The UFC’s Roadmap in China: Long-Term

The Chinese market is full of potential. China’s population is extremely large. Its economy is growing and a sizable middle class has begun to emerge in many urban areas. China is also a nation steeped in martial arts tradition. Yet, China is also a very challenging market to enter and the UFC will need a well-defined plan and impeccable execution in order to be successful in the market.

Last week we focused on the UFC’s short-term roadmap in China. Today, we’ll focus on the long-term.

Objectives

The UFC needs to determine what it wants to accomplish with this expansion into China – both in the short-term and long-term – before it actually lays out a road map and sets down the path. Therefore, the following is a list of brief objectives the UFC is likely striving to achieve in the market:

1.) Generate awareness and educate the Chinese about MMA/UFC
2.) Cultivate interest in the UFC brand
3.) Accelerate the growth of grassroots Chinese MMA
4.) Establish a viable business model for UFC Asia

I’m sure there are others that the UFC has identified and its are likely more detailed, but this is the gist of what needs to happen.

The Long-Term Roadmap

1.) Driving Grassroots Participation

Participation does not correlate to fan avidity across all sports (soccer in the US is a great example), but this is certainly the case with MMA. The sport motivates people to participate and, in turn, that participation draws them closer to the sport and its biggest stage. The UFC must do all that it can to facilitate this participation. UFC gyms are not an extremely viable option in the market, even in the near long-term of 5-10 years, but community development projects that involve local martial arts gyms in major cities could provide a launch point for re-charging and re-directing grassroots participation towards MMA in the country.

The strength of grassroots programs will also affect the development of local fight talent in the market. If Yao Ming has taught us anything, it’s not necessarily that a Chinese star is necessary for adoption, but that it certainly helps your cause to be able to leverage Chinese nationalism to generate interest.

2.) Live Events

I do not think that a consistent schedule of events are a serious consideration in the short-term – largely for reasons cited in the challenges piece – but I do believe the UFC will host events on the periphery of the Chinese mainland in the next 12-18 months. There is far less regulation or conservatism in Hong Kong or Macau that make these solid options for UFC events that will help further drive awareness and interest in the region.

In the medium to long term I also see potential in leveraging the considerable expatriate populations in Tier 1 cities to help make local events a viable option for the UFC. I’m not sure the UFC makes money on these events, but the expats will close the gap enough to the point where the UFC can justify the first few events as investments in the mainland market; its not taking a loss as much as it is paying for press and other promotional opportunities that might not be available without an event.

3.) Developing a Revenue Model

The last piece of the puzzle in China is money. The UFC needs to earn enough money to recoup its investment and then generate a return. If all goes to plan, it’s likely a return that few other investment alternatives (i.e., markets) could have provided. But how? That’s quite potentially the half-billion dollar question.

China is not a PPV market, but nearly 75% of the UFC’s revenues are event-related (i.e., from PPV or live gate sources). Thus, the UFC faces the possibility of either a.) cultivating a PPV market in the market, or b.) finding other ways to make money.

I see merchandise playing a bigger role in China than it has in other markets. This might especially be the case if the lifestyle component takes off as it has the potential to. However, I’m inclined to believe that merchandise will play a greater role in the UFC’s domestic revenue picture than it has in the past; even despite the fact that PPV revenues are also currently growing.

Beyond merchandise I like the idea of two different monetizing strategies with regard to the television product:

• The sports and entertainment industry as a whole is witnessing a shift in consumption towards on-demand platforms, which offer a variety of more engaging options for advertisers or sponsoring brands to interact with the consumer. These new advertising models (also known as branded content models) are growing in popularity and could provide the UFC with an opportunity to leverage the sizable viewing audience to rake in significant revenue.

• PPV may be an option at lower price scales. I do believe there’s potential in slowly introducing exclusive pay content such as fight compilations or documentaries for a nominal fee (e.g., 10-20 RMB) that might warm up the public to purchasing content. This may then allow the UFC to begin charging a similar nominal fee for certain events with the goal of using the small prices to drive enough volume to cover costs and earn a profit. It’s not a bad idea when you consider the size of the m18-34 demographic in China alone is roughly 200 million. If just 1% of those people buy an event 4 or 5 times per year, that’s $US 25-30 million annually. There’s a start.