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« | Home | »

Kimbo Slice vs. Roy Nelson outdraws RAW on cable

By Zach Arnold | October 1, 2009

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A 3.7 rating, which will drive Vince McMahon into a tailspin and give heartburn to anyone having to deal with him this month in WWE. The quarter-hour rating for the Kimbo/Nelson fight itself was well over a 4.

In our comments section, Rob Maysey talked about just how much the media influences the numbers in American MMA and how media-initiated the business is as opposed to the media simply responding to what fans want.

MMA Memories:

If all of this talk sounds bizarre to you, it should be. The media apologists for this are out of their minds. It’s the equivalent of you paying for a concert ticket and going to the event and realizing that the performing artist is lip-syncing the entire time, only to read the next day in the newspaper or see on the local telecast the critics praising the artist for screwing over the fans and taking their money by ‘working the marks’ over.

If the UFC apologists in the media want to get all Southern Fried Carny on us, then let’s use an appropriate wrestling term to describe what we saw on Wednesday night. Screwjob seems like a tame phrase. We could use the term fuck finish but realistically speaking, the finish was ‘perfect’ and it was the fans who get fucked.

The good news is that UFC did great ratings for the fight. You would think that it would be a great indicator of the company’s health, right?

Maybe not so fast.

MMA Payout has two critical reports (here and here) about Zuffa LLC’s finances. Long story short — UFC is still an event-driven company financially, they’re not losing as much internationally any more, and they took out a $100M USD loan — but a fair amount of money the company is generating is going to the owners as dividends.

What does that sound like is going on to you?

Topics: Media, MMA, UFC, WWE, Zach Arnold | 84 Comments » | Permalink | Trackback |

84 Responses to “Kimbo Slice vs. Roy Nelson outdraws RAW on cable”

  1. Phil says:

    Why is it that whenever someone claims that the UFC is paying more than what is reported to the commission it’s some big conspiracy but when it’s reported that Mousasi gets 2,000 or Fedor gets 300,000, or Frank Trigg gets paid 1 dollar, everyone is ready to accept that they really got paid more than that?

    The salary discussions are stupid, but they really should have ended after that report came out saying that Trigg got 1 dollar for a fight. It’s always been obvious (and that report proved it) that these reports to the athletic commission are not worth the paper they are printed on.

  2. 45 Huddle says:

    Rob Maysey,

    I can honestly tell you with a straight face that it has nothing to do with how they think the company will do.

    Everything at the higher level of business is about asset protection. From how you incorporate your business, to how much money you take out of it. To even sometimes the houses you purchase. Even the way you have your own money (in investments vs. a trust). It’s all legal ways to insulate yourself if a lawsuit or a business goes bad.

    Now, you must be saying to yourself…. What does a house matter? Well if Fertitta lives in Florida it matters. If a person files for bankruptcy, the state cannot go after a persons house. I have seen business owners specifically do this. So what do you end up seeing in Florida? A lot of business owners buy these huge houses worth tons of money. So even if they sign off their personal assets as collateral for their business operations, they have a good portion of their money locked up in an investment (the house) that can NEVER be touched.

    Obviously the same thing probably isn’t true in Nevada. I don’t know their laws exactly. But I’m just trying to provide examples of why business men do weird things. It’s all about moving around the laws and protecting assets.

    Once again, this has NOTHING to do with how successful they think the business will be.

    Lastly, as for their reasoning for taking on debt…. There are many people in the business community who believe having debt is an important thing. There is a lot of reasoning behind it, but a lot of it allows for liquidity and also if you hit a slow period, you already have a relationship with the banks to either increase the debt terms. And it is best to do that when the business is doing well. If all of a sudden you come to a bank for a loan after a quarter of losses, you are going to get killed on interest rates and the terms of the deal. So by establishing the debt now, while the business is good, they get more favorable terms.

    There is more to it then that, but that is the really simple version. I know people hate some of my views on here, but I know this part of business. I have a degree in this stuff and my last job had me dealing with these sort of companies on a daily basis. When I saw what Zach posted, I didn’t flinch as it is so common. You would be shocked to see what is in the balance sheets of medium sized private companies. The weird stuff you will find makes this look like child’s play….

  3. Grape Knee High says:

    OMG.

    Someone should fucking BOLD Jeremy (not that Jeremy)’s post, because he’s the only one here that actually knows what he’s talking about.

    Debt in a typical company’s capital structure is NOT A BAD THING. The majority of healthy companies use debt quite heavily as a financing tool, and corporate finance theory supports this as well. Debt is only bad when you lever up too much.

    2) Rob Maysey, do you invest your own money? At all? Because it doesn’t sound like it. The Fertittas rebalanced their portfolio, plain and simple. Diversification and rebalancing are basics of modern investing. “Putting all your eggs in one basket” is something a 6-year old child does.

  4. Mark says:

    It’s not about deserving. It’s about keeping the UFC in business so there are future fights and future earnings for fighters. Affliction did a great job at paying fighters. The only problem is that they paid out too much and now they pay nothing. Will $200,000 make the UFC go bankrupt? Absolutely not. But like I said, it would likely end up being more then that, and it is a very slippery slope that they would be beyond stupid to go towards.

    You cannot compare UFC to Affliction. Affliction had zero income coming back in from their PPVs. They were basically money marks assuming they could spend their income from their ugly t-shirts for 3 events and somehow the 4th one would turn a profit. They just assumed they’d lose a bunch of money early but make it back later and that’s not a good business idea. UFC has had a steady stream of income for 4 years and shows no signs of slowing down for the next few. I don’t understand why you Danaites can only say “Well, then King of the Cage and M1 will have to match UFC pay if you do this!” No, they don’t match UFC pay now. Companies pay well when business is strong, and if they’re smart pay what they can when business is bad. Affliction was just stupid thinking that Sylvia vs Fedor was going to do blockbuster numbers when people hadn’t remotely cared about that fight for 2 years. And for the record, I said repeatedly giving anybody (even Fedor, my favorite fighter) that much money before you’re financially secure is going to bite them in the ass. UFC is financially secure. Big difference.

    I’ve never said the UFC boom is going to continue. My prediction has been that this boom will last another year or two, and then we will end up seeing a lot of PPV’s get 200,000 to 300,000 per month, with 1 or 2 doing big business. I highly doubt this boom will be the norm. Then again, I never thought MMA would get this popular. And Dana & Fertitta cashing out has NOTHING to do with how they think the UFC might do in the future. It is all about protecting their assets and taking their return on their investments. Nothing more, nothing less.

    Really? You’ve said among other things that running weekly cards would not impact UFC’s business one bit. Now they’ve got to horde their acorns before winter? What about agreeing with the BIGGER THAN NASCAR & NFL NEXT DECADE~! agreeing with Dana you’ve done?

    You don’t have to see their financials to know basic business practices. What they are doing by taking money out of the company is extremely common. There are tax reasons. There are asset protection reasons. It is also important for Fertitta to take the money out of the company sooner then later. Let’s say at UFC 104 a fighter gets killed and the UFC has to file for bankruptcy the next day. Any money taken out of the company in the last 90 days can be taken back to pay off debts. This is just ONE of the many examples of why it is smart for Fertitta to get the money out sooner then later. Need I go on?

    Why do they need to be the only big sport to hide how much their athletes truly make? NBA, NFL, MLB, NHL, boxing, X Games, NASCAR, tennis, professional ping pong, ect all give their money out in the open. Even the signing bonuses are publicized. Other sports never say “this is what you THINK he gets, but really we set up an offshore bank account for him with the REAL money so you press pricks will never know!” I find that incredibly shady and am not ready to believe “Well, they must be giving them $100,000 or 5% of the PPV gross because they implied it.” And it makes me wonder how the taxes on backdoor pay offs are done.

    Why would they need to file for bankruptcy within 24 hours of someone dying? You do know all fighters sign wavers to prevent UFC from being held liable in the event of severe injury or death, right? Douglas Dedge had to sign the same thing from that little Ukraine promotion he fought on preventing his family from suing (but they did sue to stop home video of the death being sold in America, which was different.) You don’t think UFC has even better protection than a bunch of Ukrainian amateurs? No boxing promoter has ever been sued for a death either.

    Lastly, you keep saying I have a gimmick, but I continue to back up my statements with some pretty detailed reasoning. That isn’t a gimmick. Your gimmick is to hate on Dana White. You have said so yourself. Give it up. The UFC is good for the sport. Heck, without them there isn’t much of a sport.

    No, everything is “Who cares about the fighters, it’s what’s best for Dana White to make more money!” That’s a gimmick, who cares if you spin info to fit your gimmick to prolong it, that’s what gimmick posters do. You’re the Glenn Beck of MMA message boards where everything, no matter how ludicrous, is spun one way to make one side look good. No one not getting a paycheck from Zuffa could possibly be this concerned with how much money 3 men make unless you’re Dana’s son. You never talk about the fights it’s just “DANA DANA DANA BIZ BIZ BIZ ALL OTHER MMA COMPANIES SUCK ZUFFA ZUFFA ZUFFA WORLD DOMINATION” Everybody knows you’re doing it because the majority of the people on here dislike Dana’s attitude and some of Zuffa’s business practices so you come in to get everybody all stirred up and you never waver from Dana White being the second coming of Christ no matter what. I’ve seen absolutely nothing from you showing you’re a fan of the actual fights, everything is how much money the fight is going to make and where the outcome can take the next PPV’s buyrates so Zuffa makes more money. I refuse to believe, unless you work for UFC which you obviously do not, you sincerely care that much about their money over entertainment of the events. I can’t recall one positive thing you’ve ever said about a fighter beyond if he plays ball with Dana and makes good PPV income for them.

    I forget who did it, but a week ago somebody did a parody of you here schilling for Blimpie’s and it was spot on on how you’ve descended into a boring parody where we can predict what you’re going to say about a story before you say it.

    I, on the other hand, call it like I see it. You can find countless posts of me praising the UFC for a great show (since that’s all I care about: was the event entertaining) and calling out Affliction or Strikeforce or Elite or DREAM or boxing when they do something stupid. I get in arguments all the time with Alan where I’m defending the UFC. You’ve agreed with me defending the UFC in the past. If I was doing a anti-UFC gimmick I’d never do that. All I say is I dislike Dana’s tourette’s syndrome interviews which are reprehensible for UFC’s stature right now. It was cute in 2004 when nobody cared (and ironically he was far toned down) but if they want to be taken seriously doing a Mr. McMahon impersonation for the non-MMA media is embarrassing for the sport. And his anti-competition attitude I don’t happen to like. If you do, great. But I feel if you have such a strong marketshare and have the best fighters in the world, wanting to stomp out a women’s MMA headlined fight is ridiculous. Competition brings out the best in everybody, I don’t want to see a one-promotion industry especially with that vindictive asshole running it. And yeah, I do care more about how the fighters ruining their bodies are going to benefit financially more than I care about how two shitty casino owners who have more money than they know what to do with anyway and Dana come out financially. Forgive me.

    Plus, I can guarantee you I have given the UFC more of my money than you have. If I really hate them why do I continue to spend so much money supporting their product? Why was I happy for them when UFC 100 did a massive number and was a great show? Why do I always say “that’s awesome news” when a good show gets a good rating? But then why am I unimpressed when they’re jacking off over a short term gimmick like Kimbo doing nothing in the long run for them? Maybe because I love the sport, enjoy UFC when they entertain me and want to see it succeed? You can dislike the owner but enjoy their product.

  5. Dave says:

    This whole thread is absolutely hilarious.

    EVERYBODY HAS TO BE RIGHT.

    When it comes to business and investing, there is not always a right and wrong. There are a lot of gambles. In case you haven’t noticed, a lot of the “right” business choices in the past few years has led the world down a rather dark path.

  6. Black Dog says:

    While it appears that UFC is growing, they’re gonna have to keep that trend up, if it is true that they have outstanding loans and a refinancing of debt. They’re not out of the woods yet.

    As I’ve said before, regarding Kimbo: Dana White will talk up Kimbo, knowing that people want to see him fight, no matter how he does. They’re gonna ride that horse for all it’s worth, then take it out back and shoot it when it’s no longer of use.

    One win over RAW, ratingswise is nothing to be concerned about; if I were Vince M., I’d start to get worried if it happened week after week.

    WWE is not about wrestling, combat sports or athletic competition; it’s entertainment, nothing more.

    I don’t agree with some people’s assessment that WWE is now marketing for the 5-12 year old set by constantly pushing Cena. If they were, you wouldn’t have bra and panties matches, the crass humor, etc.

    Someone made a good point about burying the upcoming talent by constantly deferring to DX; well, as long as Triple H is still married to Vince’s daughter, that’s how that’s gonna be.

    If WWE doesn’t want to find themselves again playing to empty halls on live TV in the near future, they gotta start finding and pushing real wrestlers, fighters, etc. Doesn’t matter if the matches are still worked, that’s a given; but they gotta get back to showing the fans wrestling, athleticism and skill, not just a bunch of rhoided-out automatons.

    Now…that being said, UFC needs to take care they don’t turn into a WWE parody; I have strong feelings that Kimbo is being pushed, but that his fights could become works if he doesn’t start winning. UFC needs to distance itself from WWE, and push that the fighting is real, the fighters are tough SOB’s who have some skill, and lay off the Brock Lesnar-like antics.

    UFC could steal the old UWFi selling point when they put some of their stuff on PPV in the 90’s…IT’S REAL!

  7. Rob Maysey says:

    That is a nice post 45 Huddle–and I am sure some of that is in play. Your arguments and statements would carry MUCH more weight had the dividends come out of retained equity–they did not. They were financed with debt, which makes the “asset protection” argument substantially weaker.

    Not impossible, but much weaker. More likely, in my opinion, is they believe the majority of growth has already occurred, that cash flows are now pretty predictable, and that Zuffa is a cash cow. Another possibility is what Zach suggests–the cash was NEEDED now for other things, to such an extent that they borrowed to get it before it was even earned.

    Again, the debt wasn’t taken on just to fund operations–it was taken on to fund current dividends. It is quite a distinction.

  8. Mr.Roadblock says:

    This is one of the advantages of being a privately held company. They could be using this new line of credit to fund another venture out of pocket.

    I wouldn’t be surprised at any time to hear the UFC has been sold. I was pretty sure the Fertittas were going to cash out last year.

  9. Oh Yeah says:

    Rob, can you direct me to the source which says the dividend is funded by the loan, not their own equity?

    It’s highly doubtful that they would have been lent money if they are doing what you describe. I know that I wouldn’t lend somebody money for their business if I knew they were just going to pocket it. The business could collapse at any time – leaving me with nothing.

    Also, it is very unlikely that Zuffa is at a deficit position, or that they could maintain any of their debt covenants if they had reduced their equity to such a small amount/negative amount as you are implying.

    What is likely happening is that Zuffa withdrew some of the excess equity and required this operating loan for exactly that.

    I can’t comprehend how you could believe that the owners of Zuffa are trying to sucks it dry. The brand is just too valuable to jepoardize like that – they will do what is in the interests of maintaining and growing the company.

  10. Rob Maysey says:

    http://mmapayout.com/2009/10/sp-report-on-zuffa-analysis/

    Below is a summary of the report’s action:

    * Zuffa requested an additional $100 million in incremental term loans to help pay off part of the existing revolving credit line and fund a dividend to the owners of the company.

    “Given management’s relatively aggressive posture toward dividends, an outlook revision to positive or ratings upside potential is limited over the intermediate term, despite the likelihood for some improvement to credit measures over the next several quarters.”

    “The underlying issue that I see – albeit a small one – is that the company increased its leverage in part to fund the dividend disbursement, and that ultimately influenced S&P’s decision not to upgrade Zuffa’s credit rating.”

    http://mmapayout.com/2009/10/zuffa-announces-new-100m-term-loan/

    “Net proceeds from the proposed incremental term loan will be used to repay the outstanding balance under the company’s revolving credit facility and to fund a dividend to the owners. Leverage will increase moderately as the result of this transaction.”

    There are the sources–which took the information straight from the S&P report.

    And please–read my posts, without any preconceived notions while doing so. I don’t imply they “are sucking the company” dry. I imply they may not view Zuffa as a growth engine.

    That they are taking on debt to fund dividends appears to be confirmed fact–there are your sources.

  11. Mark says:

    As I’ve said before, regarding Kimbo: Dana White will talk up Kimbo, knowing that people want to see him fight, no matter how he does. They’re gonna ride that horse for all it’s worth, then take it out back and shoot it when it’s no longer of use.

    Jim Cornette (a longtime pro wrestling booker/manager) was recently on Oliver Copp’s MMA show to talk about how well UFC works from a pro wrestling perspective last week. He theorized that none of Kimbo’s fans are going to care how many times he loses as long as he remains compelling. He’s probably right, but UFC can’t use that as an excuse to keep him around, since they’re very strict about the “3 losses and you’re out” rules. But on the other hand, they could cut him, he goes to Strikeforce and he brings them his UFC fans to give real competition, so it’s going to be tough. (On a side note, Cornette also had a classic line about Tim Sylvia on the same interview “That guy couldn’t sell pussy on a troop train.”)

    I don’t agree with some people’s assessment that WWE is now marketing for the 5-12 year old set by constantly pushing Cena. If they were, you wouldn’t have bra and panties matches, the crass humor, etc.

    They haven’t entirely toned down to Hulkamania-years levels, but compared to where they were even 2 years ago (Mickey James’ lesbian wrestler gimmick where she’d grab Trish’s vagina and then lick her hand, or Lita and Edge pretending to have sex in front of fans) they’re very toned down. They’re back to where they were in late 1996 where it was half kid stuff, half edgy.

    If WWE doesn’t want to find themselves again playing to empty halls on live TV in the near future, they gotta start finding and pushing real wrestlers, fighters, etc. Doesn’t matter if the matches are still worked, that’s a given; but they gotta get back to showing the fans wrestling, athleticism and skill, not just a bunch of rhoided-out automatons.

    They’re not going to crumble away as long as Vince is alive. UFC took a lot of the adult audience, but there are still millions of adult pro wrestling fans who either think MMA fights are boring or feel ripped off by quick finishes on PPV so rather watch wrestling. And really, if the WWE audience hasn’t left yet I can’t imagine what would make them in the future.

    They’ve written off making money on every PPV and just want Wrestlemania, Survivor Series, Royal Rumble and Summerslam to draw, which is what boxing does basically. They now concentrate on international gates, DVDs and WWE 24/7 for their big money.

    When Vince McMahon dies (and he’ll never retire. If he lives to 100 he’ll still work) I could definitely see what happened to Mexico’s LLI/UWA in the late 80s when Francisco Flores died and his kids didn’t know how to make money in the industry. Vince is the greatest carny hustler of all-time when it comes to finding new ways to make money. But Stephanie McMahon could easily become America’s Esperanza Flores because I’m not convinced she knows much of anything beyond her entitlement.

  12. Grape Knee High says:

    Again, the debt wasn’t taken on just to fund operations–it was taken on to fund current dividends. It is quite a distinction.

    Dividend recapitalizations are not at all uncommon among privately held companies. It is a way to extract value without giving up equity and control of your company.

    Is it a riskier way to fund a dividend that paying from retained equity? Sure. But as the S&P report stated, they are only gearing up moderately, and that is an important point. If they were gearing up significantly, I’d say you were probably correct.

    I don’t think this dividend recap implies anything, other than that the Fertittas wanted to refinance debt and rebalance their investments.

    One of the first tenets of private wealth management is diversification, because of the simple fact that high-net worth individuals typically continue to have heavy exposure in the investment vehicles that made them wealthy in the first place.

    And considering the state of Station Casinos, Zuffa is liekly the Ferttitas’ only source of income at the moment.

  13. Oh Yeah says:

    Rob, you fail to understand that Dana and the Fertitta’s retain 100% control over the income of Zuffa. Whether Zuffa operates with $100 or $100m of their equity invested in the company – 100% of is controlled by those three men. This is not the case where if I sell a share of Microsoft to somebody else, that I have given up a portion of the company and its income to another person. They have not diluted their interests one bit.

    I would also agree that Zuffa (at least in terms of domestic growth) is almost mature. Their main revenue stream seems to be peaking, though they are still in the business of priming other markets worldwide.

    Here is your quote from early on in the thread: “Think about that–or as Zach so eloquently put it above, “getting out while the getting is good.””

    If you give any credence to that statement, you must feel that they are jumping ship. Lots of profitable companies pay dividends without “getting out while the getting is good.”

    I believe that the S&P report is saying is that creditors should be more comfortable if the company was in a position to pay that dividend without taking on more debt. Clearly, that much is obvious.

    What I assumed you thought was that Zuffa drained most/all/in excess of all of their equity investment in the UFC. I would certainly be concerned about them or any company operating at a deficit. But That is unlikely due to obligations to their creditors. But from all appearances, the company is strong enough to operate with a high debt/low equity structure because of its strong cash flows.

    Paying interest expense is not a bad thing. If you think about it, equity doesn’t come with a related expense. If you have two companies performing extremely well – one funded entirely with debt, one with equity. The one with equity will show a higher income, but it’s only a matter of framing – not a difference in the performance between the two.

  14. Rob Maysey says:

    I don’t fail to understand that they are the owners of 100% of Zuffa–in fact, I made the point myself–numerous times throughout.

    Here is one:

    “If the UFC’s owners really believe that the UFC is at the start of a massive growth spurt, it makes little sense to take out debt to fund dividends.

    From an investor’s view, what this suggests is the Zuffa’s owners believe they can do better with the cash outside of the UFC’s growth prospects.”

    Another:

    “Did I say this was a bad sign? I said it implies, as an indicator, that the owners of Zuffa do not see the level of growth going forward frequently trumpeted in the press.”

    Another:

    ” If you believe Lorenzo, Frank, and Dana are savvy business people, which I do, how can you with a straight face claim that what they do with Zuffa money has “NOTHING” to do with their view of the company? Of course it is provides an indication.

    If they believed the UFC’s business provided their best opportunity to make their largest return on investment, they wouldn’t have taken on debt to pay dividends. They would have used that cash to fund the growth, to reap those returns.”

    Show me a single post that displays this failure to understand.

    “Here is your quote from early on in the thread: “Think about that–or as Zach so eloquently put it above, “getting out while the getting is good.””

    If you give any credence to that statement, you must feel that they are jumping ship. Lots of profitable companies pay dividends without “getting out while the getting is good.”

    Again, you bring up “jumping ship” when ALL of my posts are in regards to what appears to be the owners’ view of Zuffa–a point which you also seem to concede. Namely, that Zuffa is no longer in rapid growth phase, and is, or is approaching maturity. The “getting out while the getting is good” comment was in regards to the profits–nothing to do with jumping ship.

    I go on to state, numerous times, that Zuffa is a cash cow, and appears as though the owners are treating it as such.

    Not a single comment has answered the question, other than to say generically, “diversification,” why the owners wouldn’t invest the capital in Zuffa, as opposed to borrowing to remove future earnings, if they viewed Zuffa as a growth enterprise.

    “But from all appearances, the company is strong enough to operate with a high debt/low equity structure because of its strong cash flows.”

    I agree–but again, this implies, mature-cash cow, and not growth company. A point I have attempted to make repeatedly in the posts above, and I believe make quite directly.

  15. Grape Knee High says:

    Not a single comment has answered the question, other than to say generically, “diversification,” why the owners wouldn’t invest the capital in Zuffa, as opposed to borrowing to remove future earnings, if they viewed Zuffa as a growth enterprise.

    Rob, please look up “modern portfolio theory” for a simple reason why the Fertittas might want to liquidate from capital from Zuffa.

    Just because you don’t want to accept a very likely reason why Zuffa might want to diversify doesn’t mean it is not true.

    Another possible reason is also very likely: the Fertittas might simple want cash.

    By your mindless speculation, everyone in the world should only invest in one stock, company, investment. Whatever they feel is their best bet without considering any sort of risk/return analysis against their other investment vehicles or cash flow needs.

  16. Oh Yeah says:

    We agree that Zuffa is close to being a cow.

    But you are still incorrect here: “If they believed the UFC’s business provided their best opportunity to make their largest return on investment, they wouldn’t have taken on debt to pay dividends. They would have used that cash to fund the growth, to reap those returns.”

    If the business is financed properly, then it does not matter whether that cash is debt or equity.

    If Zuffa earns $50m for the year with $100m in equity and $100m of debt @ 5%, it will earn $55m with $200m of equity and no debt. But then Dana and the Fertittas will need to take out personal loans to replace the $100m hole in their bank accounts, which will eat up the $5 million of Zuffa’s excess profits.

    So it really matters little whether they take out their equity or not, because they have shown that they have the means to provide the capital they need through either equity or debt.

    The only issue is whether they can earn greater than a 5% risk free return on their money since they’ve taken it out of Zuffa.

    And from another standpoint, perhaps the banks were more willing to lend to Zuffa than each of those men individually – or there was a more preferable interest rate involved.

    In the end, just like most everyone else, I really don’t think its an indication of anything in particular. The only thing it suggests is that Zuffa’s financial strength and the ownership’s level of consolidation gives them a great deal of flexibility as to how they will manage their money.

  17. Jeremy (not that Jeremy) says:

    A statement that a draw against a line of credit was used to fund a dividend is impossible to prove anyway.

    The cash is fungible once it gets into the company. You can say, they drew on the line, and they also paid a dividend, but it’s impossible to know which caused which.

    Cash is used, cash is provided, or cash is provided and cash is used. Either way, the entity has enough resources both to run shows and to pay dividends.

  18. Michaelthebox says:

    Grape Knee High, you’re wasting your time.

  19. Rob Maysey says:

    Grape Knee,

    I am well aware of what modern portfolio theory is–and yes, that could be one reason as to why they pulled out cash. A bit more unusual that they pulled out dividends, not on retained earnings, but against future cash flows, though, no?

    In your simplistic and dismissive view, an analyst should ignore entirely the usage of capital by company owners, as it is entirely irrelevant and baseless speculation–yes? Would you agree with that statement?

    I think not.

    Jeremy–the term loan would have covenants, in this case, a “basket” was established from which dividends were authorized as part of the loan terms. So yes, it can be confirmed.

  20. Grape Knee High says:

    In your simplistic and dismissive view, an analyst should ignore entirely the usage of capital by company owners, as it is entirely irrelevant and baseless speculation–yes? Would you agree with that statement?

    Where did you scare up this ridiculous strawman?

    I’m just calling you on your mindless, ridiculous, laughable speculation that the ONLY credible reason the Fertittas would use a dividend recap is because they saw no further growth in the UFC.

  21. Brad says:

    If UFC’s numbers ever drop I would love to see how Meltzer and Alvarez react. They’ll probably think it’s the end of the world if that happens.

  22. Rob Maysey says:

    Strawman? You have said it throughout your posts–including your latest post:

    “I’m just calling you on your mindless, ridiculous, laughable speculation that the ONLY credible reason the Fertittas would use a dividend recap is because they saw no further growth in the UFC.”

    ONLY reason? Please, point me to the post where I say it is the ONLY reason. In fact, didn’t I say there could be multiple reasons, and didn’t I even give a few of them?

    Here is one (there are others):

    “That is a nice post 45 Huddle–and I am sure some of that is in play. Your arguments and statements would carry MUCH more weight had the dividends come out of retained equity–they did not. They were financed with debt, which makes the “asset protection” argument substantially weaker.

    Not impossible, but much weaker. More likely, in my opinion, is they believe the majority of growth has already occurred, that cash flows are now pretty predictable, and that Zuffa is a cash cow. Another possibility is what Zach suggests–the cash was NEEDED now for other things, to such an extent that they borrowed to get it before it was even earned.”

    Wasn’t your response to call only one of these reasons “mindless, ridiculous, laughable speculation?” In fact, you did it again in your latest post.

    In response to this question, you misrepresent my posts and make the same point yet again.

    “In your simplistic and dismissive view, an analyst should ignore entirely the usage of capital by company owners, as it is entirely irrelevant and baseless speculation–yes? Would you agree with that statement?”

    So I ask, why is it that only one of the possible reasons is “mindless, baseless speculation” if not for the above (which you won’t admit).

  23. Mark says:

    If UFC’s numbers ever drop I would love to see how Meltzer and Alvarez react. They’ll probably think it’s the end of the world if that happens.

    Meltzer has said before he expected WWE to go back to being the #1 PPV draw within the next 5 years. He’ll just go back to writing about dead people as his calling card. Alvarez will be happy he gets to over-emphasize his “wrestling career” every other paragraph again. Dave will welcome under-educated wrestling fans since they don’t notice his grammar errors as much. Alvarez will go back to calling whatever wrestling segment he just saw as either the best or worst thing he’s ever seen in his life, because his memory is only 20 minutes long.

  24. Grape Knee High says:

    ONLY reason? Please, point me to the post where I say it is the ONLY reason. In fact, didn’t I say there could be multiple reasons, and didn’t I even give a few of them?

    In post #s 4, 9, 14, 50, 60 and 67, you try to definitively state that the Fertittas now think Zuffa is now a mature company, rather than growth. For you to try to deny this after the fact is disingenuous, and frankly, puts you at the level of 45 Huddle.

    Only in post #57 do you try to entertain the notion that something else might be behind this dividend recap, but then still insist that lack of future growth is “more likely” the reason, as you yourself quoted.

    If you want to say the Fertittas wanted/needed cash, you’d have heard nothing from me. I’m not going after your statement that they’re treating Zuffa like a cash cow, because I agree with that; they ARE treating it like a cash cow. But with your “growth” statement, you attempting to attribute intent behind Zuffa’s actions when you have no plausible reason to do so.

    All the other reasons other people gave you (including Zach’s insightful note over the Station Casino’s trouble) are much more plausible than yours.

    Michaelthebox was right, I am wasting my time.

  25. Rob Maysey says:

    LOL–reading comprehension not Grape Knee’s strong suit–especially when there is an axe to grind.

    This is post 4 in its entirety:

    “October 1st, 2009 at 7:36 pm Rob Maysey Says:

    If the UFC is seen as a “growth” engine, why would you take on large debt to fund dividends?”

    Yes, apparently you are wasting your time, if the facts don’t support your argument, just make them up, apparently.

  26. Grape Knee High says:

    I have no axe to grind at all. I have no idea who you are and know nothing about you other than that you know much less about corporate finance, accounting and portfolio management than you think you do.

    From this quote: “If the UFC is seen as a “growth” engine, why would you take on large debt to fund dividends?””

    I don’t see how anyone could possibly conclude anything other than that you think Zuffa is not a “growth engine”, given the context of your subsequent posts.

    You are possibly more insane than 45. At least he understands finance. LOL is right.

  27. Rob Maysey says:

    Typically, owners who are confident in the growth prospects don’t borrow to fund dividends, they use retained earnings and/or equity to fund growth.

    Please, given your apparent vast wealth of knowledge in the finance world, refute that point. In fact, numerous posters, apparently you as well, agree that Zuffa is a cash-cow. Several other posters above also conceded the point, such as the following post:

    “In the case of the UFC, growth cannot be tied to the amount of money thrown at investing into the company. If marginal returns to reinvestment drop below a certain point, it may make sense for Zuffa to simply pay out large pieces of the profits as dividends. I actually expect that to be the case with Zuffa, as growth for Zuffa is largely tied to educating potential consumers, a process which can be done fairly cheaply up to a point, then becomes incredibly expensive if you want to exceed a certain basic rate and reach.”

    That is your buddy–MichealTheBox. Isn’t that essentially the exact point I made throughout? That reinvestment has dropped below the required ROI, and that better options are available outside?

    No where did I say this is the only explanation. It is most certainly a plausible explanation though, and even you have refrained from stating that owner/management usage of capital is irrelevant, though amusingly, you call only this conclusion “laughable.”

    Again, given your vast finance experience and knowledge, please explain to us why analysts look to what owners are doing with capital? With their own equity? If it is “laughable” it should simply be ignored entirely, and yet it is not. In fact, S&P apparently revised their rating in large part on this very metric.

    Could it be, that owners, on occasion, in essence “vote with their feet?” (Or in this case, their investment opportunities?)

  28. Grape Knee High says:

    Rob,

    1) Dividend recaps, in particular, are used with companies with strong cash flows and it the owners have the advantage of not giving up future potential growth since they are still the owners. They have not given up any equity.

    If the Fertittas really thought Zuffa’s valuation is right now at its highest level and would no longer grow, they sell would some or all of their equity, not issue debt.

    Issuing debt implies nothing about the Fertittas’ feelings about Zuffa’s future growth. Nothing.

    2) Again, by your “voting with their feet” comment, you betray your lack of basic portfolio theory. Risk/reward is what is considered, not just reward. Especially given the high risk level of their biggest investment vehicle (Station Casinos).

    It seems to me (and everyone else here but you), that very likely, they wanted to pull some equity out of Zuffa to rebalance/diversify their existing investments (or maybe even for living expenses). They’re getting killed by their primary wealth vehicle in Station and making a killing with Zuffa; a pragmatic play here is to take some profits from Zuffa and sock it away in something safer. Or possibly even invest in another company; who knows?

    Either case says more about Zuffa’s risk/reward profile, but nothing about the Fertittas’ actual feelings about Zuffa’s future growth. Seeing that you’re a lawyer with a good pedigree, I’m wondering at this point why you cannot see this very obvious distinction.

    3) Let’s talk about Zuffa’s cash flow. You insist that Zuffa is no longer a growth vehicle because of their cash utilization. Have you not considered the likely scenario that Zuffa needs its cash and equivalents to fund its continuing growth? And that given that the Fertittas want to extract some cash, that the only for them to achieve this and continue to fund Zuffa’s growth would be to issue debt?

    Considering the inroads Zuffa is trying to make in Europe, Asia, and South America, and knowing that the Fertittas are getting killed by Station, you really think the likeliest scenario is that the Ferttitas’ think Zuffa will no longer grow? Really?

    even you have refrained from stating that owner/management usage of capital is irrelevant, though amusingly, you call only this conclusion “laughable.”

    What I called laughable was your mindless speculation that the Fertittas think that Zuffa is no longer a growth company.

  29. Rob Maysey says:

    Thank you for the well thought out and civil response.

    I don’t say Zuffa isn’t going to grow. Of course it will. This move, while not conclusory by any means, suggests however that it is no longer a “growth” company with large rates of growth per investment dollar, and that growth will be more flat going forward.

    “Issuing debt implies nothing about the Fertittas’ feelings about Zuffa’s future growth. Nothing.”

    This I’m not sure I agree with. Take Oh Yeah’s example–for instance.

    “If Zuffa earns $50m for the year with $100m in equity and $100m of debt @ 5%, it will earn $55m with $200m of equity and no debt. But then Dana and the Fertittas will need to take out personal loans to replace the $100m hole in their bank accounts, which will eat up the $5 million of Zuffa’s excess profits.

    So it really matters little whether they take out their equity or not, because they have shown that they have the means to provide the capital they need through either equity or debt.

    The only issue is whether they can earn greater than a 5% risk free return on their money since they’ve taken it out of Zuffa.”

    If Dana et. al. viewed Zuffa as a growth enterprise subject to gains of 15% or more (or whatever growth rate you like), wouldn’t they have used debt (to balance risk) to fund the growth? Instead, they used debt to pay themselves. While not dispositive, this suggests two things:

    (i) what Zach notes–cash was needed right now for other projects; or

    (ii) while cash flows will remain strong, growth rates have tapered off, and the owners have concluded they have more enticing opportunities offering higher rates of return.

    “Either case says more about Zuffa’s risk/reward profile, but nothing about the Fertittas’ actual feelings about Zuffa’s future growth. Seeing that you’re a lawyer with a good pedigree, I’m wondering at this point why you cannot see this very obvious distinction.”

    Possibly on rebalancing risk/reward, but again, if Zuffa is still viewed as high growth, why not use debt (to balance risk and retain ownership) to fund that growth, and thereby reap those returns?

    MichaelTheBox concluded the requisite ROI wasn’t sufficient enough to justify the expense required, and thus, growth will come more incrementally. That is a very plausible conclusion.

    “Have you not considered the likely scenario that Zuffa needs its cash and equivalents to fund its continuing growth? And that given that the Fertittas want to extract some cash, that the only for them to achieve this and continue to fund Zuffa’s growth would be to issue debt?”

    Here you are losing me. The new term loan, by my reading, is being used to (i) pay off the existing revolver, and (ii) fund dividends. It doesn’t appear that the debt is being used to fund growth, which is the point I have been trying to make.

    Again, maybe we came off the tracks due to semantics. Of course Zuffa is going to grow. Is it going to grow at rates of 5-10% per year, or 15% plus? A growth rate of 5% per year isn’t considered a “growth” company, in my opinion.

  30. Grape Knee High says:

    Right off the bat, let me make this clear. I do not view Zuffa as a growth company. Personally, I think the UFC has already jumped the shark and has about as many fans as they’re going to get in the 5 years. Longer term than that, I have no idea.

    What we’re talking about here is your feeling that the Fertittas’ think Zuffa is not a growth company.

    This is the crux of your argument:

    Possibly on rebalancing risk/reward, but again, if Zuffa is still viewed as high growth, why not use debt (to balance risk and retain ownership) to fund that growth, and thereby reap those returns?

    Again — and I promise this is the last time I will repeat myself since this is getting tedious — you CANNOT gain any insight into the reasons why Zuffa did what they did.

    People rebalance their portfolio for many reasons. Investors do NOT always seek the highest ROI from their investments. Seasoned investors balance risk/return characteristics across their entire portfolio when making their decisions.

    What this means is that some people often give up potential expected returns for less risk. Some people also give up potential expected returns for cash. They balance risk/return, not necessarily just make heavy bets in the investments with the highest expected returns, as very often these are also the riskiest investments.

    Given the extremely high risk and exposure of Station, it should be obvious that the Fertittas overall risk exposures are higher than they were even 2 years ago? How would they mitigate that if their risk tolerance stayed the same? **** They rebalance their portfolio to move some of their assets into less risky investments. ****

    Here you are losing me. The new term loan, by my reading, is being used to (i) pay off the existing revolver, and (ii) fund dividends. It doesn’t appear that the debt is being used to fund growth, which is the point I have been trying to make.

    Let’s say the Fertittas want $100 million in cash from Zuffa. And to continue to fund Zuffa’s growth would cost them another $100 million. Let’s Zuffa only has $100 million in cash and cash equivalents on hand. How could they achieve both goals without selling equity (and giving up future potential growth).

    Answer: They issue debt.

  31. Grape Knee High says:

    To be more clear about the last point, as Jeremy stated, cash is fungible once it is within Zuffa’s coffers.

    We know for a fact that they are trying to expand in other countries and this takes cash flow.

    We can say, if you’d like, that some of the cash from the previous revolver was used to fund operations as well as growth. If this new debt is being to to partially refinance that debt, it’s still ultimately going (at least partially) to fund growth.

  32. Rob Maysey says:

    “This is the crux of your argument:

    Possibly on rebalancing risk/reward, but again, if Zuffa is still viewed as high growth, why not use debt (to balance risk and retain ownership) to fund that growth, and thereby reap those returns?

    Again — and I promise this is the last time I will repeat myself since this is getting tedious — you CANNOT gain any insight into the reasons why Zuffa did what they did.”

    Agreed–that is the crux of my argument. Disagree that you can gain no insight–it is a metric closely followed by analysts for a reason. It is not meaningless and without insight.

    Agree to disagree on that point.

  33. Rob Maysey says:

    http://www.bloomberg.com/apps/news?pid=20670001&sid=anlGdf29y5Yk

    Bloomberg’s Greg Miles reports on the potential investment opportunity in Ultimate Fighting Championship, a mixed-martial arts sports organization. UFC President Dana White says it is considering selling a stake in the league.

  34. This is nothing new, this is pretty much standard to how most companies are run these days

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