Retro Payout: The UFC goes to China

November 23, 2017

As the UFC makes its debut this weekend in mainland China, MMA Payout goes in the wayback machine to a post the site did a little over 7 years about the hurdles of entering the Chinese market.

The post was written by Kelsey Philpott and was part of his travels while a graduate student at the University of Oregon.

The full article is below with a current Payout Perspective:

I recently traveled to China with my fellow MBA students at the Warsaw Sports Marketing Center in order to consult with several sports leagues and firms doing business in the country. Not only was the trip very successful for the Warsaw Center, but I’ve personally returned home with a better understanding of the Chinese consumer and the key challenges facing the UFC as it looks towards expansion.

Traits of the Chinese Consumer

  • Exceptionally nationalistic
  • Historically very conservative, especially where violence in concerned
  • The average salary in urban areas is 4,000 RMB/month (~$600)
  • A great majority of their entertainment is consumed through free, state-owned television programming
  • Increasingly influenced by consumer trends in Japan and the US
  • Possess global aspirations in all walks of life; money, cars, clothes, etc.

While in China, I very much got the sense that the country is in the midst of a culture shift; much in the same way that the country has experienced somewhat of a paradigm shift regarding its political and economic ideologies. The rapid development of China’s economy and underlying infrastructure (in most areas) has generated tremendous wealth, but it’s also provided the Chinese with a sort of global aspiration: they want – and can now afford – what everyone else has (i.e., fast cars, fancy clothes, and good entertainment).

The traditional Chinese values pertaining to face, family, and country are still very much in place. However, the added element now is a young Gen Y group with the confidence, ambition, and wherewithal to adapt those core values to the Western world.

Key Challenges

1. Chinese conservatism

Despite China’s storied martial arts history and emerging cultural thaw, MMA will not be an easy sell in the country. The Chinese are still by and large a conservative and risk-averse group of consumers led by an extremely protective and controlling government. MMA is a very aggressive and violent sport that’s easily misunderstood.

The biggest challenge for the UFC in China will be obtaining buy-in at the governmental level. If it cannot cultivate key relationships within the government it can forget about television coverage, live event permits, and any sort of merchandising initiative. The Chinese still follow the cultural lead of the government in many ways, and if the government decides to throw its weight behind something, not only does that something get done, but people tend to take notice pretty quickly.

2. Revenue generation

The next biggest challenge relates to the UFC’s business model. Nearly 75% of the UFC’s revenue is event-related, but China is neither a PPV market or a significant spectator market.

The Chinese consume a great deal of their sports through free, state-owned television programming and are reluctant to pay for what they’ve always had for free – even despite the increase in the number of set-top boxes in the country. Various different sports properties have tried PPV or subscription models in the last couple years, but each have failed (including a group that bought the rights to the EPL for three years at some $70m and fell into bankruptcy two years into the deal).

The fact that it’s far more easy and cost-effective for the Chinese to stay at home and watch an event for free makes them less inclined to watch live, especially in the densely crowded and difficult to navigate urban areas. The high rate of television consumption contributes to the lackluster live-game experience at most sporting events, which in turn provides even less incentive for fans to attend. It’s a self-perpetuating cycle.

Nearly every sporting event taken to China has struggled at the gate – the Olympics, F-1, ATP, European TOUR, etc. In many cases the government often resorts to hiring groups of people or assigning army units to attend events as paid spectators just to beef up the look of the event for global television audiences. It’s a very difficult ticket sales market.

Perhaps the best way to be successful is to play on Chinese aspirations for the consumption of world class goods and services. If the UFC brings its best and brightest to China and sells it as such, it may gain an audience on the merit of simply providing its best offering to the country. It would be seen as a sign of respect to which reciprocation is almost guaranteed as a matter of courtesy and obligation.

3. Patience

In the late 1980s, the Commissioner of the NBA, David Stern, crossed the Pacific and sat in the lobby of the CCTV HQ with a box of tapes on his lap looking to accomplish one thing: get his product on television. More than 20 years later, basketball and the NBA have finally started to take hold.

There are many reasons for the NBA’s success in China – it wasn’t just Yao Ming – but perhaps the most important is the combination of effort and money over the period of the last 20+ years. If you look at the current foreign sports landscape in China, the most successful organizations are all those that have spent a good chunk of time in the country. I do not think this is coincidence.

This third challenge is one borne of patience. Is the UFC willing to make the necessary investments — concessions on rights fees to get on TV, localized manpower to cultivate government relationships, and enduring rather high opportunity costs to put on live events — in a market that isn’t likely to provide a solid return for at least another five years?

4. Others

The above three considerations are probably the biggest challenges facing the UFC in China, but it will also have to contend with a variety of other issues to establish itself in the country:

  • Navigating the sometimes very different distribution infrastructure within the country
  • Protecting its intellectual property
  • Implementing or supporting a national development program

Payout Perspective in 2017:

There are obvious changes to the cultural and media landscape in 2017 than in 2010.   This article seems to believe that MMA has a future in China due to a deep talent pool.  The UFC now has a television deal and a digital platform, UFC Fight Pass.  This weekend’s event from Shanghai will be on UFC Fight Pass.  The fact that this event will cater to the local market, the event will air live starting in the middle of the night in the U.S.  But, for Fight Pass subscribers, this will be no issue since they can watch it whenever they please.  The globalization of MMA has expanded the popularity of the sport and with ONE FC operating in Asia, the Chinese market for combat sports seems attainable for the UFC.  With a population of 1.4 billion and a financially stable middle class, there’s a reason why the UFC would like to penetrate this market.

Report outlines Top Rank’s path to its ESPN deal

November 22, 2017

Last week’s Sports Business Journal reported on ESPN’s return to boxing.  The article focused on Top Rank’s deal with ESPN this past July and how it transitioned from premium cable to basic cable.

There was interest from Top Rank into obtaining a rights fee deal the likes of the UFC and Fox.  A key point was shoulder programming which would help with promoting the fights.  Top Rank Boxing president Todd DuBoef analyzed the promotion’s ratings on HBO and saw that they were comparable to the shows the UFC put on FS1 and thought there might be interest for shopping his rights with the knowledge that the UFC was doing the same.  DuBoef sought help from CAA about the possibility.

According to the SBJ article, there were three reasons for ESPN’s dive back into boxing:

One is the opportunity to capture all of the promoter’s fighters and fights, without the concern that the stars they develop will then move to premium cable. Another is the soon-to-be launched OTT service, which will rely on deeply engaged fans who will pay for content like Top Rank’s fight library, and also brings the distribution of pay-per-view into play. The third is the data narrative that DuBoef and CAA brought to the initial conversation.

The article notes that Al Haymon’s PBC was an archetype for Top Rank to gage the level of interest boxing may have with a broader audience.  The interesting take is that despite the sport skewing to the older demographic, it grabbed a slice of the 18-49 demo.  PBC’s business model to buy time on the air with the hope to “flip” the model has not worked.  The article notes that deposition testimony from the litigation involving PBC professes that the flipping of the script for PBC to turn the model for networks to pay for PBC rights was to have occurred in 2018.

Ratings reflect that young male demo is watching boxing.  The first Top Rank fight featuring Manny Pacquiao taking on Jeff Horn drew well in the 18-34 demo as 836,000 of them tuned in when Pacquiao stepped in against his Aussie challenger in July.  The next month, a fight featuring Vasyl Lomachenko beat out a UFC Fight Night in the demo 137,000 to 109,000 and 317,000 to 271,000 for males 18-49.  Although the UFC show on FS1 fared better overall, the ratings saw the younger male demo scoring better.  In September a Top Rank card headlining Oscar Valdez drew better than a UFC Fight Night on FXX.  Boxing beat the UFC 706,000 to 502,000 viewers.

Payout Perspective:

It’s an interesting article because of the perceived newfound partnership between each party and its duties with the main goal of attracting a broader audience which includes a younger demographic.  There is an inference that television boxing consumption skews to the older demographic which may be true.  However, there is a sense that the premium channels on which boxing aired, as well as the lack of advertisements on those networks were key factors as to the older demo.  The ESPN deal helps both boxing and the network.  ESPN gets live content while boxing has the chance to be viewed by a broader audience and will be aided by programming that will help its own events on the network.  So far, ratings seem to show that it is successful.  We shall see how it does in the long run.  As of now, it seems that Top Rank has learned from PBC’s falters in what works on the network and what does not.

UFC Fight Night 121 draws 815,000 viewers, prelims 775,000

November 21, 2017

UFC Fight Night 121 drew 815,000 viewers on FS1 Saturday night per Nielsen.  The prelims which preceded the main card on the network drew 775,000 viewers on the network.

The main event featured Fabricio Werdum as he defeated Marcin Tybura via unanimous decision in a heavyweight matchup.  The prelims featured bout saw Ryan Benoit score a headkick KO of Ashkan Mokhtarian in the third round of their fight.

According to ShowBuzz Daily, the main card drew 0.26 in the A18-49 demo and the prelims did 0.25 in the same demo.

The 60-minute post-fight show on FS1 drew 321,000 viewers and 0.14 in the A18-49 demo.  The post-fight show started 20 minutes late due to the main card overrun.  The pre-fight show was abbreviated to 10 minutes due to College Football overrun.  It did draw 739,000 viewers in just 10 minutes.

Payout Perspective:

The ratings are lower than last week’s card but 815,000 has to be a success considering the lack of buzz and notable fights on this card.  The 775,000 for the prelims is another good number as it was going up against college football Saturday night.

New sponsors sign with UFC thanks to Endeavor, Performance Institute

November 20, 2017

The Sports Business Journal had another issue dedicated to combat sports and the UFC was a part of it with an article about how the new owners have opened up new spaces for sponsorships.

With the new ownership, Endeavor took over the role of sponsorship sales as the UFC’s department was cut as part of the trimming of the company upon acquisition.  It has been able to upgrade the UFC’s sponsor portfolio.

One thing that was not scaled down during the purchase was the new UFC Performance Institute in Las Vegas.  The center which caters to UFC athletes was a $14 million investment.  It is a 30,000 square-foot training complex similar to the ones utilized by NBA, NFL, NHL and MLB athletes.  It is staffed by strength and conditioning coaches, trainers, nutritionists and physical therapists.

This past May, the UFC secured a deal with New York’s Hospital for Special Surgery.  HSS provides the UFC access to their team of physicians and serve as orthopedic consultants to the physical therapy staff at the new UFC Performance Institute in Las Vegas.  In addition, it secured Body Armor as its “official sports drink” and Performance Inspired as “official sports supplement” of the UFC.

Via SBJ:

Barely six months after opening the facility, UFC has tripled the sponsorship revenue that it expected to bring in based on pro formas, landing brands such as sports drink Body Armor and nutritional supplement Performance Inspired. It didn’t hurt that WME clients Kobe Bryant and Mark Wahlberg are investors in those two respective companies.

In addition to these new areas is the idea of integrating sponsors into the UFC content instead of selling spots and dots which is a reference to patches and banners that the UFC traditionally used as revenue drivers.  For instance, fighters will appear on 7-Eleven cups as part of the convenience store sponsorship.  In 2018, when Modelo takes over as the official beer of the UFC, it will feature fighters in its “Fighting for” series of commercials.

Payout Perspective:

The article which interviews Lawrence Epstein seems to be optimistic about attracting more sponsors to be “official” UFC partners.  Although the space has yet to be occupied Epstein expects that the UFC will have a fast food sponsor and insurance sponsor.  Despite the fact Geico and Progressive have purchased spots on UFC events on FS1, it has yet to secure a deal.  But, with Endeavor in the fold and its broad range of contacts, we might see the UFC expand with more “official” sponsors.

As of now, no takers for UFC’s new media right deal

November 20, 2017

The Sports Business Journal reports the UFC’s current state of negotiating a new media rights package once its deal with FOX is up.  Currently, the new asking price of $450M per year is a stiff increase that is not garnering a lot of interest at this point.

The current deal with FOX is worth $120 million per year (with it jumping to $160 million for the last year) for the 7 year deal which ends at the end of 2018.  The UFC is looking to increase its rights fee to $450 million per year.  Traditional media companies appear to be weary of the hefty ask.

The article notes that it has had meetings with online companies Amazon and Oath.  There has been speculation that the next media rights deal could include a digital only platform which would be unprecedented.

SBJ notes that with the WWE’s media rights deal coming up in the fall of 2019, the market and bargaining leverage might be hindered for the UFC.  WWE has met with Fox earlier this summer as part of the pro wrestling company’s road show with various networks “to show the power of its programming.”  The WWE’s deal with NBC in 2017 is estimated at $180 million.

Payout Perspective:

With the WWE’s media rights deal up around the same time as the UFC, re-upping with Fox may be tougher than expected.  Although the two companies differ in entertainment products, Fox could see the WWE as a suitable replacement (with better TV ratings) for its FS1 network if the UFC asks for too much.  The unknown factor is the possibility of taking its media rights to a digital only platform.  While this may seem unlikely, the UFC has been a company willing to take risks.  The new ownership may be risk averse but if it cannot secure a deal in the neighborhood of its asking price from a traditional media company, it may look to other alternatives.

UFC attendance and bonuses (only 3 $50K bonuses awarded)

November 19, 2017

The UFC announced the attendance, gate and bonuses for Saturday’s Fight Night 121 from Sydney, Australia.  Only 3 bonuses were handed out.

The bonus winners were Tai Tuivasa, Nik Lentz and Damien Brown.  Tuivasa and Lentz drew the Performance bonuses of $50,000 each while Brown earned Fight of the Night honors.  Brown’s opponent, Frank Camacho, missed weight and was not eligible for a bonus.

In addition, the event drew 10,021 at the Qudos Bank Arena in Sydney.  No live gate was announced.  According to this, the seating capacity is 18,2000 for the venue.

Payout Perspective:

Ryan Benoit could have been awarded the other $50,000 bonus for his head kick KO of Ashkan Mokhtarian but the UFC decided to just award Brown and keep the other $50,000.  The attendance is good for an event that had little interest unless you are a hardcore UFC fan.

Another UFC Heavyweight flagged by USADA for potential violation

November 18, 2017

UFC Heavyweight James Mulheron has been notified of a potential violation of the UFC anti-doping policy and has been removed from his fight against Cyril Asker next week in Shanghai, China at UFC Fight Night 122.

Mulheron fought just once in the UFC, losing against Justin Willis at UFC Fight Night from Glasgow, Scotland.

Via UFC.com:

The UFC organization was notified today that the U.S. Anti-Doping Agency (USADA) has informed James Mulheron of a potential Anti-Doping Policy violation stemming from an out-of-competition sample collected on November 10, 2017. Due to the proximity of James’s upcoming scheduled bout at UFC Fight Night: Bisping vs. Gastelum in Shanghai, China on November 25, 2017, against Cyril Asker, Mulheron has been removed from the card and UFC is currently seeking a replacement.

Payout Perspective:

Yet another Heavyweight falls to USADA it appears.  It’s not clear why heavyweights may be susceptible to the anti-doping policy but it appears that this is happening more than other weight classes.  As we know, Anderson Silva was removed from this card because of a potential violation as well.

Early estimates of UFC 217 PPV are at 875,000

November 17, 2017

Dave Meltzer of MMA Fighting is reporting that early estimates of the UFC 217 drew 875,000 PPV buys in North America making it the biggest PPV show for 2017 thus far.

UFC 217 featured Georges St Pierre’s return against middleweight champion Michael Bisping in addition to two other championship fights.

Google trends reflected strong interest in the PPV.  There were over 1 million google searches on the Saturday of the PPV for UFC 217.  The UFC Prelims drew 1.276 million viewers despite starting on FS2.

Payout Perspective:

Very good result but if you are gaging success by the 1 million PPV buy threshold, it may disappoint.  There were 3 title fights and the return of GSP.  There was more interest in Canada for this PPV but it wasn’t enough to hit 1 million in North America.  The good news that it’s likely the PPV buys worldwide exceed 1 million and shows that GSP is still a draw.

Werdum charged with assault after hitting Covington with boomerang

November 16, 2017

Fabricio Werdum is in trouble after a video showed him throwing a boomerang at UFC welterweight Colby Covington.  According to an Australian news outlet, Werdum has been charged with common assault.

Werdum is the headliner of Saturday UFC Fight Night card in Sydney, Australia where he faces Marcin Tybura.

The video shows the two getting into an argument and then Werdum appears to throw a clear plastic bag which had a boomerang inside of it.

Covington went on Facebook Live after the incident and used an anti-gay slur in the direction of Werdum.  Just last month, Werdum was disciplined for using a similar slur in a confrontation with Tony Ferguson.

It appears that Werdum will have to return for a court date in December.

Payout Perspective:

This is something that you cannot do especially outside of a hotel in a country where the company is trying to develop a presence.  Werdum is in the wrong for throwing a boomerang at Covington and Covington is wrong for his continued generalizations against the people of Brazil.  The UFC has to step in and it will be interesting to see what it will do to Werdum who is in trouble for the second time in two straight months.  Covington has been under fire after his post-fight comments in Brazil calling the people of Brazil “Filthy Animals.”  We’ll see if there are any repercussions for Covington although it would seem in the legal case he is the victim.

Nunes makes Forbes’ “30 under 30” list

November 16, 2017

UFC women’s bantamweight champion was chosen to be on Forbes’ ’30 under 30’ list for 2017 in the area of sports.

Nunes, 29, defended her title this past September.  But, she was mired in controversy when she pulled out of UFC 213 with an injury causing Dana White to criticize her.

In addition, boxer Saul “Canelo” Alvarez was picked for the list as well.  Alvarez fought twice in 2017 with both fights (vs. Julio Cesar Chavez, Jr and Gennady Golovkin) drew over 1 million PPV buys.

Here is her Forbes writeup:

“She sent shockwaves through the UFC world by defeating Ronda Rousey in just 48 seconds. The first openly gay champion for the sport, Nunes is the reigning women’s bantamweight champion with a 15-4 record. Nunes has an endorsement deal with TEN spring water.”

In 2016, Jose Aldo made the annual list for sports figures.

Payout Perspective:

Nunes should be more of a star than she is and hopefully the Forbes lists helps with her celebrity.  Her pulling out of UFC 213 may have put her in the UFC doghouse.  After destroying Ronda Rousey, you would have thought she would be the next woman fighter to make it to mainstream appeal.

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