Tag Archives: articles about business models

Why the UFC Has Locked Themselves In Place

I swear, I tried to come up with a clever title for this one, but when I bounced the metaphorical title “When Your Ride to the Dance Cockblocks You” off a female friend, she told me to stop calling her at 3 AM, so I decided not to go with that one.

For those that follow MMA, we’ve long heard the Dana White’s pronouncements that they would be the biggest sport in the world within a decade. While taking promotional hyperbole for what it is, it was clear he wasn’t completely joking either, and at least meant it’d join the company of major international sports like basketball and soccer. There’s also no denying the UFC had explosive and tremendous growth from around 2006 to 2010, and respectable international growth after that.

With an international roster of stars, a near monopoly on MMA’s top talent, and brand recognition synonymous with the sport of Mixed Martial Arts itself, the UFC has lead MMA to become a very major second-tier sport, perhaps a bit below tennis.

Unfortunately, their domestic growth in North America has been relatively stagnant. Things haven’t exactly skyrocketed in major second-tier markets Japan and the U.K. either, but part of that has to do with a relative lack of successful local fighters. Only Brazil has emerged in the last two years as a new major market, but they were always a no-brainer given the insane amount of talent they produce.

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West Hemisphere Best Hemisphere

Meanwhile the UFC bought out their biggest competitor in early 2011, folded them into their own roster in 2012, and snagged a lucrative deal with Fox that includes four show a year on the broadcast network to let people sample the product, on top of numerous free shows on FX (and third-tier network Fuel TV), which have now jumped over to Fox Sports 1.

The problem, for those still with me (I should make it clear this site is not the motherfucking Bleacher Report), is that for all the free shows they’ve rewarded their fans with, the UFC still adheres to a business model that relentlessly purges casual fans. Dave Meltzer made a very good case for it in a couple of recent articles for MMAFighting.com without saying it explicitly. On August 18th, UFC on Fox Sports 1 #1, an event on a channel that didn’t even exist the day before, attracted 1.8 million viewers and had a 1.4 coverage area rating (percentage of homes where the channel is available), just below the 1.5 that the UFC got for UFC on Fox 8 three weeks earlier. More than that, Fox Sports 1 actually won the night in the critical Adults 18-49 demographic, beating out the major networks in the process. That they managed to do the same thing on a network that didn’t even exist the day before is simply staggering, and speaks to the loyalty of hardcore fans. The problem is that that’s nearly all there is.

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Dana White speaking Truth to Power

That would be great if they were pulling in NFL-like viewership numbers, or even half that amount, but they’re nowhere close. And they have only their own business-model to blame, the business model that’s made them upwards of $2 billion.

The UFC puts nearly all their biggest fights on PPV, and while having four annual events on Fox is a coup, Fox Sports 1 is a fledgling network, and Fox Sports 2, former Fuel TV, is a third-tier cable network at best, and the UFC continues to split main cards between four different outlets on an uneven schedule. Not only do you have to keep track of when a show is coming, you have to know the channel, and if it’s a PPV you have to either shell out $45-65, organize/attend a party to split the costs, go to your local sports bar (not everyone has this option), or track down an illegal internet stream. None of these options are particularly friendly to casual fans the way sitting down on a Sunday and figuring out which major broadcast network you NFL team is playing is on that week (with the time and channel also helpfully published in the Sunday paper sports section).

So with the US and Canada being the only countries willing to pay for PPVs in large numbers, all that’s left in those markets are the hardcore fans, the ones who are mostly in it for the long haul.

While they may still gradually expand their fanbase through their free Fox and FS1 shows, the current fanbase has become pickier and pickier about which PPVs they’re willing to plonk down $50+ for. While UFC 161 was undoubtedly a weak show by PPV standards, it was still headlined by Rashad Evans and Dan Henderson, two former Light-Heavyweight champions and two arguable future Hall-of-Famers, with polarizing Heavyweight Roy Nelson in the semi-main, and fan favorite Pat Barry opening the card. The current estimates for that show are 135k-155k, the low-end estimate potentially making it the least bought show since the beginning of the current boom era in late 2005.

Even UFC 159 headlined Chael Sonnen vs. Jon Jones, two of the biggest draws in the company after an entire season of The Ultimate Fighter to help build up the match, underperformed at just 540,000 buys.

The PPV honeypot is diminishing now, and that trend doesn’t seem to be reversing.

While the UFC has been wise to diversify their revenue streams with the multi-platform Fox deal, and some lucrative international deals like their Brazilian television contract with Globo Esporte, North American PPV buys still account for over half their revenue. Even if Fox was willing to completely re-engineer their deal with the UFC for maximum exposure, they UFC would be losing a giant amount of money in the short term if they eliminated all or most PPVs. It’s a titanically expensive gamble. With trends being what they are though, they may eventually be forced to do this anyway.

The upside is that with the right restructured deal, this could lead the way to the truly promised land, with free events across the board and monthly stacked events on Fox that could help bring the UFC to a level of popularity and domestic mainstream credibility far beyond its current peak. This is the only possible end-game if the UFC wants to compete with the NFL, NBA, or Major League Baseball here in the U.S. They would surely take a hit in the interim, but once again, they’re already starting to feel the pinch of a more discriminating consumer base. UFC 161 is no outlier it seems. UFC 162, headlined by (then) MMA’s pound-for-pound king Anderson Silva, did decently at 550,000 buys, but UFC 163 did only 170,000-190,000 according to industry estimates.

I don’t know if the UFC can make up over $200,000,000 in lost annual revenue if they were to switch away from PPV entirely, but consider the way that Fox has been using them so far; to build up their fledgling sports networks. It’s not unthinkable that Rupert Murdoch might pay them more than just a solid cut of ad revenue to beat ESPN another 20+ times a year (although probably not in football season). They could see it as a mutually beneficial long-term arrangement.

Before I conclude this, should my mother ever happen upon this article, I would like to apologize for invoking Rupert Murdoch’s name without the protection of a crucifix and holy water. I’m just talking sports business here.

In the far more unlikelier event that Dana White should ever read this article, I know the idea of moving away from PPV with only a long-term business goal in mind is probably not an appealing risk. And if it is, I know you only own 9% of the UFC and your sway with the Fertitas (not to mention Fox) has a finite limit. But hey, you’re a gambling man, aren’t you?

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