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« | Home | »

IFL 10k financial report

By Zach Arnold | April 3, 2007

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The link is here. Alternate link here. The IFL stock is at $8.50 USD/share today. We have some financial wizards who are site readers. Have at it with the analysis in the comments section.

Some of my personal thoughts about this filing can be viewed in full-page mode.

Update: At closing time, the stock price dropped to $6.05 USD/share.

The basic numbers indicate that the company has lost a fair amount of money. Then there is this line: During the year ended December 31, 2006, IFL incurred a net loss of $9.6 million, or $0.49 per common share.

Just taking a cursory look at their numbers, I’m befuddled at how the stock remains at the price value it is at. Their general revenues total $2,365,060 USD in 2006. The cost to achieve that revenue is $7,848,766 USD. They are in the red to the tune of $5,483,706 USD.

My biggest criticism about the IFL has been their inability to promote their house shows. Coming soon to MMA Madness, I will have a detailed breakdown of what I think the IFL is doing wrong in promoting the house shows and some suggestions of what they can do to fix this. It is a very fixable situation. However, nothing that I saw in the 10-k filing suggests that changes in live event promoting are coming any time soon.

Look specifically at the live gate (house show) numbers — $671,665 in live gate revenues for the entire 2006 calendar year. Alarmingly, the 10-k says that they spent $972,616 on advertising for the house shows. In short, the IFL spent money at a 3-to-2 ratio for advertising-to-revenue. Advertising for house shows is expensive, without question. However, the rule of thumb should be that your advertising budget per show should be around 15% (or a little higher if it’s a very big building) of the maximum live gate revenue you can make at a building. So, if you are running a 10,000-seat arena and the average ticket price is $25, the potential maximum gate is $250,000 USD. 15% of that is $37,500. That should be a fair and respectable amount of money to spend advertising a show the scale of 10,000-seats. The IFL has publicly stated that they think piggybacking onto the Wizard World comic book conventions is a top way to bring in fans to the shows. So far, it’s not working to a high degree of success, in my opinion.

Topics: All Topics, IFL, Media, MMA, Zach Arnold | 24 Comments » | Permalink | Trackback |

24 Responses to “IFL 10k financial report”

  1. kevin says:

    One thing they should do is drop the silly team names, and let coaches use their dojo/school names. It becomes much more interesting as a team sport then. School vs School, instead of Some Animal vs Another Animal. The team names are cliche at best and have no fan base to begin with. Now there are fans of Gracie JJ, Chute Boxe, MFS, ATT, AKA, etc etc – and I think those team names would draw much more attention and interest.

  2. I liked the idea that Meltzer and that group of business students thought up : running the shows from a single place in las vegas.

  3. KennyP says:

    Re: kevin’s suggestion

    One problem with using dojo/school names to identify IFL squads is that some of those schools’ “brands” are valuable assets already and wouldn’t be signed over to IFL. The Miletich brand, Team Quest, Lion’s Den, etc. all generate income, merchandising, and identification for their schools, which are not limited to IFL-affiliated fighters. Those brands are now worth more than what the IFL would likely offer.

    Which brings up another point…If the IFL teams were to use school names, those well-known “brands” would no longer be promoted in UFC or other groups. Already, since Pat Miletich’s affiliation with IFL, UFC tends to say “MFS Elite” instead of the more common “Miletich Fighting Systems”. (Except Joe Rogan, who says whatever he wants.) While Rogan/Goldberg constantly say Team Punishment or AKA or Jackson’s Gaidojitsu, they differ in how they refer to fighters affiliated with AMC Pankration (“trains with Matt Hume”) or Team Quest (“trains with …”) so as not to namedrop teams or fighters well-known to endorse or represent other promotions.

  4. Kev says:

    MFS has been called “MFS Elite” for a long time now in the UFC, well before the IFL. Also, they aren’t willing to name drop Miletich (and use MFS instead) but are perfectly fine with dropping Jackson’s or Hume’s name? hmm.

  5. KennyP says:

    I can’t point to when or where the Miletich name started being downplayed. I only first noticed it during the Matt Hughes All Access special. They never showed Pat, said the Miletich name, or showed any banner/poster with a visible logo. Matt was always training with Sylvia or Pulver or an assistant coach. In fact, when Matt Hughes parked his car and walked into the gym to train, the cameras showed the name of the gym (can’t remember it but neither “Miletich” nor “MFS” was part of it).

    After seeing that special, and realizing just how much post-production needed to be done to excise any mention of Pat’s brand, I began to pay attention to other UFC broadcasts. I remembered that the “Team Punishment” name and logo was once obscured on every clip, but now is mentioned constantly. (For obvious reasons). And I started paying attention to which coaches/camps are mentioned, and by which name.

  6. DarthMolen says:

    I have interviewed Pat a lot and heard a lot of Pat interviews and apparently there was a big falling out between the powers-that-be at the UFC and Pat himself. Lets just say that he appreciates a person that “does what he says and says what he does” and the unnamed sources weren’t following that simple rule of business that Pat likes.

    Pat has never been known not to speak his mind and we all know how much the ppl at the UFC love that trait or quality. Apparently he spoke his mind and hence the downplay of Miletich Fighting Systems.

  7. Grape Knee High says:

    I think the Miletich name started to be downplayed when Dana White tried to strong-arm Pat into severing ties with the IFL a while back. Then Pat provided testimony on behalf of the IFL when the UFC sued the IFL last year.

  8. Lynchman says:

    If the IFL used the training camp’s names, they would lose the marketing rights to the names.

    Their goal/hope is to make money on team jerseys and whatnot.

  9. David coolshaps says:

    Thank you guys for analyzing this I was trying to analyze it myself and was having a hard time haha, thanks yall!

  10. Zack says:

    Someone posted on the UG that the stock ended today @ $6.05.

  11. Mr. Roadblock says:

    As I said a few weeks ago while discussing this topic (after a Crain’s or Business Week article) shorting the IFL stock would be a good idea. You could have made good money if you acted then. About $6/stock.

  12. Rollo the Cat says:

    Darth,

    Pat says ge gets along well with the Fertittas, but not Dana.

  13. Tomer Chen says:

    From a rough viewing of the financial statements, I think the big points are:

    1) Box office receipts of $672,000 were only able to cover 42% of the roughly $1,600,000 ‘event travel and other event costs’ expense (which likely is what the arena fees fall under) or 10.67% of the total live events expenses (about $6,300,000). In either case, the arena attendance has been unable to even come close to offseting the live event presence of the shows and it seems, at least to me, that the IFL is simply tossing lots of money into the pit into trying to attract 10,000-20,000 fans ‘inevitably’ into the bigger venues rather than ‘building up’ by filling up smaller venues, saving more in expenses (and lowering the red) so that strain of the traditional ‘red period’ the vast majority of new companies have does not multiply or continue longer than needed (since you do want a positive NPV ending on the venture, afterall). It’d be very interesting to see the detailed arena cost breakdown vs. arena profts so some scenario analysis/historical simulation could be done.

    2) The TV rights and Distribution fees are a barter equal offset per the notes in the Manager’s discussion section. This means that, at least for now, IFL is not getting airing rights fees/cuts of the advertising revenue from their live TV events (it’s free advertising via the FSN medium, pretty much). While this agreement is not bad, per se, it does mean that the revenues/expenses for arenas and sponsorships need to go up. As mentioned in point #1, the best way to fix the arena-side losses is to go into smaller venues that charge significantly less in order to make the total losses smaller. As they aren’t compensating the losses from the arenas with TV rights fees, they need to primarily focus on getting the butts in the seats and trying to (at least) break even with the arena costs, or else it’s a losing proposition.

    3) The most critical part may be ‘Future Capital Requirements’ under Item 7 (Manager’s Discussion), which basically says that the IFL may need up $14 million this year and while they had borrowed about $29,600,000 ($22,200,000 from a private placement of common stock (with about $2 million in expenses + a 3% (581,280) warrant to the placement agent, $2,500,000 in Series A Preferred Stock (which will require a fixed dividend to be paid – essentially pseudo-debt) and $4,900,000 in a loan from Richard J. Kurtz (a director of the IFL)) but paid $8,200,000 in operating activities, $5,100,000 repayment of Mr. Kurtz’ loan (including interest and a previous debt from the merger) and $400,000 in equipment. This leaves about $15,900,000 in cash and cash equivalents (the balance sheet lists $16,600,000, probably due to previous cash and cash equivalents from year end 2005) against $14,000,000 in expected cash outlays (though they admit they may be understating) and have hinted that Mr. Kurtz is likely not interested in re-loaning and they may get bad deals from other potential debtholders (probably due to the net losses for 2006 and expected losses for forseeable future). So yeah, at the best case, there will be $1,900,000 (or $2,600,000) in cash and cash equivalents at year end (which is probably extremely wishful) and at worst, the IFL will get burned with the expected returns from potential debtholders (interest rate, covenants, etc.). Not a good sign, at all.

    4) Perhaps the only real ‘good’ news from this 10-K report is the unqualified auditor’s opinion (‘clean bill of health’ with regards to honesty of books). That and no taxable income (per Note 12) due to the net losses on the income statement. Funny enough, the valuation allowance on deferred tax assets is 100% (given the history of net losses).

  14. PizzaChef says:

    I want to see a team named after Stephen Colbert. Or a team called “The Montreal Angry Poutines” just to fight the whole overusage of animal names, lol.

  15. 45 Huddle says:

    Tomer chen did a great job at looking at the financial statements. I didn’t look through the entire document, but I did notice some key pieces of information.

    With over $16 million of cash, the company really worth less then that. They have about $3 Million of payables.

    And the majority of their deals are locked in for all of 2007. On their current pace, they are looking to be having a net loss of $3.5 Million per quarter. The money coming in from MyNetworkTV isn’t close to enough. They are getting less than $2 million for the entire.

    At their current pace, the company will be in default at the very very very latest…. June of ’08. I could actually see it happening sooner. i would say they have a chance, but they really don’t. The fact that they have locked in so many deals for so long will be the death of them. That and low attendance numbers.

  16. JOSH says:

    Tomer u have always been a source of amazing knowledge, loved ur analysis. i have alwasy thought that the IFL aimed a little high with the venues they ran in. I dont see whats wrong from trying to pikc smaller places and NOT deal with papering events. Case in point with the Forum, the place may not be HUGE but its a good size…they could ahve tried the Sports Arena or maybe even the Gran Olympic (though I heard that place can be pretty pricey to rent out). They need to find places to cut expenses and that would bea good start.

  17. Rollo the Cat says:

    Kind of sad. The haven’t found the balance between edgy and sporty that will attract mainstream and hardcore fans in numbers. There is still time.

    Just think, 30 years from now, we may look back on this funny experiment and laugh. I am buying and saving a Las Vegas Lions t-shirt. They could be worth something in the decades to come, when MMA memorabilia is big.

  18. 45 Huddle says:

    The problem at this point is that even if they do run in the smaller arena’s it will probably be too late. The 1st quarter is already over over. They spent a lot on advertising and got bad crowds out of it. Probably looking at $4 Million in losses. If they try to slow things down, it will still take a quarter to do so. By then, their nest egg is probably around $8 Million, if not less.

    There are too many deals in place that make it almost certain that this company is headed for failure. I was expecting them to lose $5 Million the first year. The fact that they almost doubled this is a bad thing. And attendance alone will only slow the loss, it can’t fix it.

    The IFL’s only hope is to make it through ’07 with at least $5 Million left. Then they need to get a better TV deal that gets them more revenues. However, MyNetworkTV might be out of business by then. And Zuffa will be busy trying to get the UFC on HBO and Pride on another channel, only making the problem for the IFL worse.

    I’m not exactly an IFL fan, but it is not clear that fighters will have less choices in 2008, and that is not a good thing for the sport.

  19. Tomer Chen says:

    I still do not understand why exactly the IFL management thought it was a good idea to run in venues that were too big for the organization. This isn’t PRIDE 1 where Nobuhiko Takada’s name power to the Puroresu fanbase was capable of drawing in 47,000 to the Tokyo Dome (and even then the business side for KRS was pretty awful) simply because of his legendary status in Puroresu. This is akin to ROH suddenly deciding to run MSG, Continental Airlines arena, etc. because they want to look ‘big time’ compared to WWE, even if they aren’t. IFL seems to be trying to make itself appear as ‘Bigger than even the UFC!’, but the issue is that the UFC, at least in the media and casual fanbase of MMA, IS MMA. This brand association (which often comes out as ‘Ultimate Fighting’) is the one big barrier that keeps UFC on the lips of everyone (as well as the last 2 years of growing mainstream press and shows starting around TUF 1) and the IFL is simply foolish to try and knock it down. Instead, they should be building up their own niche using the uniqueness of the team format and a true ‘from the ground up’ grassroots movement in the ‘lesser’ territories that the UFC has minimally entered (if at all). But, as 45 Huddle said, it probably is too late and they’ll bleed money into a painful death.

  20. 45 Huddle says:

    A side topic, but it kind of touches upon a point you make. I continue to hear on podcast and message boards how the SPORT of MMA has blown up in the US. I couldn’t disagree with this more. The UFC has blown up in America, nobody else. Not the IFL, not Elite XC, not K-1, not ICON, not even Pride. The majority of these new companies are still losing money. The fighters have all these “options”, but really they have promoters losing money for a few shows and then going out of business.

    The only option is for the IFL to sell more stock. They do have about 25% of the stock not put to market yet. But doing so would actually make it possible for a buyout (especially if the stock price gets really low). Or just prolong its death.

    MMA as a business is really tough. Even The Ferttta’s almost sold the business after losing $44 Million.

  21. Tomer Chen says:

    MMA as a business is really tough. Even The Ferttta’s almost sold the business after losing $44 Million.

    The real problem with MMA is that (i) the majority of these promoters are really Boxing promoters or third parties with minimal internal experience in the industry who think they can make a quick buck from the ‘expanding’ market (which, as you pointed out, is really just UFC’ presence in the market; For example, if the potential casual fan base went from 5,000,000 to 20,000,000 then UFC has been able to gain and maintain 90+% of the potential base attention through their marketing campaign through Spike TV (which is pretty much UFC TV at this point) and the other promotions splitting whatever crumbs are left). The pie got bigger, but the splitting of the pie is the same) and don’t realize that (at least for now), UFC is the powerhouse that garners 90-95% of the mainstream media attention towards the sport and so media exposure will be extremely costly to attain for these organizations and (ii) many of these ‘fly by night’ promoters are thinking of short term cash rather than realizing that the Fertitta’s lost at least $44 million before starting to turn around the business when they (and Dana White) gained the savvy to (a) project the sport in a way where it is more respectable than the ‘DEATH~!!!!111 BLOODLUST~!!!111’ marketing from the Rorion Gracie/Art Davies/SEG days of UFC (which is somewhat present in today’s marketing though it’s toned down a decent amount from the circa 1993 era) and (b) got the brand recognition of UFC to be known as MMA (just like Windows is regarded at ‘the’ operating system in today’s computing world even if there is MAC OS, Unix, etc.) due to their pioneer status in the US market.

    Those are pretty large barriers to entry and I think in the next 1-2 years we’ll see fewer and fewer ‘fly by night’ promoters as they realize that it’s virtual suicide to try and face the UFC directly and more grassroots organizations will start popping up once again (just like in the past).

  22. Zach Arnold says:

    This is just the 2006 report. The 2007 report could look a lot worse for the house show losses (1/19 Oakland, 2/2 Houston, 2/23 Atlanta, 3/17 Los Angeles, etc.) The one place the IFL has drawn well at is in Moline (which is the Mark of the Quad Cities), and it’s no surprise that this is their stronghold with Miletich and his crew in their corner. Outside of Moline, they are not hot anywhere else right now.

  23. Harold says:

    i am dissappointed that you did not manage to twist this IFL news into somehow being a negative-about-Pride story

  24. D.Capitated says:

    A side topic, but it kind of touches upon a point you make. I continue to hear on podcast and message boards how the SPORT of MMA has blown up in the US. I couldn’t disagree with this more. The UFC has blown up in America, nobody else. Not the IFL, not Elite XC, not K-1, not ICON, not even Pride. The majority of these new companies are still losing money.

    LOL. What? K-1 USA is losing money? On what basis? Elite XC had a pretty good turnout, and ICON/Superbrawl’s been around since the mid 1990s.

  25. […] $3.00 USD/share on Tuesday afternoon. I don’t expect it to stay at $3.00/share. Just based on the 10k report and today’s quarterly filing, the IFL has publicly reported that they have lost $16.6 million […]

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