Fighting For Every Dollar: UFC Uncaged
This post explores the UFC's approach to generating revenue, borrowing from old experiences of Boxing and WWE.
https://www.youtube.com/watch?v=FFcLCrSPT7A
(Clip of Anthony Pettis- Former Lightweight Champion from Roufusport MMA Gym in Milwaukee, WI)
After recently celebrating its 20th year anniversary, The UFC (Ultimate Fighting Champion) has solidified itself as one of the most premier leagues for Mixed Martial Artists. Much of the success of the UFC is attributed by Zuffa LLC who bought the UFC in 2001 to save the latter from going under. The UFC was chosen as an example of a highly effective organization which drives efficiencies between its business and operating models.
Disclaimer: Zuffa LLC which owns the UFC is a privately held company so, the information presented is based purely on the analysis completed by those infatuated with the UFC enough to dig through Standard & Poors, and Moody’s analysis in addition to reports published by Deutsche Bank which served as a lead arranger for loans made to Zuffa in 2007 and 2009.[1]
UFC’s Business Model
The UFC is a mixed martial arts league which generates revenue from broadcasting fights. The main sources of revenue are [1]:
- Pay-Per-View Buys
- Ticket Sales, Closed Circuit, Commercial
- Other “PPV Event” Revenue
- Merchandising, Licensing, Sponsorship
Late in 2011, the UFC signed major television contracts with Fox in the U.S, and Globo & Globosat in Brazil both of which combine for over an estimated $1B. From 2009 to 2013 it is estimated that the UFC has achieved an increase in 50% in total revenue, passing the $250M mark in 2008.[1]
UFC’s Operating Model
UFC Fighters are the primary assets of the UFC. Fighters are hired on a contractual basis for a specific number of scheduled fights. Fighters are paid a standard base for these fights and provided opportunities to earn bonuses for categories such as “Fight of the Night”, “Knockout of the Night”, “Submission of the Night”, and so on. Since most contracts are based on the number of fights, many fighters can be shown the door for better or worse through the scheduling of bad fights (where one fighter is far more inexperienced, or has to travel to another country), hence keeping a revolving door of opportunity. There has been numerous discussions detailing how fighters barely see any of the revenue the UFC generates which seems to be an intentional part of their operating model. A quick google search will show that there are very few top “prized” fighters who earn above $250K in a bout.
Another important aspect of the the UFC’s operating model is their cost-structure. Besides paying their athletes, the UFC tends to only incur costs (set-up, tear down, venue, etc.) when there is a night of bouts scheduled. Much of these costs are offset by the various revenue streams associated with the Fight Nights. While the UFC does spend money for marketing and advertising, much of the marketing and advertising is done for the UFC by their athletes who typically do their own self-promotion as a way of gaining fans and building a personal brand in hopes of becoming a top tier fighter.
Conor McGregor: The most dangerous man in Westeros
End Game?
The UFC has been able to grow by borrowing tactics similar to WWE’s Monday Night Raw or Thursday Night Smackdown and launching their own weekly or bi-weekly UFC Fight Night. The UFC also launched their own reality television show called The Ultimate Fighter (TUF) in order to draw in more fan and boost the brand. Slowly, the UFC is becoming more of a media company, seeking to maintain the rights of their own footage while also collecting footage from other fight leagues it has purchases to build an impressive library. Having low COGS mixed with high earning diversified revenue streams (such as merchandising that as made millions switch from their terrible Affliction T-shirts to UFC gear) have allowed the UFC to really grow monetary and brand wise. The UFC will continue to grow for the forseeable future…unless it loses its most faithful assets: fighters who are able to bring views and buy tickets.
Sources:
[1]- “What Investors are being told about UFC revenues”
http://www.bloodyelbow.com/2015/10/20/9547333/what-deutsche-bank-moodys-and-standard-poors-tell-us-about-the-ufc
[2]- http://www.rollingstone.com/sports/news/ufcs-conor-mcgregor-says-hes-the-strongest-man-in-westeros-20151207
[3]- http://20years.ufc.com/
[4]- http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11253267
[5]- http://www.bloodyelbow.com/2014/3/10/5491476/ufc-ceo-lorenzo-fertitta-fighter-ppv-wwe-video-interview
Great post Benny! It will be interesting to observe if and how the operational model will enable UFC to maintain its financial performance as it will increasingly compete with major online and offline pay-TV offerings in the sports and general entertainment category.
Great job Benny! The UFC is an interesting growth property that is clearly picking up interest in the U.S. I wonder what the future of the property will be. Boxing was ultimately forced to go into pay-per-view to raise necessary dollars for fights but to date UFC has succeeded with the opposite approach – TV rights deals on major networks. As sports remains the final live appointment viewing property, it will be interesting to see if UFC can continue to capitalize as a secondary form (after the Big Four American sports league) and potentially one day reach the popularity of some of the traditional sports both in the U.S. and abroad.
Thanks for the post, Benny.
The UFC has certainly grown in size and, as you mentioned, their doubling of revenue shows there’s tremendous growth in the sport. I do wonder, though, whether or not the violent nature of the sport will always mean that it’s a niche market for practitioners of MMA and superfans; thereby not becoming a “mainstream” sport the same way football, basketball, or tennis is considered. Or perhaps what it needs are some incredible superstars like Anderson Silva or Conor McGregor. An analogy that comes to mind is boxing, a sport that can pull in hundreds of millions of dollars when a culture is built up around characters like Muhammad Ali and Floyd Mayweather, but otherwise is absent entirely from the headlines.