UFC 157: Payout Perspective

February 25, 2013

Welcome to another edition of Payout Perspective.  This time we take a look at UFC 157 from The Honda Center in Anaheim, California. In the main event, Ronda Rousey defeated Liz Carmouche in the first ever women’s bout in the UFC.

Rousey submits Carmouche, UFC wins

Saturday night’s title fight between Ronda Rousey and Liz Carmouche could not have gone better unless it had gone 5 rounds…or even 2.  But, Rousey’s trademark armbar with just seconds left in the first round left the crowd and many fans satisfied with the main event.

UFC 157 poster

The fight legitimized women’s MMA.  Rousey did what she does (i.e., armbar) and Carmouche showed that she was not a tomato can.  In the end, the UFC ended up winning as it showed that the women could put on a show.  It took a risk in putting this as the main event and the women came through.  Now the only issue is where it goes from here.

Machida wins, the fans do not

This fight complemented the main event because it was not an entertaining fight.  If Rousey-Carmouche were not on top of the card it would have been this fight.  Fortunate for everyone, the UFC went with the women.  With that said, it was a tactical fight that was slow paced.  Whether it was Machida’s in and out or Henderson’s constant measuring of the Dragon, the fight lacked any excitement.

Machida will get another shot at Jon Jones but after watching this fight, I’m not sure if that excites anyone.

Faber chokes out Menjivar

The details of jiu jitsu.  If you have the fight on DVR, during the finish watch how Urijah Faber uses his non-choking arm to peel back the forehead of Ivan Menjivar which exposed his neck despite Menjivar’s attempts to tuck his chin.  With the neck exposed, Faber slid in his arm and coupled with the body triangle Menjivar was forced to tap. The peel back of the arm is what Carmouche was unable to do with Rousey when the two were in a similar position.

An impressive win for Faber as he looked fresh and reminiscent of his time in the WEC.  However, the rub is that he’s in a place where he’s better than the mid-card but not good enough to claim a title.  We’ll see what the UFC does with Faber.

Attendance and Gate

Announced at the post-fight press conference, the Honda Center was sold out with 15,525 for a gate of $1.4 million.  There was no confirmation on paid attendance versus comps.

As we detailed here, it was the highest attended event at The Honda Center which included UFC 121: Velasquez versus Lesnar.  It also bested the two Affliction events held at The Honda Center although Affliction: Banned earned more ($2.1M gate per MMA Payout’s Blue Book).

It seems as though Anaheim is the “go to” venue outside of Vegas.  This venue worked for this event.  The Honda Center is down the road from Rousey’s home in the LA area and up the road from Carmouche’s in San Diego.  Most fans could travel easily up or down Interstate 5 to support their fighters.  Southern California is a hub for MMA and is more progressive than most areas of the country.  Sure, it’s in Orange County but it’s in Anaheim, not Newport Beach.

Bonuses

As reported previously, the bonuses were $50,000 each and were awarded below:

Fight of the Night:  Dennis Bermudez v. Matt Grice
Submission of the Night:  Kenny Robertson
KO of the Night:  Robbie Lawler

Promotion of the Fight

Rousey was on every media outlet imaginable: ESPN, SI, The Jim Rome Show, Time and HBO Sports to name a few.  The UFC stated that this event received the most media attention ever and Rousey has received more media than Brock Lesnar.  The Rousey media blitz drew support from mainstream notables that gave their support via twitter.

 

 

The UFC pitched gay media to focus on the Liz Carmouche her story.  The UFC did a good job in marketing Carmouche as a pioneer for the gay community without exploiting her sexual orientation.  It also stressed the fact that she was a U.S. Marine.

With Danica Patrick competing at the Daytona 500, media were eager to jump on the women’s weekend.  Realistically, it’s hard to blame the media focus: it is historical, out of the ordinary and an easy lead that would get readers/page views.

UFC Primetimes

The 3 part UFC Primetimes were especially good this time around.  It had more meat to it for the obvious reasons.  Both fighters had compelling stories that drew you in.  It’s what the Primetimes are supposed to do.  It seemed more like the good HBO 24/7s especially the last 5 mins of the first and third episodes.  Good narration and great writing made the shows.

Sponsorships

The night’s sponsors in the Octagon included Xyience, MetroPCS, UltimatePoker.com, Toyo Tires, Dodge Dart, TapouT, new sponsor Head and Shoulders and Bud Light in the center.  Corn Nuts also sponsored the corner cam.

Rousey was sponsored by the UFC as she donned the UFC-Monster headphones and wore UFC sponsored gear although I believe that Lululemon Athletic made the fight gear.  Will double check on that.  She also had a Xyience patch on her shorts.

In addition to inside the Octagon, Rousey also has deal with Fuji gis.

Fuji gis

Carmouche had several sponsors including VA Home Mortgage (which sponsored several fighters on the card), Salesforce and Torque.

Henderson had his Twitter and Facebook handles on his shorts in addition to Clinchgear.

Machida was sponsored by official UFC sponsors Bony Acai and Head and Shoulders in addition to Venum,

Kenny Robertson won submission of the night and also gets the award for best sponsor:  Mason Funeral Home.  A funeral home sponsoring a UFC fighter?  Everyone dies so it is in the UFC demo.

Josh Koscheck and Lyoto Machida are still sponsored by Lugz.  I didn’t know that the company was still around.  But, these two have had long-term sponsor deals with the company.

Post-UFC 157 Headlines

What’s next for women’s MMA – It was a good debut for the women in the UFC.  It was an exciting, competitive match and no blood.  There was the concern of Rousey almost losing her top but the UFC avoided that issue. So, what’s next?  Rousey will be a draw the next time she fights.  But, the bigger issue is what happens when other women fight.  The UFC would not be able to get as much buzz for another women’s fight if Rousey is not in it.  We’ll see how the UFC uses women’s MMA to complement the male card.

Machida next for Jones – Is anyone excited to see this rematch?  Perhaps the UFC hoped for Henderson to win here to get a redo for UFC 151.  I’d rather see Alexander Gustafsson get the shot.

Odds and ends

–  Kenny Robertson will be teaching class on Monday at his “day” job.

– I was sitting on the tweet that Henderson was going to knock the head off of Machida’s shoulders all night.  It didn’t happen.

–  I wonder if there was a proposition bet on whether Carmouche would have gotten out of the 1st round.  If so, that would have been exciting.

–  It’s obvious that the UFC has a working relationship with Invicta as Carmouche’s coach wore the shirt and the logo was seen during the UFC Primetimes.  Zuffa wouldn’t let this happen unless there was a business relationship.  If women’s MMA starts to take off could we see another Zuffa purchase?  More likely I could see the UFC using Invicta like a farm system and call up fighters to fight on a UFC card.

Conclusion

With all of the great media attention the UFC received for Saturday’s event, it will be interesting to see how much of the media attention will convert to PPV buys.  It reached out to more media than usual in getting attention for this event.  Rousey and Carmouche have been great ambassadors for women’s MMA.  But, I think it will boil down to whether the casual viewer can stomach the possibility of seeing a woman busted open and bleeding like Joe Lauzon at UFC 155.  Or, can they watch an arm be broken right in front of their eyes.  These are questions that seem silly but will really determine whether women’s MMA can succeed with the UFC.

With that being said, a low to mediocre PPV buy rate would be disappointing considering the amount of public relations and press buzz the UFC received for this bout.  Yet, how many new viewers can be added for this event?  Would the backstory of Rousey and the novelty of the women’s fight be enough to convert non-UFC followers to pay for the PPV.  Last year’s PPV average hovered around 450,000 buys.  If UFC 157 hit the average it would be a success.

The marketing of Liz Carmouche

February 22, 2013

UFC 157 will go down as a historical night for the company regardless of the PPV buys.  For the first time the UFC has put its faith in women behind Ronda Rousey and Liz Carmouche.  While we all know about Rousey, Carmouche is a compelling story that complements the company’s first foray into women’s MMA.

The UFC is making a calculated risk by reaching beyond its normal demographics of young males in order to grab some mainstream appeal.  Dana White has made a 180 degree reversal from his original stance that women would never fight in the UFC.  Rousey was the perfect fighter to be the first woman signed to a UFC contract.  Under the radar from the Rousey media storm is the fact that Liz Carmouche is also a pioneer in the sport.  Not only is Carmouche participating in the first women’s fight in the UFC, she is openly gay.

The UFC marketed Carmouche’s sexual orientation smartly.  It has promoted the accomplishment while not exploiting it.  The UFC Primetimes have detailed Carmouche and coming out as gay even detailing how she met her girlfriend.  In its pre-fight press, the UFC targeted gay media outlets to garner coverage for this demographic.

“I think the UFC is not shy about promoting her sexual orientation,” said Jim Buzinski of Outsports.com  “Having an openly gay fighter is great in terms of showing that gays and lesbians are everywhere, even in the octagon.”

Via Outsports.com

Via Outsports.com

“The UFC’s inclusion of Liz is fantastic for two reasons,” stated Aaron McQuade of the Gay and Lesbian Alliance Against Defamation (GLAAD), “First, it introduces their [UFC] fans to an openly gay fighter who’s considered one of the best in the world. Second, it shows their [UFC] fans that the world of mixed martial arts is open and accepting of all people, no matter who they are.“

The outreach to gay media should get the interest of some readers that may make an impulse buy of the PPV based on their support of a gay fighter.  It might also help that it will be the first time women fight in the male-dominated UFC.  With respect to Carmouche, she has been steadfast in being comfortable in who she is and what she stands for in the eyes of others.  For those fans of Carmouche, she calls her followers “Lizbos,” an obvious play on words.

White’s opinionated stance on issues helped with the UFC marketing Carmouche.  At the recent media scrum for the event, White respected Carmouche for coming out while stating he could care less about her sexual orientation.  White’s comments imply that he doesn’t care whether Carmouche were gay, straight, bisexual or all of the above.  When asked how would it be if a male fighter were to come out, White stated that the UFC would not treat them any different.  I tend to agree with this comment although it would be clear that the UFC would likely market this individual (as it is doing with Carmouche) to the gay community.

White’s stance on the subject can be seen as a progressive look on societal changes.  It can also be seen as taking advantage of a situation its been presented.  His policy change on women’s MMA likely stems from the popularity of Rousey, Zuffa’s acquisition of Strikeforce and a need to inject some life into its flat PPV business.

Carmouche’s background is relevant because its rare in sports that an athlete comes out.  We need only look to the NFL to see that even in the most popular sport in the United States, its players may not embrace an openly gay athlete.  Earlier this month, San Francisco 49er Chris Culliver made anti-gay comments during the week preceding the Super Bowl.  Interesting for Culliver when he plays for a team that actively markets toward the gay community.

For the UFC’s part, there has not been a backlash about Carmouche or homosexuals in the lead up to the fight this Saturday.  Of course, it’s likely that opponents of homosexual athletes participating in MMA have kept quiet to avoid the ire of White.

Payout Perspective:

Despite the UFC marketing of Carmouche, the fact that Carmouche is openly gay seems to be an afterthought in this fight as Rousey has been the center of attention. Carmouche is articulate, a role model for women and is good for the sport of women’s MMA.  The only problem is that her best fight was a loss to Marloes Coenen.  Ironically, Dan Henderson main evented that night.  Carmouche is the overwhelming underdog here.  Still, with the shocking KO of King Mo in Bellator, this sport doesn’t have gimme fights.

UFC 156: Payout Perspective

February 4, 2013

Welcome to another edition of Payout Perspective.  This time we take a look at UFC 156 from the Mandalay Bay Events Center from Las Vegas, Nevada.

Aldo sends Edgar to third straight loss

Thud.  The leg kicks of Jose Aldo last night were reminiscent of those he delivered to Urijah Faber at WEC 48 which (IMO) was his coming out party.  To Frankie Edgar’s credit, he was able to deal with most of those with an effective counter.  Aldo’s cardio issues were evident in rounds 4 and 5. But, he had done enough to stop Edgar.

For Aldo, the first couple rounds showed his dominance that he had in the WEC.  He was quicker, had the counter and snuck in the devastating kicks to Edgar’s legs.  Will Dana White take the request of Anthony Pettis and give Showtime a shot to fight Jose Aldo.  What about Ricardo Lamas?  The guy who beat the guy (Erik Koch) that was supposed to fight Aldo for the title shot.  What about the Featherweight rankings?

For Edgar, its his third loss in a row.  The dip to Featherweight now looks like a waste unless he’s willing to take a couple fights before getting another shot at Aldo.  For Edgar’s benefit, a couple fights to get back some confidence would help.  Losing three straight decisions has to be hard on him.

Bigfoot Silva KOs Overeem

And that’s why haters are going to hate.  Alistair Overeem wore a shirt  to the weigh-ins saying, “Haters Going to Hate.”  The end result was a reason why people hate.  A classic case of underestimating your opponent.    Overeem had the first two rounds with ease although a couple shots at the end of the second round gave Bigfoot some momentum.  And then, Bigfoot laid hands on Overeem and that was all she wrote with Silva talking smack over a prone Overeem.

Overeem’s loss messes up the UFC’s hope for a Cain-Overeem fight.  For Silva, a Velasquez fight will not happen although JDS might be a good matchup to see which heavyweight gets back into the title picture.

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Attendance and gate

MMA Junkie reports that the attendance for UFC as released by the Nevada State Athletic Commission was 10,275 for a gate of $2.437 million.

Bonuses

The Bonuses drew some eyebrows as it was only $50K per bonus as opposed to $60-65K which had been the standard in 2012.

The bonuses were as follows:

Fight of the Night: Aldo-Edgar
KO of the Night: Bigfoot Silva
Submission of the Night:  Bobby Green

Interested that they did not give sub of the night to Dustin Kimura with a Rear Naked Choke for the sheer fun of announcing Kimura won with a Rear Naked Choke.

Promotion of the Fight

The UFC decided to promote Frankie Edgar’s move down to Featherweight as the main sell point for the PPV and touting Edgar-Aldo as a “Superfight.”  Certainly, the battle of a past and present champion has some juice but the UFC also had a Heavyweight battle between the returning Alistair Overeem and Bigfoot Silva.  It also had Rashad Evans, a proven PPV draw go up against a veteran in Little Nog.  We also know that Frankie Edgar is not a PPV draw.  And, at this point, neither is Aldo.

Notwithstanding what we know now, (that Overeem may be overrated and that while Evans brings a big event feel walking to the Octagon,he showed little in it on Saturday), it gave the lighter weight class the top bill.  Strategically, the UFC could be giving its lighter weight classes the opportunity to show what it could do. With Aldo out, the Featherweight title has not been defended since last January.  Marketing the PPV around Edgar-Aldo will be a test to see where the fan base is with respect the lighter weight classes.

Sponsorships

The octagon featured UltimatePoker.com, Xyience, MetroPCS, Harley Davidson, the movie Dead Man Down, MusclePharm, Tapout and Bud Light in the center.  Dodge also sponsored stats during the PPV as well.

Dead Man Down had the corners of the Octagon.  One had to wonder if there was hope that a fighter would be knocked out in one of those corners.  In fact, Overeem went down up against the Dead Man Down signage.  How appropriate.

Based on his wearing his headphones after the fight, Jose Aldo is sponsored by a headphone maker although I could not make out the brand.

Rashad Evans had top level sponsors as always.  Notable sponsors included Jaco, Corn Nuts and Bony Acai.  The last two are official UFC sponsors.

Little Nog signed a deal with Venum prior to UFC 156.  He also was sponsored by Bony Acai.

It appears that the UFC was sponsoring Frankie Edgar last night.  He had the UFC brand on his shorts and in a prominent spot on his fight banner.  He was also sponsored by FeartheFighter, Alienware, MicroTech, Wild Wing, Virtustream and Gaspari Nutrition.

Buy My Autographs.com was the most intriguing fight sponsor of the night.  The website, established in 2012, offers signed MMA memorabilia.

F3 Nutrition was a sponsor with big name fighters (Overeem and Rashad) wearing its logo that did not do so well with their outcomes.

Post-UFC 156 Headlines

Aldo versus ? – We will see if Aldo will take on Anthony Pettis for the Featherweight crown. Pettis just introduced himself to the nation on Fox last month and will have to wait for a lightweight shot after Bendo-Gil fight on Apri 20th.  What better way to stay busy than a title fight?  It would be an interesting scenario for the UFC to consider.

Cain’s next challenger – The UFC had hoped that Overeem would have beat Silva to get it to Cain versus Overeem in a big matchup that it could set for this summer.  Now, we will see what is in store for the Heavyweight Champion.

Odds and ends

It was a good night for Brazilian fighters.  A lot of Brazilian sponsors on many fighters tonight as well.

Fitch/Maia was a fight that went unnoticed by the media hype for this card but was intriguing from a tactical standpoint.  It was not a fight for people liking standup but for those grappling folks, it was outstanding control by Maia over Fitch.  Maia could be close to a welterweight title shot soon.

Evans and Little Nog had the best walk in music of the night but the worst fight of the night.  In the words of Joe Rogan, “That was not an entertaining fight.”  To complement that fight, at the end they showed Wilmer Valderrama and JWow.  It was as if the UFC wanted to make sure you knew that fight sucked.

Silva was very thoughtful in his post-fight interview when he said knocking out Overeem was the biggest in his career since it was the UFC.  Obviously, he was thinking his Fedor knockout as bigger but since it was in Strikeforce and he is now in the UFC, why insult your employer.

Would you check a kick from Jose Aldo?

Conclusion

As I alluded to earlier, this PPV will test to see whether the lighter weight classes can carry a PPV.  It will also test again whether Frankie Edgar can be a PPV attraction.  Last week’s Dodson-Johnson main event on Fox scored 5.2 million viewers.  Did the commercials featuring a closeup of Edgar’s face do enough to draw people to buy the PPV?  Aldo has been out for a while and is still relatively unknown.  But there may have been enough buzz for it to get to 500,000 PPV buys.

Rousey to UFC?

October 25, 2012

MMA Fighting reports on Dana White’s interview with Sports Illustrated on Tuesday where he indicated that women’s MMA will be heading to the UFC.  The reason for the move is due to Strikeforce Women’s Champ Ronda Rousey.

White was an opponent of women’s MMA in the UFC and affirmed his position when Zuffa purchased Strikeforce.  However, it appears that White has changed course based upon the popularity of Rousey.

via Wikimedia Commons

White indicated that there is no time frame for this and Rousey’s manager stated that she still has three fights left on her Strikeforce contract.

Payout Perspective:

With the addition of events in 2013, its plausible to argue that the UFC will need attractive fights to fill its cards.  Rousey is a hot commodity in MMA as she has built an impressive resume in a short timeframe.  And she’s finished her opponents with an armbar – her signature move.   Moreover, and most importantly, she is an outgoing, attractive female that is a good ambassador for the sport.  But, the question will be whether viewers will be interested in Rousey.  And if so, will they be interested in women’s MMA as a whole.

While many MMA enthusiasts are fine with the blood and bruising involved in a men’s match, how many casual viewers will be fine seeing a women busted open?  Sure, MMA purists will point to the fact that its sport and if you don’t like it don’t watch it.  But, the point of including Rousey in the UFC is that you want to attract viewers.

Will the decision to bring in women’s MMA help the UFC?  Or, does it mean that Strikeforce is on its way out?  While we can argue the overarching question of whether women’s MMA would appeal to an audience, the more practical question is whether the move means the demise of Strikeforce?

The argument that Strikeforce may be on life support is buttressed by the fact it has cancelled its last two events due to injuries to its main events.  It has pointed to 2013 as its next event but nothing has been made official.  Moving Rousey, and women’s MMA to the UFC would be a sign that the organization could be sunsetting in the near future.  Without Rousey, there is no women’s MMA in Strikeforce.

If Rousey headlines or co-main event’s a UFC card, would it speak to the advancement of gender equality in MMA or the popularity of one?  Invicta FC has shown that there is an audience for women’s MMA.  Rousey drew the biggest ratings for Strikeforce on Showtime this year.  And she has shown a penchant for promoting fights.  It will be interesting to see how UFC and Fox handles the issue if and when it happens.

What to learn from the Jeremy Stephens situation

October 10, 2012

Does the UFC need a crisis communications department?  Last Friday showed that the UFC has not learned from its mistakes when it comes to addressing an emergent situation.

Friday night’s UFC on FX 5’s event was marred by Jeremy Stephens as he was arrested the morning of his fight on an outstanding warrant.  Despite his incarceration, Dana White maintained that his fight with Yves Edwards was still on despite the fact that Stephens had not been released from custody.

White made his obligatory “blame the media”  argument as he told his twitter followers not to believe the media that were claiming the fight was presumably off.  Of course, we come to learn that while White was trying to get Stephens out of jail for the fight, he did not know at the time of his tweet whether the fight was going to happen.  Even if he thought it was going to happen, it didn’t happen.

Is this a problem?

We are again presented with the UFC asserting a point before it actually knew it as fact.  Recall the UFC 151 press conference when Dana White stated that Lyoto Machida would face Jon Jones next.  Except, the UFC did not confirm that Machida would take the fight.

White sent out via his official spokesperson, his twitter handle, that the fight was still on and not to listen to the media.

Likely, not the most professional way to address the situation.

A more professional representation of the unfortunate (for the UFC) facts could have been to give the “no comment” or the “we are still gathering facts and we will let you know.”  Certainly, the UFC could have let Edwards, its own contracted fighter, know the status without leaking it to the public/media.  In a post-fight interview on Fuel it was apparent that he was kept in the dark as much as the media that tried to uncover facts.  Edwards looked visibly shaken…as if all of his sacrifice, training and hard work went for nothing.  Well, it did.

If there’s any justice for Edwards, he should have been paid his show and  win money.  He did make it to the arena without being arrested whereas his opponent did not. If nothing else, put Edwards at the top of the injury replacement list.  We all know someone is going to get injured on a card sometime soon.  UPDATE:  Edwards will be on the UFC on Fox card this December per MMA Junkie.

The issue with the Jeremy Stephens situation is how it was handled.  It was done poorly and it was obvious that the only plan was to try to negotiate with the police to get Stephens out in time to fight.  The lack of a plan only magnified the situation.  Remember, the Stephens-Edwards bout wasn’t even on the main card.   It was a Fuel prelim.  Realistically, only the hard core UFC fans would have noticed the absence of this bout.  Moreover, what would have been the real fallout if the UFC announced that the fight was off due to a legal issue involving Stephens.

How bad would it look if the UFC would have let media members know about the Stephens legal issue and that it was “working with authorities (not negotiating) at this time and details would be released once it they were made known by the authorities”?  Probably not that bad.  While the spiel is formulaic and “PR” speak for Stephens got arrested and we don’t know what’s going on its better than what happened.

What’s worse about this latest misstep is that it happened so soon after the UFC 151 fallout.  And it was the same issue:  releasing information without knowing the truth of the information.

Crisis communications does not always mean that a company must respond to issues at a moment’s notice but it can.  The role is to protect the company and its reputation when faced with a public challenge.  Here, one of the UFC’s fighters was arrested. Not an unusual situation except for the fact that it occurred on the day of his fight.  This issue could have been addressed from the start without the confrontation of the media.  While we understand that the UFC wants to stand by its fighters, it does not help to provide further misinformation (i.e., that the bout was still on) and then blame Iowa authorities for not letting Stephens out.   What were to happen if this was one of the main event fighters was detained?  How would the UFC adjust?  By calling out the media?

It’s easy to Monday Morning Quarterback the situation here, but the UFC is a professional organization that should have policies in place to deal with these issues.

 

White interview explains UFC 151 cancellation

September 9, 2012

Dana White’s recent appearance on Fuel TV to explain the UFC 151 cancellation gave some perspective on his comments toward Jon Jones.  Without truly admitting fault, he indicated that he was not mad at Jones and attributed some level of fault toward Henderson.

In his interview with Ariel Helwani, a toned down White stated that he had “no regrets” with how the UFC 151 press conference was handled.  He said that there was nothing he would take back from his comments at the press conference.

Give Helwani some credit in this interview.  Although one might argue he’s feeding pre-planned questions to White, he does illicit the information about whether Henderson was to blame for the cancellation of UFC 151. It appears that the blame shifts to Henderson but White does stand by his comments about Jones not stepping up to take a fight.

Payout Perspective:

White’s interview takes on the form of a non-apology apology.  While he does not take back anything said at the press conference, he does appear to step back from his initial comments and comes out to address the fact that Henderson is also at fault for not letting him know that he may not be able to fight September 1.

I am interested as to why this interview did not take place earlier with White.  Maybe it was White’s travel schedule, maybe White needed perspective, but it would seem that White would want to get out in front of his press conference to explain his comments toward Jones.  Aside from helping the ratings for UFC Tonight on Fuel, White’s interview was a way to (calmly) explain his side of the story to fans.  While most of us get the new from the internet, White made it known his thought process behind the cancellation and the Machida booking.

What are we to make of White’s “no regrets” with the handling of UFC 151.  While we understand his brand of administration of the UFC, the strong words he had for Jones and Jackson seemed harsh.  What about the UFC’s press release sent out shortly after the press conference entitled, “UFC 151 Cancelled, Champ Refuses New Opponent”?   Also, and maybe as bad, was the press conference announcement that Lyoto Machida would face Jones when it was never confirmed that Machida would accept the fight.  From the UFC perspective, the lack of a contingency plan was surprising.  Basically, the UFC believed that two fighters wouldn’t turn down fights, but it happened and the fallout had to embarrass the UFC.  For an organization that prided itself on having its fighters step in when called upon, the UFC faced two fighters that declined fights in less than two days.

The cancellation of UFC 151 could have been handled with more care.  While White admits no wrong in voicing his displeasure with Jon Jones and Greg Jackson he did say Jackson was a “sport killer”.  White had every right to voice his disappointment that Jones was not taking another fight, but he should have indicated the same to Henderson for not at least putting him notice about his injury so that White could have planned a contingency.

Update on the UFC’s 2012 PPV Business

September 4, 2012

It’s no secret that the UFC has been struggling of late in the Pay-per-view department. 2011 was the first year parent company Zuffa saw a decrease in Pay-per-view buy rates—the primary source of revenue for the company.

Some attributed the decline to a rash of injuries causing havoc on fight cards, while others complained about product saturation having an adverse effect on the fan base. Whatever the reasons or combination thereof, the Pay-per-view business was down and the brass at Zuffa couldn’t be very happy.

So how big was the decline in the business from 2010 to 2011? Let’s take a look at the numbers:

There was an overall 27% drop in business between 2010 and 2011. Average Buys dipped 157,500 from 579,375 to 421,875. Total Buys were down a significant 2.5 million which translates to about a $63 million dollar hit on Pay-per-view profits (profit calculations are based on income after costs to distributors/networks).

So what about 2012? Well, the injury bug continues to be a big problem for the promotion. Mike Chiappetta reported that 78 fights have been canceled this year due to injury and five of the cancelled main events were Pay-per-view headliners. Brock Lesnar, the UFC’s biggest Pay-per-view draw has retired from MMA and returned to professional wrestling.

Surprisingly, through the first eight months of the year the Average Buys are up slightly over last year (YTD). This success comes off the back of UFC 148 Silva vs. Sonnen II which reportedly did 1 million buys (the first UFC event to score that many buys since UFC 121 in October 2010). However, Total Buys and Estimated Profits have decreased simply due to the fact of their being one less event this year versus last.

 

Payout Perspective

The UFC still has four scheduled Pay-per-views remaining in 2012. But with the cancellation of UFC 151 there will be 2 less events than previous years. In order to finish 2012 with similar results as last year the promotion would need to make up approximately 2.9 million total buys over the remaining 4 events, or approximately 750,000 buys per event. This is something that’s unlikely to happen. On the other hand, Average Buys could hold on and finish stronger in 2012 than in 2011. The end of the year will add some substantial numbers (baring any injuries) as bigger draws such as Jon Jones, Georges St. Pierre and Heavyweights Junior Dos Santos and Cain Velasquez are all scheduled to fight by years end. If the Average Buys finish up over last year it’ll indicate a bit of a turnaround for the UFC. Finally some good news in the Pay-per-view department. Perhaps having less Pay-per-view events a year is helping drive a slight increase in the Average Buys per event. We’ll have to wait and see what happens. Only time will tell.

Payout Perspective: UFC-FOX TV Deal Q2/2012 Performance Review

July 27, 2012

Last year, UFC and FOX announced a huge 7 year TV deal worth as much as $90-$100 million per year, which would move UFC programming from Spike TV to FOX, FX, FSN’s, and Fuel TV. Now that 2012 Q1 & Q2 are in the books, we look back and analyze what type of impact UFC programming had on the FOX properties and the impact of the TV deal on the UFC.

NETWORK: FOX (112M households) Q2 Ratings:

UFC on FOX:

  • UFC on FOX 1: Dos Santos vs Velasquez: 5.7M, 3.1 household rating (1 Hour Block, 1 Fight)
  • Q1: UFC on FOX 2: Evans vs Davis: 4.7M, 2.6 household rating (2.5 Hour Block, 3 Fights)
  • Q2: UFC on FOX 3: Diaz vs Miller: 2.4M, 1.5 household rating (2 Hour Block, 4 Fights)

Q2 Average: 2.4M; Q1 Average: 4.7M; Trend: Down

 

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NETWORK: FX (99M households) Q2 RATINGS:

TUF LIVE:

  • Q1: TUF Live Episode 1 – 1.3M
  • Q1: TUF Live Episode 2 – 1.1M
  • Q1: TUF Live Episode 3 – 1.2M
  • Q1: TUF Live Episode 4 – 1.054M
  • Q2: TUF Live Episode 5 – 947,000
  • Q2: TUF Live Episode 6 – 1M
  • Q2: TUF Live Episode 7 – 1M
  • Q2: TUF Live Episode 8 – 929,000
  • Q2: TUF Live Episode 9 – 954,000
  • Q2: TUF Live Episode 10 – 948,000
  • Q2: TUF Live Episode 11 – 821,000
  • Q2: TUF Live Episode 12 – 875,000

Q2 Average: 934,250; Q1 Average: 1.16M; Trend: Down

TUF Season Average Rating (last 6 seasons):

  • TUF LIVE Season on FX (2012) Averaged 1.01M viewers
  • TUF 14 Season on Spike TV (2011) Averaged 1.5M viewers
  • TUF 13 Season on Spike TV (2011) Averaged 1.3M viewers
  • TUF 12 Season on Spike TV (2010) Averaged 1.74M viewers
  • TUF 11 Season on Spike TV (2010) Averaged 1.65M viewers
  • TUF 10 Season on Spike TV (2009) Averaged 3M viewers

TUF Season Average (previous 5 seasons) on Spike TV: 1.84M Viewers

Spike TV Comparable Trend: TUF’s debut on FX was lowest rated season in TUF history.

 

UFC on FX:

  • Q1: UFC on FX 1: 1.3M
  • Q1: UFC on FX 2: 1.4M
  • Q2: UFC on FX 3: 1.1M
  • Q2: UFC on FX 4: 1.3M
  • Q2: TUF Live Finale: 1M

Q2 Average:1.13M Q1 Average: 1.35M; Trend: Down

UFN Average Rating (last 5 events) on Spike TV:

  • UFN 25 on Spike TV (2011) Averaged 1.8M viewers
  • UFN 24 on Spike TV (2011) Averaged 2.2M viewers
  • UFN 23 on Spike TV (2011) Averaged 1.85M viewers
  • UFN 22 on Spike TV (2010) Averaged 1.2M viewers
  • UFN 21 on Spike TV (2010) Averaged 1.6M viewers

UFN Average (last 5 events) on Spike TV: 1.73M Viewers

Spike TV Comparable Trend: Down

 

UFC Primetime on FX:

  • “UFC Primetime: Velasquez vs Dos Santos” (Single episode on FOX): 2M Viewers
  • Q1: “UFC Primetime: Diaz vs. Condit” Series Average: 540,000 viewers
  • Q2: “UFC Primetime: Jones vs. Evans” Series Average: 560,000 viewers
  • Q2: “UFC Primetime: Dos Santos vs. Mir” Series Average: 542,000 viewers (only 1 & 2)

Q2 Average: 551,000; Q1 Average: 540,000, Trend: Up, flat

UFC Primetime Debut Episode Ratings (last 5 events) on Spike TV:

  • UFC Primetime: GSP vs Shields on Spike TV (2011): 610K viewers
  • UFC Primetime: Lesnar vs Velasquez on Spike TV (2010): 974K viewers
  • UFC Primetime: Rampage vs Evans on Spike TV (2011): 1.2M viewers
  • UFC Primetime: GSP vs Hardy on Spike TV (2010): 1M viewers
  • UFC Primetime: GSP vs Penn II on Spike TV (2009): 880K viewers

UFC Primetime Debut Episodes (last 5) Average on Spike TV: 933K Viewers

Spike TV Comparable Trend: Down


UFC on FX Prelims:

  • Q1: UFC 142 Prelims: 880K
  • Q1: UFC 143 Prelims: 1.4M
  • Q1: UFC 144 Prelims: 1.5M
  • Q2: UFC 145 Prelims: 1.6M
  • Q2: UFC 146 Prelims: 1.3M
  • Q2: UFC 147 Prelims: 969K

Q2 Average: 1.29M; Q1 Average: 1.26M, Trend: Up, Flat

UFC Prelims Average Rating (last 5 events) on Spike TV:

  • UFC 141 Season on Spike TV (2011) Averaged 1.8M viewers
  • UFC 139 Season on Spike TV (2011) Averaged 1.2M viewers
  • UFC 137 Season on Spike TV (2011) Averaged 1.1M viewers
  • UFC 136 Season on Spike TV (2011) Averaged 1M viewers
  • UFC 135 Season on Spike TV (2011) Averaged 1.6M viewers

Previous 5 UFC Prelims Average on Spike TV: 1.34M Viewers

Spike TV Comparable Trend: Down, Flat

 

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NETWORK: FUEL TV (36M Households) Q2 RATINGS:

UFC on FUEL:

  • Q1: UFC on Fuel TV 1: 217,000
  • Q2: UFC on Fuel TV 2: 197,000
  • Q2: UFC on Fuel TV 3: 173,000

Q2 Average: 185,000; Q1 Average: 217,000; Trend: Down

 

UFC on Fuel Prelims:

  • Q1: UFC on FX1 Fuel Prelims: 148,000
  • Q1: UFC on FOX 2 Prelims: 144,000
  • Q1: UFC on FX 2 Fuel Prelims: 113,000
  • Q2: UFC on FOX 3 Prelims: 86,000
  • Q2: UFC on FX 3 Fuel Prelims: 84,000
  • Q2: TUF Live Finale Prelims: 165,000

Q2 Average: 112,000; Q1 Average: 135,000; Trend: Down

 

Overall Q2 Ratings Analysis (Fuel TV PR):

–  Three live Ultimate Fighting Championship® Fight Nights and two live motocross races in June delivered FUEL TV its most-watched month ever and it continues to be the industry’s fastest growing ad-supported cable network, according to Nielsen Media Research.

– FUEL TV’s June viewership growth was powered by 406 hours of Ultimate Fighting Championship® (UFC®) programming, including three live prelim shows for main cards featured on FX. The “TUF Finale Live” Prelims on Friday, June 1, delivered the network its most-watched prelims to date, most-watched Friday and second most-watched Friday prime time in its history. The 406 hours of UFC programming in the month edges out the previous record of 384 hours in April.

– For the year, FUEL TV has delivered nearly 1800 hours of UFC programming. In the first six months of 2012, FUEL TV has established itself as the fastest growing network in year-to-year percentage audience growth in total day and during prime time among households, total viewers and men 18-49 compared to Jan. – June 2011.

– The Saturday live airings of the Lucas Oil Pro Motocross Championship motocross races have emerged this month as an incredible compliment to the UFC programming. On June 9, the FMF High Point National, the fourth stop of the Lucas Oil Pro Motocross Championship, drew 214,000 total viewers and 105,000 men 18-49, ranking as the network’s second most-watched program ever and third in the target demographic. The following race on Saturday, June 16 was the network’s tenth most-viewed program ever with 141,000 total viewers.

FUEL TV June 2012 Audience Highlights:

  • June 2012 is the network’s most viewed month ever, surpassing February 2012;
  • FUEL TV recorded its second and third most-watched weeks in network history in June;
  • June 2012 was up +50% in total viewers and +67% in M18-49 vs. June 2011;
  • Total Viewers grew 56% in prime time and +60% among M18-49 compared to June 2011;
  • Saturday, June 9 ranked as FUEL TV’s third most-watched day in network history, up +575% vs. the 2Q 2011 average;
  • Live Lucas Oil Pro Motocross Championship race on Saturday, June 16 was the network’s tenth most-viewed program in network history with 141,000 Total Viewers;
  • “The Ultimate Fighter Finale Live” Prelims on Friday, June 1 had 165,000 Total Viewers, ranking as the network’s most-watched UFC Prelims to date, in addition to being FUEL TV’s fifth most-watched program ever.  The show peaked from 8:30 – 8:45 PM ET with 241,000 Total Viewers;
  •  Friday, June 1 was the most-watched Friday and second most-watched Friday prime time in network history;
  • UFC Prelims on Friday, June 22 was FUEL TV’s sixth most-watched show ever with 160,000 Total Viewers, fourth most-watched   show in the target demo and second most-watched UFC Prelims on the network.
  • For the first six months of 2012, prime time viewership is +140% over 2011;
  • Since January 1, the network’s total day viewership is up +90% compared to 2011;

“The UFC fans have found FUEL TV and are tuning into the network every day now,” says Mike Feller, Vice President of Programming, FUEL TV. “The increased viewership numbers are also carrying over to other programs, as we’ve seen with the ratings growth of the Lucas Oil Pro Motocross Championship. It’s apparent that both UFC and motocross share similar viewers and make for great complementary programming.”

 

UFC/FOX TV Deal Performance History:

Payout Perspective: UFC-FOX TV Deal Q1/2012 Performance Review

 

Payout Perspective:

Making a conclusion as to whether the UFC and FOX TV deal is a success or failure based on only the Q1 and Q2 ratings would still be quite premature at this point, but having two quarters in the books allows us now to compare ratings performance 6 months into the deal on the FOX platforms plus Spike TV.

To no surprise, Fuel TV continues to benefit greatly from this UFC deal, as it became the fastest growing network in year-to-year percentage audience growth in total day and during prime time among households, total viewers and men 18-49 compared to Jan. – June 2011.  Oddly enough, the main goal for Fuel TV remains increasing their household reach, which actually dropped from 36.4M to 36.2M during the first two quarters of 2012, when UFC made it’s debut on the network, though most of that is explained by cord cutters since the effect was not specific to Fuel TV. Another interesting note is that Fuel TV aired nearly 1800 hours of UFC programming. However, Fuel TV only reaches 1/3 of the households that Spike TV reached, also being one of the lowest rated networks in cable TV, so unless Fuel’s reach picks up – doesn’t look like that will be the case until the end of the year at the earliest – the UFC will consistently be placing the majority of their content on a channel that only reaches a fraction of what Spike TV provided them.

A big disappointment so far has been the performance of UFC on FOX events, which is one of the biggest positive in the UFC/FOX TV deal for the UFC.  With only four contracted events on Primetime, the product does not have enough frequency to make a meaningful impact up to now, and in fact, each event has produced less viewership since it’s debut (UFC on FOX 1: 5.7M, UFC on FOX 2: 4.7M, UFC on FOX 3: 2.4M).  Getting mainstream sponsors for the FOX events has still been a struggle as was expected when the deal was made last year by TV ad analysts.  The negative ratings trend won’t help them in this department either.

FX and the newly revamped “TUF Live” were a big part of the TV deal with TUF being the key platform the UFC uses to create future stars and PPV draws. The show ended up being a huge disappointment (in terms of ratings and creating stars), now owning the title of the all-time lowest rated season in the history of the TUF. Dana White and the UFC brass predicted that they could very well reach 3 million viewers for TUF on FX if they were getting around 1.5 million on Spike TV without any promotion. It was also noted internally within Zuffa that WWE ratings on USA were also a factor in predicting a rating on FX considering they do on average 3M viewers on the same Friday night time slot. Well, that prediction didn’t was off to say the least, even with the heavy promotion leading up to TUF’s debut on FX.  FX dedicating Friday nights as “UFC Nights”, a day which is notorious for bad ratings and when the M18-34 demographic is not at home in front of their TV sets, has also not panned out for the UFC yet. Moving the content to mid-week is a noted option in 2013, but nothing has been officially decided.  They will be doing the next season of TUF (2012) in the same Friday night time slot and analyze those numbers as well before making a final decision.

There is something to be said about the simplicity of being a UFC fan and being able to find all the content you needed on one network. Now, with multiple platforms designated with different UFC content, fans are having a difficult time migrating from Spike TV to numerous FOX platforms. FOX only shows UFC events 4 times a year, FX only on Fridays and sometimes on Saturday, while Fuel TV has designated days where they show no UFC content at all despite airing over 300+ hours of UFC programming a month . The complexity for the typical MMA TV viewer has definitely increased since the deal, but it looks like most fans have now made the transition.

The question you have to ask now is that if fans have indeed already made the transition from Spike to FOX, shouldn’t ratings be going up, or is there something else impacting the ratings? The sheer frequency of MMA content the MMA fan has access to now a days plus the number of events, injuries, focus international expansion, etc. will certainly test Zuffa’s theory that the demand continues to exceed the supply, and that they in fact need to put on more events than they are already doing.  The old saturation equation of greater frequency results in a watered down product has been brought up quite a few times, using most recent cards like UFC 147 and UFC 149 as perfect examples.  The next two quarters should give us a pretty good indication whether ZUFFA as a promotion and the average MMA fan can keep up with this torrid pace.

Will MMA ever be an Olympic sport?

July 26, 2012

MMA Fighting reports on a recent poll which indicates 25% of Americans think Mixed Martial Arts should be an Olympic Sports.  The poll which was commissioned by Yahoo! Sports indicates MMA is second only to baseball (33%) in sports people would like to see in the Summer Games.

In addition to baseball and MMA, softball (24%), lacrosse (19%) and field hockey (15%) round out the list.  Notably, softball was last an Olympic sport in 2008.  It will sit out 2012 and 2016 but there is support for its return in 2020.  My last check has field hockey as a current Olympic sport.  Baseball was last an Olympic sport in Beijing in 2008 and there are no plans for its return at this point.  With the World Baseball Classic, which returns in 2013, there is at least a reasonable replacement for its absence from the Summer Games.

Via MMA Fighting:

Yahoo! partnered with Ipsos MediaCT to conduct the study in May of 2012. 2,000 U.S. adults ages 18 to 64, ‘who are representative of the U.S. online adult population’, were polled, according to a press release

According to the report, UFC head Dana White is for amateur MMA provided that it is regulated.  White would like to see the Olympic committee get behind the idea, and similar to boxing, White would like to see amateurs do well so that when they turn pro, they would have a built in fan base.

Payout Perspective:

The Summer Games already have amateur wrestling, boxing and tae kwon do as sports.  Would it have room for mixed martial arts?  The one issue for MMA to be an Olympic sport would be the need for an infrastructure to train and regulate amateur fighters.  It’s unlikely that the UFC, Strikeforce or Bellator fighters would want to compete for free despite it being for their country.  Moreover, it would be unlikely that Dana White or Bjorn Rebney would allow one of its fighters under contract to fight (with the possibility of being injured) at the Olympics. But, with the popularity of the sport, we could see younger, unsigned fighters seeking visibility going the amateur route.  Perhaps we see wrestlers or boxers that could not make it in their sport make it in MMA.  In the end it is nice to see the support and notoriety MMA is receiving.

Zuffa Maintains “BB” Credit Rating After $50M Add-On

June 18, 2012

Standard and Poor’s February report states that it has maintained Zuffa’s credit rating at “BB” following a $50 million add-on proposed to it’s senior secured term loan, which now has a sum of $525 million.

The issue-level rating on the term loan in ‘BB’, which is the same as the corporate credit rating, with a ‘4’ recovery rating (in case of a payment default).  The $50M add-on brings the total size of the senior secured credit facility, which includes a $50M revolving credit facility, to $525M. The intent of the additional debt is for Zuffa to use the proceeds in order to repay the outstanding balance on its revolving credit facility.

As always, the ‘BB’ credit rating from Standard & Poor’s reflects the assessment of Zuffa’s business risk profile (‘fair’) and the company’s financial risk profile (“aggressive”).

The following S&P concerns kept Zuffa’s credit rating from being upgraded:

  • Risk of revenue and EBITDA volatility given the company’s primarily event-driven business model
  • Vulnerability to changing consumer preferences and susceptibility to variability in discretionary spending
  • Management’s aggressive financial policy (high level of distributions in recent years & high debt leverage)
  • Although the UFC has a strong fan-base, in order to maintain their advantage, they need to continue to develop fighters that appeal to the 18-34 demographic.
  • Preserve current regulatory acceptance of the sport. Fatal injury or change to the rules and regulations governing the sport and legal status could have meaningful impact to the company’s business model and long-term viability.

The concerns stated above are mostly offset by S&P’s belief that Zuffa’s strong EBITDA margin and healthy cash flow conversion rate are sustainable over the near to intermediate term.

 

Report Summary

  • Revenue and EBITDA decreased in full-year 2011 compared with 2010, as key fighter injuries likely contributed to lower PPV buys along with weakness in merchandise sales.
  • Despite Zuffa’s weaker performance in 2011 compared to 2010, S&P is expecting Zuffa’s 2012 EBITDA to rebound back to a similar level seen in 2010, which will be driven by increased PPV & event revenues, as well as by it’s recent television contract with FOX Sports Media Group.
  • The FOX television deal is expected to yield more favorable economics for the Zuffa, as it replaces it’s previous Spike TV and Versus TV deals, over the term of the agreement as it reduces the risk on the more volatile event based revenue.  The belief is also that Zuffa should be able to deliver more content and be able to expand it’s audience due to FOX’s distribution capabilities.
  • S&P believes that Zuffa’s total debt to EBITDA and EBITDA interest coverage looks to remain in line with the rating over the intermediate term.
  • S&P will be expecting the owners to to continue pursuing moderate distributions over time as Zuffa continues to grow, which will most likely preclude any meaningful sustained improvement to the financial risk profile.
  • S&P is approximating 55% of total revenue is event-based (majority which depends on PPV buys and ticket sales).  The remaining 45% of total revenue is estimated to be sourced from live and taped TV broadcasts, sponsorship, merchandising, licensing, and content distribution agreements.
  • The expectation is that over the life of the new FOX TV deal, TV broadcasting may become a larger source of revenue, which is a positive considering the volatility of event based revenue.
  • The report points out that Zuffa has successfully expanded the sponsorship and merchandising portion of the business in recent periods, which also improves the stability of the revenue and strengthens the business model.
  • Zuffa’s plan of international expansion is seen as a positive due to growing the diversification of it’s ban base and broadening the acceptance of the sport worldwide.
  • Zuffa is now taking a more measured approach in expanding into new markets, where the acceptance of the sport and profitability are ensured.  The UK expansion was noted as a market which  resulted in extremely volatile EBITDA  margins.
  • The report once again points out that Zuffa could face increased labor costs in the future if fighters organize (union) and seek a higher share of revenue, which is the case for most major sports in the U.S.
  • The acquisition of Strikeforce (along with the WEC) is believed to have strengthened the UFCs already dominant market position, as it continues to increase the number of fighters and title fights under the promotion.

LIQUIDITY:

  • Zuffa has an “adequate” liquidity profile to cover its needs over the next 12 to 18 months. Sources of liquidity are expected to exceed uses by at least 1.2x and remain positive, even if EBITDA declines by 20%.  Sources include cash flow generated from strong operations,  and it’s revolving credit. This assessment is despite  Zuffa only having $1M of availability under it’s $50M revolving credit facility as of Sept. 30, 2011.
  • Borrowing under the revolving credit facility are subject to compliance with a max 5X senior secured leverage ratio covenant. There was a meaningful cushion at the end of Sept. 2011 quarter. Zuffa’s revolver expires in 2012, however the report expects it will successfully extend the revolver maturity to early 2015 based on the terms of it’s recently proposed amendment, followed by the term loan maturity in mid-2015.
  • Zuffa’s payments for taxes are primarily distributed directly to the owners and additional dividend payments are limited by a restricted payment basket under the credit facilities.
  • Expectations are that the owners will continue to pursue max distributions allowable under the credit agreement.

Zuffa Credit History

November 2007 – S&P Cuts Zuffa Rating, BB to BB-
July 2008 – Zuffa Rating Goes Negative to Stable
July 2009 – Cuban Now a Zuffa Bond Holder
October 2009 – S&P Re-Affirm BB-, Slide Recovery Rating Down
December 2010 – S&P Raises Zuffa Rating, BB- to BB
August 2011 – Zuffa Maintains “BB” Credit Rating
February 2012 – Zuffa Maintains “BB” Credit Rating After $50M Add-On

 

Payout Perspective

Typically, a rating of “BB” implies that Zuffa is less vulnerable in the near term, although it faces major ongoing uncertainties and exposure to adverse business, financial, or economic conditions, which can result in failure to meet its financial commitments. On the other hand, it’s a credit rating of “stable”, which is not a bad place to be for a company who’s core business model is volatile and can be affected by many market variables. The rating holds with the belief that Zuffa’s ability to successfully market UFC events will continue to drive strong revenue and cash flow.  Due to the business model being so volatile, a negative rating by S&P is always a possibility due to declining PPV sales (economic weakness and/or declining consumer interest) and the result of weaker profitability due to expansion efforts. Another interesting note is that, just as before, it mentions that given Zuffa’s aggressive posture towards dividends, tarting upside potential is limited over the intermediate term, despite potential improving measures in 2012 based on expectations for revenue and EBITDA growth.

A focal point of the report should be S&P’s assessment that Zuffa’s total revenue now has a 55-45 split. This is notable considering that previous assessments have placed Zuffa in a 75-25 split, where 75% of total revenue was expected to be event based (PPV buys and ticket sales).  An expected 55-45 split would be great for Zuffa, as it shows a more diversified and stable business model. The international expansion efforts and the seven-year $100 million FOX TV deal help tremendously in bringing more stability to the UFC. The hope with the new FOX TV deal at the time was that more mainstream exposure would come to the brand by creating more PPV draws, and opening the door for more stable revenue opportunities which can help offset the volatile nature of having a PPV based core business model.  At this time, the TV deal expectations haven’t fully matured yet and the numbers don’t quite show it either, so it will be interesting to find out if this new assessed 55-45 split ratio has to do with the expectations of what the FOX TV deal is supposed to do for Zuffa, rather than what it has actually done in terms of performance over the last 7 months. We get into more details regarding the TV deal’s performance a little later.

The report points out that revenue and EBITDA for 2011 is down compared to 2010. The main reason given for the decline was injuries to UFC stars. The problem with solely blaming injuries and correlating it to revenue is that you hope next year won’t be as bad but as we are starting to see on a year-to-year basis, injuries are part of the sport.We made this assessment last time around, and since then, two of the UFC’s biggest draws, have either left the UFC (Brock Lesnar) or sidelines for meaningful amount of time (Georges St. Pierre has only fought once since 2010 and is not expected back until the end of 2012).  Injuries is an unknown that cannot be controlled or correctly estimated beforehand, so injuries will always be a hot topic again in 2012, as it has been for the past 2 years.  As example, the upcoming UFC 149 event in Calgary has had every main event match-up changed since the official lineup was announced due to injuries.  Fans pay a premium up front to see a UFC event, but may get a completely different card by the time the actual event takes place. Another factor we will keep our eyes on is fighter suspensions by the State Athletic Commissions due to failed drug and banned substance tests.  A failed test can draw a fighter suspension of around 1 year on average, so in addition to injuries, the combination of both really impacts the UFC’s bottom line due the volatile nature  of fighter availability in combat sports.

If injuries and suspensions are the main component of declining PPV buys, then that brings up another issue. It means that fans are only willing to pay to see fighters that they deem worthy of their hard-earned money. It also shifts the drawing power to the fighters instead of the UFC brand and product they offer. It means MMA may not be enough anymore to get anyone outside of the MMA hardcore fanbase to tune in, and I’m sure that’s something the UFC hopes to address with the exposure the FOX TV deal brings along with its vast distribution platforms.

There has also been a lot of talk this year about the UFC or MMA peaking or plateauing, and pointing out declining PPV buys and TV ratings as a quick and easy measuring stick. So far, looking at the UFC/FOX TV Deal performance in Q1 2012, the numbers in general are trending down from what they were doing in Spike TV and Versus.  In fact, one of the biggest selling points of the TV deal was that the UFC would attract mainstream sponsors (which has not been the case so far) and that TUF would be featured on FX by switching to a LIVE format on Friday nights.  UFC President Dana White even went on record and was quoted as predicting 3 million viewers on average tuning in to catch the show, which is a main staple in developing talent and future stars.  The TUF Live debut on FX resulted in being the lowest rated season in TUF history (averaged less than 1 million for the season), and it was recently announced that the show will now switch back to being taped.  In terms of PPV’s, the FOX deal appears to have increased the popularity of a few featured fighters such as Cain Velasquez and Junior Dos Santos, but overall the effect appears to be minimal at this point.  FOX is a great platform for the product, but with only four contracted events on Primetime, the product does not have enough frequency to make a meaningful impact up to now and in fact, each event has produced less viewership since it’s debut (UFC on FOX 1: 5.7M, UFC on FOX 2: 4.7M, UFC on FOX 3: 2.4M).  FX has placed UFC content on Friday nights, which is one of the lowest rated nights in TV for the M18-34 demo.  The real winner has been Fuel TV, who has increased their ratings and households since the deal was announced, but is still one of the lowest rated ad supported networks in cable TV and is only in 36.2M homes.

In terms of competitors, Zuffa owns the MMA market domestically and worldwide if they chose to go to that market.  The key factor we will be observing and analyzing in 2013 is what type of effect Spike TV and Bellator will have on the market space.  Spike TV has been itching to get back to televising live MMA fights since UFC left the network and signed with FOX.  Spike has shown signs that they will be heavily investing in MMA (Bellator) and Pro Wrestling (TNA) starting in late 2012 as they prepare for a big 2013. Mentioned plans include cross promotion and fighter tie ins with both brands, as they have done before with Bellator champions on TNA events and Spike TV exclusive programming such as the Video Game Awards, and reality TV.

Media groups believe MMA still has potential, but at this point, it makes more sense for these media groups to either own or sign a very intimate contract with a promotion rather than having a licensing fee agreement for MMA programming such as networks have done in the past. Is more mainstream MMA content what we need for ratings and PPV buys to kick back up again or will it just add to the ever-growing free MMA content readily accessible from various TV and media channels? Will an adverse effect shift UFC’s business core to be more TV dependent in the next few years? Can you really sustain a PPV core model in the long run? These questions will continue to be asked as the FOX and Spike TV deals run their course.

It’s not realistic to expect that the UFC will outdo itself year-after-year, but it will be interesting to see how it can push itself off a potential stagnant stage and onto that next level as they have shown in the past with the Spike TV deal (TUF), the acquisition of PRIDE/WFA/WEC, and now signing the major FOX TV deal.  Focusing on stable revenue streams such as the FOX TV deal and international expansion (Brazil, Australia, South Africa, Asia, and India) are great ways to alleviate a stagnant domestic market and a great way to diversify your product’s fanbase.

MMAPAYOUT THOUGHTS:

– Zuffa has significantly drained their revolver, which makes you wonder what kind of burn rate/overhead they have.

-The other interesting tidbit is Zuffa’s dividend distribution policy. On one hand, some people think its smart/prudent to protect your gains/investment. On the other hand, some people say if you really believe in this company long term and its a business your going to keep, why would you cash out all the money instead of putting it back into the company.

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