By Zach Arnold | July 8, 2013
The last two weeks have been really strange for the UFC in terms of what’s been discussed in the press. The organization, with UFC 162 this past weekend, started the first of six shows over the next two months where the roster is as busy as one can recall. So many fights and the risk for injury causing a fight to get canceled at the last minute remains high. However, if the shows go off as planned, tons of great fights to watch and positive developments for the UFC.
None of that withstanding, Tim Kennedy recently made comments about fighter pay in the UFC. He just made his UFC debut over the weekend by beating Roger Gracie.
“It’s a good thing I have another job because the UFC doesn’t pay very well.” Kennedy also took aim at MMA sites… http://t.co/xOUZ0zWuXT
— Rob Maysey (@MMAFA) June 26, 2013
Arguing about fighter pay in the UFC is nothing new. However, with Kennedy’s comments it seemed as if he really hit a nerve with UFC management. Combined with comments made from former fighters like John Cholish, the rabbit ears at Zuffa HQ really have been very sensitive. Within a couple of days, Kennedy was not only backtracking from his fighter pay comments but he was also emasculating himself in the process.
http://t.co/LoFJyQCjOK Worst thing a person taking a bold stance can do is back down b/c both sides of coin then hate you. Tim Kennedy…
— FightOpinion (@FightOpinion) June 27, 2013
This led to Lorenzo Fertitta via Dana White making some rather curious statements about fighter pay and UFC’s financial situation. Dana responded by claiming that if they have to bump up fighter pay on the undercards, then they will take away the bonus system.
http://t.co/hfVhdUGWhm All this talk from Dana about bonuses, fighter pay given their standing with Fox Sports is… curious. Nervous?
— FightOpinion (@FightOpinion) July 2, 2013
What makes this threat so weird is that the bonus system is a carrot & stick approach for UFC in terms of controlling fighter salaries. Even throwing this empty threat of getting rid of the bonus system is an indication that the tactics management has been using with fighters are not squashing the financial concerns that the fighters have. That whole concept of being grateful for fighting in the only big league in town and all that jazz.
Dana ramped up the rhetoric by saying that all the fighters now want a trophy.
http://t.co/madQLcCScU Dana & Lorenzo have rabbit ears re: UFC fighter pay. It's their cut system that pressures fighters into grind-fests.
— FightOpinion (@FightOpinion) July 5, 2013
I was waiting for him to drop his old “bitches in a beauty salon” cliche but alas we didn’t get it from the front man.
What has me wondering what’s going on with all these comments is that you would think the UFC is in a good position, financially-speaking, even with some duds buy rates over the last couple of PPVs. However, the squealing from Zuffa HQ is unbecoming and also overly-aggressive as par for the course.
Dana White claimed that this past weekend’s UFC 162 PPV could draw up to 800,000 buys. He claims that a rematch in Newark, New Jersey on Super Bowl Weekend would be the biggest fight in the history of the UFC.
So, where do things stand?
— John S. Nash (@heynottheface) July 8, 2013
Here’s a note I received from a well-regarded source who pays close attention to the business side of combat sports. My comments after the remarks:
As a result of the UFC’s recent decision to cut more fighters, we are beginning to see a paradigm shift in the MMA fighter pay debate. For the 1st time in the sports history, fighters from both inside and outside the UFC are questioning the organization’s horrible pay. In response to these questions, Dana White recently mentioned that the issue could be solved if the company eliminated fighter bonuses.
To be quite honest, none of this sits well with me from a financial standpoint. For the most part, ownership still states that business is great. If things are so hunky dory, why have so many fighters been cut and/or forced to retire? If the UFC is doing so well, why can’t they afford to pay the low level fighters better and keep bonuses? Is the UFC struggling or is business down a bit and ownership is just too greedy to give up any profit?
To answer these questions and better understand the UFC financial situation, I put together a basic financial analysis of the organization. The numbers below are not meant to be exact figures, but more of a generic guide to help the average fan understand the UFC from a financial standpoint.
Let’s assume that the UFC has…
- 250 fighters at $100,000/year (including health insurance) = $25 million
- 200 front office employees (legal, marketing, etc.) at $100,000/year = $20 million
- $24 million a year for advertising ($2M budget/month)
- $24 million a year for production costs
- $6 million a year for office expenses ($500,000/month)
- $1 million cash-on-hand for incidentals
This is $100 million dollars in combined annual expenses. Since the Fox deal is around that same financial range, let’s make it easy and just estimate that these expenses are paid in full with Fox money. With all the Fox revenue accounted for, look at UFC’s other revenue streams:
- PPV revenue – average of 500,000 buys at $50 a pop over 12 events = $300 million
- Tickets & merchandise – $24 million from 12 PPV events
- Advertising/event sponsorships – $18 million from 12 PPV events
- UFCStore.com = $12 million a year in sales
- Other – licensing video games, action figures, online video = $1 million a year
You’re looking at $355 million a year. What about remaining expenses?
$450 million debt with Deutsche Bank -> $10 million per month = $120 million per year
Since I don’t have access to all of Zuffa’s books, let’s be extra cautious and budget an additional $10 million a month for expenses missed. After accounting for loan payments and budgeting extra cash for overlooked expenses, UFC’s financial picture could be producing a scenario of $115 million a year in annual profit. If that’s the case, here’s what the payouts would look like if they were taxed at 25%:
- Frank Fertitta: $34.5 million a year ($2.875 million/monthly, $718,750/week, $102.678.57/daily)
- Lorenzo Fertitta: $34.5 million a year ($2.875 million/monthly, $718,750/week, $102.678.57/daily)
- Dana White: $8.625 million a year ($718,750 a month, $179,687/week, $25,669/day)
- Abu Dhabi owner: $8.625 million a year
If the numbers are close to accurate, it means Zuffa is doing better than expected. With the UFC being so economically strong, Zuffa’s refusal to pay fighters becomes less acceptable. It is now time for fighters to organize a union and fight for every last penny.
The problem for UFC is that if you take away the Fox money, the PPV cash is still the heavy driver of revenue for the organization. That means it’s a volatile situation when buy rates get cold and they have been very cold for the most part. When you lose Brock Lesnar, it hurts. St. Pierre only has a few fights left in his career before retirement. There’s nobody who can step in and automatically draw 750,000 PPV buys for a fight. It’s why they’re putting so many eggs in the Ronda Rousey basket. Will Anderson Silva’s loss against Chris Weidman damage his PPV drawing prospects?
@FightOpinion UFC revenue for 2012 was $480 million. Events (PPV etc) are now 57.5% of their revenue total
— Rob Maysey (@MMAFA) July 8, 2013
Projecting 500,000 PPV buys a show in the past for the UFC was a lock a couple of years ago. Now? There are some real duds mixed in with success stories, so there’s even more pressure on the drawing cards to really do well on the biggest shows.
Has there been a bigger disappointment than the UFC’s complete inability to make seemingly *any* new stars/draws since getting on this multi-faceted Fox platform with all of this broad exposure??
Weidman should really be a breakout star…maybe this will be a kingmaking performance, but there’s no buzz on this guy outside hardcore fans trying to rally themselves into buying into him being “the guy to beat Silva”.
Rousey seems to be the only “new” star/draw they have, but Strikeforce and Coker for all of their shortcomings did all the legwork in building up her star.
Shows like Cain/Bigfoot and the Winnipeg event aren’t big revenue producers. Until the core business model changes, UFC will always remain somewhat volatile in terms of how much projected revenue they receive a year. As for the larger point that the fighters are getting screwed, well, that storyline has existed in the media for years and nobody has done anything about it. Until a new organization arrives on the scene to create competition on a significant level, there is no monetary incentive for the UFC to change their business practices. Bellator, being owned by Viacom, was the one group that had a chance to be a player given the resources at their disposal. However, Viacom is interested in running Bellator on the cheap and Spike’s insistence on giving preference to a horribly-run company like TNA over Bellator pretty much tells you everything you need to know.