The Affliction vs M-1/Fedor Litigation has provided some great insight on the behind-the-scenes dealings throughout the lifespan of the Affliction/M-1 partnership, which includes the cancellation of the Trilogy event and a last minute deal between Affliction and the UFC.
On June 7, 2011, a 55-page decision document was released, depicting in great detail as to what lead Affliction into dropping its MMA promotional aspirations and concurrently signing a deal with the UFC to get back in their good graces after being banned by the promotion in 2008.
Here are some of the tidbits disclosed in the decision:
– As of March 2008, Fedor had an oral agreement with M-1 that “obliged him to fight for M-1 for a two-year period in exchange for $2 million per bout, as well as a $1.5 million signing bonus”. Fedor also has an 8.5% interest in the company.
– In early 2008, Affliction’s Todd Beard informed M-1 that they were going to form an MMA promotion company after their relationship with the UFC had deteriorated.
– On April 14, 2008, Affliction and M-1 agreed that Fedor Emelianenko would be paid a $300k purse which was reported pay, and received an additional $1.2M consulting fee via M-1 Global, which totaled to a $1.5M purse after re-negotiating an earlier contract which did not include the Consulting Agreement (which was set up after considering some financials regarding taxes).
– Vadim Finkelstein invested $1 Million to open Affliction stores in Russia to make Affliction happy in order to form an Affliction/M-1 Global business, which they were also hoping to team up with Japanese promotion DREAM to run some co-promotional events in Japan, but Affliction was worried about the costs of such venture.
– On December 8, 2008, M-1 and Affliction clothing agreed on a $1 Million sponsorship deal that would heavily feature Affliction on the M-1 Challenge broadcasts for the 2008 and 2009 seasons.
– M-1 contends that each M-1 Challenge event costs around $250K US Dollars, which includes expenses such as venues, visa fees, travel expenses, stage, refs, and production. Affliction paid the first installment of $500K, never paid the rest ($500K). Affliction claims contract calls for 30 “unique” one-hour episodes of M-1 Challenge and only 27 were provided.
– M-1 claims that Affliction had growing concern, noting that Affliction’s Beard probably that the UFC was ready to sign with Fedor on any terms M-1 wanted, but M-1 held back trying to grow a “competitive promotion” with Affliction, using Fedor as the “trump card”.
– On May 13, 2009, the Trilogy event set for August 1st was presented, with Fedor fighting Josh Barnett.
– On July 9, 2009, Affliction began discussions with the UFC regarding a potential sponsorship deal.
– M-1 used their personal contacts to broadcast the Trilogy event on national TV in Russia, Channel One.
– On July 13, 2009, Affliction’s Bassiri met with UFC’s Lawrence Epstein, UFC’s general counsel, and discussed the possibility that the UFC would assume responsibility of the Trilogy event and postpone the event to September 19, 2009 in Dallas. Affliction wanted to leave the MMA promotion business and re-establish a relationship with the UFC. … MMAPayout: If you recall, this is around the time Zuffa insider’s were prematurely announcing a Fedor vs Lesnar main-event in Dallas for September, since part of the deal involved Affliction’s belief that they had a good enough relationship with Fedor that either he would follow them to the UFC, or would honor the one fight that was left in their contract. No one in Affliction informed M-1 of the meetings they were having with the UFC.
– After M-1 found out that Josh Barnett failed a drug test on July 21, 2009 from the CSAC, both parties started looking for a suitable replacement for the Trilogy event on August 1st. Affliction’s Tom Atencio presented M-1 with Brett Rogers, Roy Nelson, and Alistair Overeem as possible opponents for the Trilogy main event.
– Tom Atencio offered Brett Rogers $500k to fight Fedor on July 22, 2009, but Strikeforce – who Rogers was currently signed with – refused. Strikeforce eventually gave Rogers permission to Rogers to be able to take the fight on July 23, but by that day, Affliction canceled the Trilogy event and on that same day announced a deal with the UFC.
– The agreement between Affliction and the UFC is detailed as follows:
“Paragraph 1 of the UFC/Affliction agreement provided: “[E]xcept for any rights that [Affliction] has with respect to Fedor Emelianenko (‘Fedor’) and conditioned upon [Affliction] . . . assign[ing] the agreements between [Affliction] and the [Affliction] Fighters to the UFC, the UFC agrees to assume [Affliction]’s responsibility for payment of the entire purse of the Affliction Trilogy Event which [Affliction] represents is not in excess of $741,000 purse and $370,000 win bonus. . . .” Paragraph 2 stated that “[w]ith respect to Fedor, in the event the UFC is able to come to an agreement with Fedor on terms and conditions satisfactory to the UFC, the UFC shall assume responsibility for payments of Fedor’s purse for the Affliction Trilogy event or cause Fedor to release [Affliction] from its agreement with Fedor.” Paragraph 6 required that Affliction Promotions cancel the Trilogy event.”
– On July 23, 2009, M-1 didn’t know about the cancellation of the event until after it arrived to Los Angeles with 30 fans from Russia. Fedor was studying some footage on Vitor Belfort and Brett Rogers on the flight to LAX. … MMAPayout: On June 22, Atencio accused Dana White of tampering and trying to sign Vitor Belfort to a UFC contract to face Anderson Silva. White appeared on a TUF 9 Finale promo on Spike TV making the reference.
Also interesting was how the report also gives a lot more details into Fedor’s finances. Not only did he own 8.5% of M-1, but he had signed a two year, 3-fight minimum guaranteed with them in March of 2008. The deal paid him $2 million per bout plus a $1.5 million singing bonus. According to the court findings Affliction paid him $1.5 million per fight and M-1 paid him the other $500,000. What is also interesting, and which contradicts the “Fedor is being robbed by M-1” common wisdom and talking points of certain forum posters, is the fact that Tom Atencio revealed that the M-1 consulting payments were a sham to avoid taxes for Fedor and that he could prove that the money went to Fedor or a dummy company set up for him.
Great synopsis Jose!
This new information finally gives a true answers to the question, “Why did Arlovski make over $1 Million for their fight in Anaheim and Fedor’s purse was reportedly only $300,000.00?”. While this new information answers many questions, it seems to raise even more at the same time.
John,
Exactly. The other interesting notion is that every bout Fedor fought, M-1 paid part of his signing bonus, they didn’t pay for all of it upfront. So that’s where the $1.5 million + extra $500K (or more) came into play.
It seems that M-1 may have needed to try and renegotiate with Affliction and Strikeforce as many times as they could just to try and meet the contract that they had signed with Fedor. Not only did a promotion dealing with Fedor have to worry about their contract with Fedor, but M-1’s contract with Fedor as well as M-1’s deals with other promotions were pretty much set up as a middle-man.
Another interesting point is how bad M-1 wanted to have a show in Japan and co-promote with DREAM. Affliction was hesitant to do so because of financial concerns and what would running shows in Japan do for the Affliction brand (I don’t think that’s one of their markets), which is why the venture never materialized.
Jose,
Actually, according to the court statement (footnote 151 on page 34 to be exact) “M-1 was obligated to pay Emelianenko $2,000,000 per bout, plus a signing bonus of $1,500,000. It paid a portion of the signing bonus each time Emelianenko fought,” M-1 was covering the difference between Affliction’s $1.5 mil and their guarantee of $2 mil per bout plus the signing bonus. So Fedor was making actually averaging $2.5 million per fight.
And I think your right concerning M-1’s constant re-negotiations. Counter to popular wisdom they come across in this as being the tails wagging to Fedor and not the other way around.
And yeah the desire by M-1 to run shows in Japan or Korea are of real interest. I think it can be explained by the fact that M-1 had the rights to Asia and having the fights take place in those territories would have greatly increased their profits and exposure.
I’m interested to see if the Zuffa documents and testimony ends up being released and if the their dealings with Affliction have anything to do with the rumored FTC investigation.
Great job as usual.
John,
Yes, that is what I meant. So there was a $1M difference there per bout that M-1 had to pay Fedor. If the shows didn’t profit, which they didn’t, I wonder if that meant that M-1 was writing that as a loss in terms of exposure. That must have been rough, and again, would explain the constant re-negotiations.
You are right about international shows and keeping TV and footage rights outside of the territory. It seems more though that they were taking losses in exchange of gaining a foothold in different territories, plus they could probably charge another fee to DREAM or any other promotion that was willing to co-promote with them. It really didn’t make sense for Affliction, which is why they started to look for a way out of MMA it seems. It makes sense now why M-1 wanted to co-promote and why they always stressed that parties would “share profits and EXPENSES” 🙂
UPDATE:
http://www.fightlawyerblog.com/2010/07/lou-dibella-is-offered-as-afflictions.html
“Affliction’s pro forma “estimated a small profit for the August 1, 2009 Trilogy Event based upon a projection of 200,000 ‘buys’ and a net gate of $1 million.”
Interesting…
“Affliction’s pro forma “estimated a small profit for the August 1, 2009 Trilogy Event based upon a projection of 200,000 ‘buys’ and a net gate of $1 million.”
I was going to bring that up as well. So for the $3 mil in payout ($1.5 mil for Fedor, $500,000 for his opponent, and $1.1 mil for the rest of the card according to the court footnotes), plus having no rights to the oversea market (M-1 got that), they still would have profited from selling 1/3 the average UFC ppv sales and 1/2 the gate? Makes one reconsider UFC’s profit margins.
John S,
Or, they are being incredibly optimistic. These were the figures thrown out for Trilogy to be profitable. Not sure I believe them since the first two events did much better attendance numbers and around 100K+ PPV buys and were still not profitable. Either way, they weren’t going t sell 200K PPV’s.
If that’s all they needed you would think they would have stayed in the MMA promotion biz 🙂
Jose,
Do you think it’s possible that Affliction had only $2 million in expenses (advertising, production, site fees, etc.) above and beyond their $3 mil in payouts? If it is, then it would be possible for them to make money with 200,000 ppvs x $20 a buy and a $1 million gate.
I can’t remember their ad campaign beyond the NY cabs and a billboard in LA, but was it that big?
Dont forget the sponsor of a car in NASCAR!
John,
Affliction spent a good amount of coin advertising their first show. They lowered it for the second but it was still a good amount, not to mention all the advertisement they did for Arlovski vs Barnett in Las Vegas that never materialized (as BrainSmasher is quick to point out the NASCAR advertisement for the event that never occurred).
I think the numbers given for Trilogy were best case scenario numbers with low expenses. You also have to remember that they got ~100K+-20k PPV buys for their first two events, so if they needed 200K buys to make some money, that didn’t happen.
Also remember that Affliction Banned and DOR events BOTH had payrolls of $4.5 Million,
It is no wonder why Affliction were quick to jump back into the UFC’s good graces. If you are spending that kind of money on Fedor and others, you will be hard pressed to make any money. It is also, easy to see why they folded. People can call the UFC cheap, frugal or anything else; but, they are not stupid with money.
It seemed Affliction regretted their decision to align with Fedor and M-1 from the start and looked for a way out. It was obvious to everyone working with M-1 was going to be a nightmare. Not sure why they took the risk. With their bankroll they could have ran well over a dozen events at UFC level pay and had a chance of at least breaking even and running even more shows. Affliction ran like its intention was to use a few events as advertisements to their brand of clothing and get out. Which is fine. Getting Fedor may have been inportant for that. But why pay 1.5 million for Arlovski when the next highest offer was 150K? 750K to ylvia whe the highest offer wa 100K at best? Lindland was way over paid as well as others. Why just give money away?
UPDATE From Justin Klein:
“The case is being sent to mediation — the Judge is trying to see if the parties can resolve, i.e. settle, this thing short of trial with the help of a third-party mediator. If the mediation is unsuccessful, the case will go to trial.”