Jim Ross opines on future of Fight Pass/WWEN

October 20, 2014

Former WWE color commentator Jim Ross had some interesting comments about the future of UFC Fight Pass as he seemed rather bullish on the future of the over the top model.  The comments come at a time when online services seem to be on the rise…or maybe on the decline depending on what you read.

In an interview with Bloody Elbow, Ross was quoted that the shift for companies such as the UFC and WWE to digital networks is a thing of the future.  Despite the rocky starts for each, he believes that it is a “genius-like maneuver.”

With last week’s announcements that HBO and CBS were offering online services and ESPN providing a streaming-only service for NBA content the week before, it’s apparent that over the top (OTT) network offerings are the growing trend.  But, is there enough of a market for them? Although the model seems to be geared toward cord cutters, it would seem that the addition of so many subscription services would negate any savings from cancelling a traditional cable package? Would it impact ad revenue?

Payout Perspective:

The WWE will make its quarterly earnings call on October 30th and we will see how much of a dent it has made in its goal of 1 million subscribers to its OTT WWE Network.  You may recall it made a meager increase in its goal last quarter.  The last report this summer indicated that it had added just 33,000 subscribers for approximately 700,000 total subscribers.  Even with the addition of an international market, it is unlikely that the 1 million goal could be met. This should be something that other OTT subscription services should take notice.

On the other hand, all reports suggest that the UFC Fight Pass is doing well (although no numbers have been revealed).  But, unlike the WWE, it keeps its PPVs separate from the network.  Fight Pass is geared for the hardcore fan and it would be hard to argue that it takes away from the UFC’s PPV buy rate.  While Fight Pass offers an extensive fight library and live fights from overseas, most of the marquee names and match-ups remain on PPV.

So, will digital networks like the WWE Network and UFC Fight Pass thrive in the future?  Perhaps for the young, cost-conscious consumer that is savvy enough to deal with the online world but do not want to be tied down with a traditional cable package.  But, it’s unlikely to take over.

Doritos plans 360 degree activation around UFC 180

October 19, 2014

Frito-Lay’s Doritos brand tortilla chip is seeking to make a significant mark in leading up to UFC 180: Velasquez vs. Werdum.  According to the Sports Business Journal, it is set to conduct a full-blown activation in Mexico.

Doritos is activating a 360 degree campaign in 300-plus stores across Mexico with more than 2.5 million bags printed and in market from October through November 2014.  The campaign will be supported across multiple platforms including mass media, digital, social media and business-to-business.

Payout Perspective:

The Doritos marketing strategy surrounding UFC 180 is similar to that of Tecate’s U.S. strategy (without the PPV rebates) in lead up to a Pacquiao fight.  Even though UFC 180 may not be considered a marquee event in the U.S., it is big in Mexico and Doritos believes that it is too.  With a “360 degree” marketing campaign promoting the event, one would hope to see a substantial number of viewers for this event thanks to this marketing.

UFC lists its audience profile in latest Sports Business Journal

October 17, 2014

The Sports Business Journal (subscription required) provided some figures related to the current UFC audience.  Notably, the UFC was featured in its “Sports Marketing and Properties Showcase.”

SBJ lists the UFC’ audience profile as 70% male, 45% between the ages of 18-34 and 6.5 years younger than the average age of other major sports fans.  Also worthy to note that 18% of the UFC fan base is Hispanic.

The information was provided in a special advertising section of the SBJ which was a 1 page list of UFC information likely provided by the company.

Payout Perspective:

The numbers positively reflect the organization’s position as a conduit to the youth demo.  One could probably have guessed that the UFC audience was predominantly male and skew younger.  The younger demo is likely due to the fact that a younger audience is more ready to embrace new things and would gravitate to the UFC faster than other demos.  In comparison, boxing demos skew older than MMA.  We should see the UFC hoping to expand that 18% Hispanic fan base especially with the new TV deal in Latin America and the hope for a big UFC 180.

More on Cung Le’s pending arbitration

October 16, 2014

MMA Fighting reports on the looming arbitration that will decide Cung Le’s suspension from a drug test which found elevated levels of hGH in his system.  The arbitration will be governed by the American Arbitration Association and procedures related to Olympic sport doping disputes.

According to MMA Fighting’s article, one arbitrator would be named although the parties could field three.  It appears that the arbitrators would be selected from the AAA Court of Arbitration for Sport panel. The panel is experienced in doping arbitrations which we may assume arise from Olympic drug testing disputes.

As was previously reported, it was confirmed by the UFC that Le would have a right to an appeal and it would be through AAA.  The description of the AAA arbitration process is similar in nature to that of a trial.  There would be a pre-hearing conference and then an “evidentiary hearing” (as described by the MMA Fighting article) which would determine the evidence submitted by both parties.  After this is decided, the arbitration will take place.  After the arbitration, the panel will make a decision within 30 days from the hearing.  Their decision will be binding.

It should be noted that one of the contention’s Le has made was that the laboratory that gathered the samples were following World Anti-Doping Agency (WADA) rules but was not a WADA-approved lab.  According to a law review piece by law professor Maureen Weston at Pepperdine University’s School of Law, under WADA rules, the doping report, conducted by a WADA-accredited lab, is presumed valid.  In citing the World Anti-Doping Code, the burden would be on the athlete to come forward with evidence that rebuts the presumption of doping, by showing the laboratory’s practice departed from international standards.  In Le’s case, the question is whether this presumption holds true for non-accredited lab if they followed the WADA protocol.

Payout Perspective:

This arbitration process may expose the UFC’s shortcomings when it comes to its drug testing policies especially in situations like these where it must act as its own regulator.  As we previously noted, the actual process for appealing the drug suspension was in question and we might infer, is not explicit in Le’s contract.  We state this because if an appeals process was clear, Le’s manager would have come out an indicated as much in their initial response to the UFC suspension.  Regardless, the process for the arbitration may reveal that the UFC was not prepared to drug test its fighters for this event.  Even if the reason was that the organization decided to conduct such testing on short notice, it should have had a system in place where it would have complied with WADA rules.  We will have to wait and see.

Squor offers fighters extra income using social media

October 16, 2014

MMA Junkie reports (via USA Today) on one of the newest revenue stream for MMA fighters which utilizes their following on social.  Squor pays athletes for using their platform when they are on social media.

Fighters have been paid up to $4,000 per month for just using the Squor link on their twitter feeds.  The company also offers bonuses.  UFC Strawweight competitor, Felice Herrig, confirmed that she was paid $8,900 per month for using Squor through “engagement bonuses.”  Conor McGregor was also a fighter mentioned in the article that does well each month from Squor per his use of it on social media.

Munoz’s Squor.

Edgar’s Squor.

You can follow UFC fighters on Squor here.

Payout Perspective:

It’s not clear how fighters earn their money from Squor or how Squor benefits but one might assume it’s based on the number of followers each individual has and how many of their followers click and follow the Squor link.  The monetary incentive for use of social media is reminiscent of the short-live twitter bonuses the UFC awarded.  The article does note that the “pay to post” revenue structure may one day run dry and Squor has offered a crowdfund option for fighters. For fighters, it’s another revenue stream for them that may benefit those in between fights.

Spike TV programming to support Bellator 131: Tito vs. Bonnar

October 15, 2014

Bellator announced shoulder programming on Spike TV to support November’s upcoming card featuring Tito Ortiz versus Stephan Bonnar.

The schedule is as follows via Bellator press release:

“Tito vs. Bonnar: Winner Take All

Premieres on Wednesday, November 12 at 11pm ET/PT

Before they battle it out in the cage, watch MMA light heavyweights, Tito Ortiz and Stephan Bonnar, sit down face-to-face and discuss their upcoming fight. Tension will be high as these two MMA greats discuss their keys to victory and their budding intense rivalry.

“Unrivaled: Tito Ortiz”

Premieres on Wednesday, November 12 at 11:30pm ET/PT

MMA icon Tito Ortiz clashes on November 15th with fellow legend Stephan Bonnar in the Bellator cage. “Unrivaled” investigates the scope and magnitude of this epic battle in this look back at the career roller-coaster ride of one of mixed martial arts most controversial pioneers, Tito Ortiz.  With the chip ever planted on his shoulder, Tito plans on showing the world just how brutal the Huntington Beach Bad Boy still is.  Love him or hate him, Tito Ortiz is truly unrivaled.

“Countdown to Ortiz vs. Bonnar”

Premieres on Friday, November 14 at 10:30pm ET/PT

Bellator’s stacked Nov 15th card will be previewed with an inside look at the heated rivalry between Tito Ortiz and Stephan Bonnar.  The show also breaks down the rematch between Lightweight World Champion Will Brooks and the man he beat, former champion Michael Chandler along with the highly anticipated clashes between King Mo and Tom DeBlass and Melvin Manhoef and Joe Schilling.

Payout Perspective:

The promotional shows leading up to events is nothing new as it helped Bellator 120 which centered around Rampage Jackson facing King Mo.  This set of programming hopes that viewers are still fans of Tito Ortiz as most of the features center around The Huntington Beach Bad Boy.  Bellator 131: Tito vs. Bonnar will air on SpikeTV and will need some help considering it goes up against UFC 180 that same night.

TV deals aid UFC financials in PPV decline

October 13, 2014

MMA Fighting reports that the UFC’s television deals are why the UFC has withstood down PPV numbers.  As previously reported by the Sports Business Journal and reflected in its latest S&P report, a combination of the television contracts and expansion overseas are seen as positive revenue drivers for the company.

In Dave Meltzer’s piece, he reports that a big PPV show that garners 1 million buys could generate between $22 million to $27 million for the company in one night.  Thus, the reason to keep PPV around.  Meltzer points out that Fox paid the UFC $2.2 million for UFC on Fox 11 this past April which he compares to a PPV with 85,000 buys.

It’s no surprise that television deals are the reason why there are more events on television.  One of the hopes is that these shows will reveal new stars.  As the SBJ article had questioned, there is a need for new UFC stars to carry the company on PPV.  The overall UFC PPV history which was listed in the SBJ article did not name a current UFC star until Lyoto Machida at number 7 on the list.  Similarly, the S&P report cites fighter injuries and juggling of matches as key reasons for the downgrade in the company’s credit rating.  It also noted a need for the company to develop fighters that appeal to its core demo.

Payout Perspective:

The inference from the information from the Meltzer article, the SBJ article and the S&P report is that the company could be at a turning point in its business model.  But, it has and still is a PPV driven company.  One need only look at how much the company can net with a big event as a primary reason why PPV will still be a part of the company’s business.  While the S&P report concludes that international expansion and television deals are stable revenue streams for the company, its PPV business is still a mainstay in its business model.  In fact, 2013 saw its PPV/live event revenue increase from 2012 per the S&P report.

It’s clear the UFC has mapped out a business model that currently works despite porous PPV numbers.  There are obvious concerns on the horizon as its television deals eventually plateau and/or the need to re-up with new deals.

Hughes gets own reality show

October 12, 2014

UFC Hall of Famer Matt Hughes will be featured on his own hunting show, entitled, “Uncaged with matt Hughes,” on the Sportsman Channel.  The show is an unscripted reality series which will follow Hughes as he goes on an African hunting expedition.

Via MMA Junkie:

According to the show’s official website, the series is “an unscripted reality show based on the life and hunting adventures of nine-time UFC welterweight champion, Matt Hughes. The show gives the audience an unprecedented look inside Matt’s life beyond the octagon as a husband, father and hunter. … The series is shown as it happens, with no acting or excessive recreates.”

The Sportsman’s Channel is available to approximately 35 million homes.

Payout Perspective:

The WWE’s Shawn Michaels has a similar hunting show although Hughes’ show appears to be just a one-off which covers his African hunting trip.  The show is a look at the post-fight life of a UFC star.  If nothing else, it exposes folks to the outside world of Matt Hughes and gets to know his hobbies outside of his fighting life.

Top Rank hopes for growth in China

October 11, 2014

The Sports Business Journal’featured an interesting article on Top Rank’s attempts to make inroads in China.

The article (subscription recommended) focuses on the boxing promotion’s efforts to gain momentum into China which is described as the world’s fastest-growing economy.  While Manny Pacquiao will make his second appearance in Macau later this year, it takes a glimpse of how the promotion is trying to build an audience with a Chinese audience.

Notably, Top Rank, in partnership with a Chinese sports marketing firm, debuted a weekly tv show on 10 regional sports channels within the country giving it wide distribution in the country. “Fists of Power,” which features fights from the Top Rank library and live events promoted by the company acts as a promotional tool for the company.

Top Rank held its first event this past August in mainland China.  Although not big, and perhaps just breaking even on its endeavor, the long-term goal is to become a mainstay in the country. The event was aired live and on delay on state-sponsored channels which has the potential to reach more than 1 billion households.

Payout Perspective:

Expansion internationally seems like the most logical step for promotions such as the UFC and Top Rank.  The obvious reason is the opening of a new audience.  The relative strength of its economy and the sheer size of the population make China a great growth opportunity. Top Rank follows the same playbook as the UFC does with its TUF series.  Allow people to see its product on television for free hoping that it entices them to patronize the promotion.  Despite Manny Pacquiao’s decline in popularity stateside, Top Rank hopes his appearances in Macau open up the Chinese market. From there, it hopes that the proliferation of local talent (e.g. former Olympic gold medalist Zou Shiming) will propel the promotion in the country.

Standard & Poor’s downgrades Zuffa, LLC from BB to BB-

October 10, 2014

Standard & Poor’s has downgraded Zuffa, LLC’s credit rating from a “BB” to a “BB-“ this week as a result of what it calls “greater EBITDA volatility.”  However, the analyst report states that the outlook for company is stable.

Standard & Poor’s issues credit ratings for the debt of public and private companies.  It is one of several credit-rating agencies that has been designated a nationally recognized statistical rating organization by the Securities and Exchange Commission.

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.

For those wondering, as I have in the past, EBITDA is an accounting measure calculated using a company’s net earnings, before interest expenses, taxes, depreciation and amortization are subtracted as a proxy for a company’s current operating profitability.

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-.

Other notes:

- In 2013, the revenues for Zuffa were split 58% event-based (i.e., PPV and ticket sales) and 42% from TV, sponsorships, merchandising, licensing and content distribution agreements.

We note that last year’s S&P report had the company’s 2012 revenue at 55% event-based (including PPV and live gate) with the other 45% dedicated to TV revenue, sponsorships, merchandise, licensing and content distribution agreements.  Thus, a slight increase in revenue geared toward events rather than other streams.  This is interesting considering the report finds the broadcast deals to be a more stable revenue provider than PPVs and live event gates.

- There’s an expectation that debt to EBITDA will increase to the high-4x area compared to the low 3x area previously.

We should also note that there was no mention of how Fight Pass impacts its revenue unless you consider it falls under content distribution agreements.

Payout Perspective:

There’s nothing earth-shattering in the report despite the downgrade in credit rating.  The silver lining for Zuffa is the S&P report believes that 2015 should be a recovery year dependent on key fighters coming back which the report suggests will mean higher PPV buys and gates.  The report lists the international expansion and the broadcast deals as positives for the company and even suggests a more stable form of revenue than the PPV model.  Still, the company is based on its events and fighters and the report indicates that injuries and juggling of events due to key injuries to fighters is directly related to the downturn in its business.  I should also note that the report never suggests that there is an oversaturation of the product that contributes to its current business climate.  One might argue that fighter injuries/juggling of events is related to too many events too close together but the report does not address this possibility.

It is ironic that there are reports that the UFC office in China is closing when the S&P report identifies international expansion as a key to produce additional revenue for the company.  Also, the report stresses the need for more fighters that will appeal to its core youth demo the same week that the Sports Business Journal comes out with a report that the company is in search for more stars.

What a week for the UFC.  The UFC’s credit rating is downgraded, Cung Le will appeal the UFC’s suspension which could reveal a rather shaky drug testing policy, the UFC reportedly closes its office in China and a former UFC fighter live-tweets a standoff with a SWAT team.  What a week.

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