By Zach Arnold | March 26, 2007
By Zach Arnold
Sankei Sports has a report today quoting a DSE employee, denying that UFC has bought PRIDE. The staffer claims that at the Tuesday press conference at Roppongi Hills Arena in Tokyo, PRIDE will announce a tie-up with UFC. The only thing consistently said throughout the various Japanese newspapers is that DSE’s last event is on April 8th at Saitama Super Arena.
With all of the conflicting reports at hand, let’s take a look at the four main options that Zuffa LLC and The Fertitta Brothers will have in regards to doing business with PRIDE.
There are four main options that could happen in regards to UFC doing business with PRIDE. Dave Meltzer on Monday confirmed earlier Japanese reports that Dana White will show up at the PRIDE press conference. The four options at hand for UFC are:
- UFC does an asset purchase of PRIDE from DSE.
- UFC does an asset purchase of PRIDE from DSE and Zuffa LLC starts their own subsidiary organization to run PRIDE in Japan.
- UFC invests money into a new shell company that takes moneys from investors and transfers DSE’s PRIDE-related assets (including DSE employees) to the new shell.
- UFC signs a co-promotional agreement with a new shell company that takes over the PRIDE assets. In short, a talent-exchange agreement.
Let’s analyze each option (the rewards and risks).
- UFC does an asset purchase of PRIDE from DSE. This would be (relatively-speaking) the cleanest business transaction in terms of Zuffa LLC putting up cash. The risk would be limited in the sense that they would be buying the VTR collection, fighter contracts, and the PRIDE name/logo trademarks. This kind of deal might raise an eyebrow with the Nevada Gaming Commission, but it would be unlikely that anything negative from the NGC would take place.
The major risk of this kind of deal is what kind of fighter contracts does PRIDE have. Are they assignable or not assignable? This is key, because if the contracts are not transferrable to a third party then whatever asset transaction takes place will allow all of PRIDE’s fighters to become free agents and receive bids from BodogFight, K-1, etc. Zuffa LLC lawyers would need to perform due diligence, and so would company accountants. Due diligence takes anywhere from 30-60 days on a deal like this, and you don’t know how many of the contracts are in English or Japanese.
- UFC does an asset purchase of PRIDE from DSE and Zuffa LLC starts their own subsidiary organization to run PRIDE in Japan. The risks from the first option apply to this option, plus there are more added risks. In the Japanese marketplace, it is likely not going to be palatable to the fans to support a foreign company that has a false Japanese face to it. In the modern history (since the 1950s) of the Japanese fight game, there hasn’t been a single gaijin President, boss, or owner of a fight promotion that has had long-term success in the Japanese marketplace. Race and nationality is a major issue here. Another element of risk on starting a subsidiary in Japan is not only losing a lot of cash (Japan is one of the most expensive places in the world to do business in), but also encountering angry gangs and criminals who are looking to disrupt or get a piece of the action.
- UFC invests money into a new shell company that takes moneys from investors and transfers DSE’s PRIDE-related assets (including DSE employees) to the new shell. This is becoming a theory that is growing in popularity in Japanese circles. Here’s how the theory would work — DSE managment thinks that by creating a new shell company to transfer the PRIDE assets to (fighters, employees, etc.), they can present this new shell company as a ‘clean’ company to do business with as far as the major TV networks (primarily Fuji TV). The obvious question would be — how would business be any different under a new shell company as to opposed to how DSE works now? Fill in your own answer. Furthermore, one Japanese report suggests that Nobuyuki Sakakibara (who used to work at Fuji TV affiliate Tokai TV in Nagoya) would get a Tokai TV executive to be the new face/President of the shell company. A major risk involved in this kind of deal is that if the PRIDE fighter contracts are not assignable, suddenly everyone is a free agent. For UFC, the major risk is that they would putting money into a shell company that is going to be scrutinized heavily. The scrutiny could also definitely come from the Nevada Gaming Commission. If remnants of DSE follow in tact to the new shell company, what’s the difference between DSE and this new company other than fresh faces publicly? The risk for UFC to invest in a new shell company would be very high.
- UFC signs a co-promotional agreement with a new shell company that takes over the PRIDE assets. In short, a talent-exchange agreement. This is an option that could make some sense on various levels. UFC wants to have fighters like Mauricio Shogun in their Octagon, yet may not want to pay heavy money to get the deal done. A co-promotional agreement would lend the new shell company credibility in the Japanese marketplace by tying up with the world’s largest MMA play. The risk for UFC is that they may not get any control over what talent they receive and it could turn out to be an empty deal, similar to their past dealings with DSE. It could amount to a giant waste of time for Zuffa LLC. If the new shell company also has remnants of DSE, it immediately opens up UFC to scrutiny with the NGC in doing business with this company. An added element of risk is what could be exposed under deposition in the Fishman Companies vs. DSE lawsuit, which could certainly be applied to the new shell company if there’s any DSE-related members involved in the new project.
These are the main options likely on the table right now for Zuffa LLC. At least two of the four carry major risk for The Fertitta Brothers (and more importantly, potentially their gaming licenses).