC fighters take a look at free agency as more fighters weigh their options post-UFC sale. This may allow Bellator to be more particular in looking at fighters to sign.
16 for 16
14. Bellator 149
15. CM Punk debuts
December 25, 2016
While it may not be a pure business or legal story, the UFC expelling Ariel Helwani and two others at UFC 199 is a reflection of the unique business of the company under Dana White and the Fertittas.
This past June, Helwani was escorted out of UFC 199 prior to the end of the event along with Esther Lin and Casey Leydon. He was given a lifetime ban by the UFC as they revoked the credentials of the individuals representing MMA Fighting and SB Nation. The web site and its parent company supported the three after the incident.
The reason for the revocation was due to Helwani’s discovery that Brock Lesnar was going to return to the Octagon at July’s UFC 200. The UFC had planned to unveil this news on its own but Helwani received the confirmation. Notably, the information was confirmed from someone with the knowledge of Lesnar’s return so the question becomes why the UFC was angered with Helwani’s report and not the fact that someone had leaked this information.
Ironically, people with knowledge of the Saturday night incident did not reveal the details or break this news until Helwani could give his first-hand account on The MMA Hour on Monday. Thus, while media supported Helwani for getting the scoop on the Lesnar news, they were reluctant to break what they knew of the Helwani story because it was Helwani’s story.
Fortunately, cooler heads prevailed and the UFC reinstated Helwani, Lin and Leydon.
The incident highlights the current state of the media and the stories they cover. Jeremy Botter and Darren Rovell were threatened by the UFC (Botter with a letter from the company’s attorney) when they reported news of a UFC sale in June. While the UFC denied these allegations, we all know now that the sale was true. Currently, the news that Ronda Rousey will not be obligated to speak to the media during fight week has infuriated many. She has only given limited access to ESPN’s Ramona Shelburne and appeared on The Ellen Show to appease her women demo. We now have The Player’s Tribune so that athletes can convey their side of the story without a media filter. But the push-pull of media and its subjects and control of a story were highlighted with Helwani doing what journalists do and the UFC being angered that it could not control the story. These things happen in non-sports as well as we know. With the new UFC owners, we shall see how much access it will grant MMA media as opposed to its control of information and releasing it to certain outlets.
December 24, 2016
It was a big year for Jon Jones. But it could have been worse.
Just weeks prior to his return to the Octagon at UFC 197, Jones was arrested for violating his probation (you may recall he accepted a plea deal for his part in a car accident with a pregnant woman). In March, he was stopped by Albuquerque Police for allegedly drag racing. The traffic stop was caught on camera. He turned himself in for the violation. Fortunately, for Jones, only modifications were made to his probation and he did not have to serve any jail time. Also, he was able to continue to train for UFC 197.
Jones returned to the Octagon in April at UFC 197 to face Ovince St. Preux after his rematch with Daniel Cormier was postponed due to a Cormier injury.
Jones and Cormier were rescheduled for UFC 200 in July as the main event. Bur, Jones was taken off the card days before the event as an out of competition drug test was flagged. As we now know, the banned substance he took was a bootleg sexual enhancement pill he received from a training partner. Jones became the first UFC athlete to take USADA to arbitration related to a flagged drug test. However, he lost at arbitration with the opinion stating that despite the fact that he may not have knowingly attempted to take a PED, he did show disregard for ingesting something for which he did not know the contents. As a result, he was given a one year ban retroactive to July 2016. Jones had hoped that he would be in the Octagon much sooner.
Jones settled the drug test infraction with the Nevada Athletic Commission by agreeing to a one year suspension as well which allows him to be on track to be back in the Octagon in July 2017.
This year’s legal issues lost him a lot of trust from the UFC. He has been given chance time and again with him saying all the right things after the problems have ended, but he always finds himself in another problem. The UFC was likely angered by having to rearrange marketing and finding a replacement so near UFC 200. Still, he is probably one of the best pound for pound fighters in the world and the organization will welcome him back this July.
December 23, 2016
Ronda Rousey returns to the Octagon on December 30th. Although this has yet to happen at the time of this post, it still makes the list as one of the top business stories for 2016.
The Rousey rise and fall is well-documented as she went from fan favorite to a polarizing figure among MMA fans and media. Her recent decision to not do any media in lead-up to her return at UFC 207 has stirred some resentment from MMA folks. This is likely due to the fact that she has allowed limited access for stories that shed positive light onto her comeback (i.e., Ellen and Ramona Shelburne at ESPN). It’s controlling the message and not becoming entangled in internet rumors. In the Shelburne piece, she explains that she had made too many people happy while leaving herself to deal with depression.
Clearly, Rousey hates to lose and her KO loss to Holm has set her into a self-imposed exile and she will resurface on December 30th. Like many ultra-competitive, pro athletes, Rousey hates to lose. Her methods to return and win are turning the fans against her, but like Conor McGregor when he did not want to do media for UFC 200 for a rematch against Nate Diaz, they do not want any distractions.
With that being said, the Rousey brand is still activating around her return to the Octagon. She is the star of a new ad campaign for the Procter & Gamble brand. This summer she was the star of Reebok’s #PerfectNever campaign which nodded at her loss to Holly Holm. Rousey also did was part of an ad campaign for Carl’s Jr. So, while Rousey is turning down the usual MMA media requests, her business interests are still working for her.
The UFC has advertised UFC 207 around Rousey’s return and has seemingly left out the champion Amanda Nunes in its marketing. But, to be realistic, it’s Rousey that is the star here and her proven record of bringing in PPV dollars is the reason why Rousey receives top billing and not the champion.
With UFC 207 being on a Friday night, you might expect a downturn in PPV buys considering the last time a UFC PPV aired on a Friday night it was UFC 141 in 2011. Brock Lesnar versus Alistair Overeem headlined that card but the event drew 535,000 PPV buys – a low considering Lesnar was featured. Notably, Nate Diaz-Donald Cerrone were the co-main event.
Rousey drew 900,000 PPV buys in her title defense against Bethe Correia at UFC 190 in August 2015 and her loss to Holly Holm at UFC 193 drew 1.1M PPV buys.
Rousey’s mainstream fans which include women should help bolster next Friday’s UFC 207. Also, the curious, casual fan will likely tune in to see Rousey fight. You might expect another buy rate around 1 million buys making 2016 the best year on PPV for the company with 5 UFC PPVs (196, 200, 202, 205 and possibly 207) over 1 million buys.