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Wednesday war room: More red ink for the IFL

By Zach Arnold | August 14, 2007

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The IFL filed it’s 10-Q report with the SEC (links here and here). The numbers don’t lie. Pay attention to the comments section of this post, as I expect a lot of our smart financial readers to chomp into the data here. Here’s the first thing that stands out from the latest 10-Q:

For the three months ended June 30, 2007, we incurred a net loss of $6.9 million, or $0.13 per share, as compared to a net loss of $1.8 million, or $0.10 per share during the comparable period in 2006. For the six months ended June 30, 2007, we incurred a net loss of $13.8 million, or $0.26 per share, as compared to a net loss of $2.4 million, or $0.14 per share, during the comparable period in 2006.

Revenues for the three and six months ended June 30, 2007 were $2.7 million and $4.2 million, respectively. During 2006, revenues for the comparable periods were $738,000.

Regarding the IFL’s cash reserves:

Based upon management’s current forecast of future revenues and expenses, the Company believes its cash resources will likely be sufficient to fund operations into the second quarter of 2008. The Company is also evaluating the profitability of other revenue sources, such as franchise or team sales, digital rights and pay-per-view broadcasts.

Now you see why they like the team concept — they’re hoping to reel in some money marks who would pony up cash to ‘own’ a team.

The 10Q states that on 12/31/06, the IFL had $16.6 million USD in cash and cash equivalents. As of 6/30/07, they have $2.5 million USD in cash and cash equivalents. The most damning number is their accumulated deficit figure, which was $9.6 million USD on 12/31/06 and is now nearly $23.5 million USD as of 6/30/07. The IFL’s current outstanding liabilities are at $1.9 million USD as of 6/30/07.

It actually gets worse. Their 2007 house show revenues are $1.4 million USD as of 6/30/07. The cost to make that money at the gate? $12 million USD. Now throw in the figures they made from TV. The revenues would be $4.2 million USD, with only $141,224 USD of that coming from sponsorships (not good). The cost of that $4.2 million in revenues is $13.8 million USD. Even though the IFL made nearly double off of TV rights as they did on house shows, they still are massively hemorrhaging cash to produce events. The current operating loss for the IFL in 2007 is $14 million USD and the net loss is $13.8 million USD.

The end result is that the numbers look real bleak for the IFL. There’s no sugercoating the bad financials. I’m not as nice about it as Steve Sievert is. I’ve got a fantastic idea – let’s have an MMA version of an “I Quit” match between the IFL and Pro Elite, except it’s really a Loser Leaves Town match.

Plus, more bad news for the IFL – Rory Markham will be out of the IFL team finals on 9/20 in Florida.

Onto more news items…

Was medical paperwork regarding Choi Hong-Man falsified when he fought in Nevada?

The latest Nevada State Athletic Commission news and notes.

The great Don Frye and WAKASHOYO are expected to work the second IGF show on 9/8 in Nagoya.

The Dallas Morning News reports that the Dallas Cowboy’s Tyson Thompson has been training with Guy Mezger.

There’s an interesting new site that just launched called MMA Analyst. I like the layout of it.

Here’s a real classy marketing act on display. Not.

There’s an interesting article on Javno today titled Gonzaga is to blame and it talks about Mirko Cro Cop’s path for vengeance.

The Natural and The Axe Murder training together.

Shu Hirata has some interesting news and notes on his site (if you can read Japanese). One of those notes – discussion of a re-match between Nick “The Goat” Thompson and Eddie Alvarez soon. Plus, Gilbert Melendez will defend the Strikeforce Lightweight title at the Playboy Mansion show. Also, some talk about Roger Gracie’s second MMA fight happening perhaps in either Cage Rage or a Bodog ring. Bodog will be a sponsor for Matt Lindland’s next Sportfight show on 10/27 and the top fight on the show will involve Chris Wilson. The next BodogFight international show is being discussed for 11/30 in Moscow with a Russia vs. USA theme. Shu joked about Zulu appearing. If you can read Japanese, check out Shu’s posting online.

Onto today’s headlines.

  1. The Long Beach Press-Telegram: Chuck Liddell vs. Keith Jardine will have to do
  2. MMA California: No Limits – Hot August Fights recap
  3. MMA Madness: Interview with Tito Ortiz, part one
  4. UFC Mania: Matt Hughes – ‘mind games’ got under the skin of Matt Serra during TUF 6
  5. Sprawl ‘n Brawl: Pro Elite — PRIDE 2.0?
  6. The Atlanta Journal-Constitution: Georgia boxing commission rejects Kyle Maynard’s application for an MMA license
  7. Bloody Elbow: Why GSP will defeat Josh Koscheck
  8. The Big Bear Grizzly: Ph.D. in kicking butt for Rampage Jackson
  9. The Daily Pilot (CA): Martial artists collect accolades – Couture among those honored at Masters Hall of Fame event in Costa Mesa
  10. The Black Hills Pioneer (SD): Ringwars has become mainstay in local sports scene
  11. The Victorville Daily Press (CA): Local man Tyson Johnson is well known in the MMA world
  12. The Honolulu Advertiser: Hawaii bouts hit national airwaves
  13. Inside Fighting: Nick “The Goat” Thompson talks about Sean Sherk’s drug test failure
  14. UFC Junkie: Interview with Mike Swick – “Quick’s” fix to come at 170 pounds
  15. CBS Sportsline (Gregg Doyel): Lions, tigers, and Mixed Martial Artists, oh my!
  16. CBS Sportsline: Kendall Grove looking for biggest win of his career at UFC 74
  17. The Orange County Register: Rob McCullough defends WEC title at WEC 30 on 9/5 in Las Vegas
  18. The Cincinnati Enquirer: UFC coming to Cincinnati
  19. Komikazee: MMA Smackdown #36 w/ mike ciesnolevicz
  20. Eddie Goldman: Interview with Jeff Monson
  21. Sherdog: Niko Vitale agrees to deal with K-1, Strikeforce
  22. The New York Daily News (Tim Smith): Matchmakers getting it right in boxing

Topics: BoDog, Boxing, HERO's, IFL, Japan, K-1, Media, MMA, Pro Elite, UFC, Zach Arnold | 17 Comments » | Permalink | Trackback |

17 Responses to “Wednesday war room: More red ink for the IFL”

  1. Iain Liddle says:

    Roger Gracie to Cage Rage makes sense, and it’s always surprised me that it’s never been floated as an idea seriously before.

    His school is in West London and he lives in the capital. Plus it’s not like Cage Rage are averse to paying decent money to bring in unexceptional fighters (not saying Roger is) so it all makes sense.

  2. 45 Huddle says:

    Any “investor” willing to purchase an IFL team has to be be the dumbest businessman of al time. That company is on the way out. Unlike Pro Elite, who has the backing of Showtime (and who knows if that will even succeed), the IFL is just waiting to go out of business. Their business plan stinks. They are trying to throw things against a wall to see if they stick at this point.

    With the IFL, they basically have found no way to make money. They make everything look good, but there is nothing to it.

  3. […] Zach Arnold at FightOpinion.com has a nice writeup on the current financial status of the International Fight League. […]

  4. Ivan Trembow says:

    Good article by Tim Smith in the NY Daily News. Unfortunately, it doesn’t mesh with the whole “boxing is on the downturn” false storyline.

  5. Zack says:

    Isn’t that a “loser leaves town” match, not an “I quit” match?

  6. K. Fabe says:

    Can you imagine if Fight Opinion existed anytime between about 1997 and 2004 or so? We would have gotten weekly updates about how UFC will never make it and should just throw in the towel, due to their crushing debt.

  7. The Gaijin says:

    ^ Probably wouldn’t have if not for some pretty shady dealings going on with the NSAC. Without the foothold in Vegas it probably would have went under.

    How no one has ever really made a stink about how corrupt that whole thing looked is BEYOND me.

  8. hiroshi says:

    The forum in Sherdog.com has a thread saying that Roger signed IFL to face Allan Goes at Sep’s event.
    http://www.sherdog.net/forums/showthread.php?t=620862

  9. Jeremy (not that Jeremy) says:

    I think people are aware that I consider the operators of the IFL to be shysters if not fraudsters. They seem to have a knack for convincing people who are not terribly business savvy to give them money or forgive their debts in exchange for a “piece of the action.” So, take the rest of this with as many grains of salt as you like.

    However, the focus on negative retained earnings is kind of misplaced. Companies don’t go out of business from that. Retained earnings is just a balancing item basically…it normally represents accumulated profits and losses that haven’t been paid as dividends to shareholders, but in this company’s case, it’s almost meaningless because they keep converting those past expenses that lead to the loss into capital infusions that offset the losses (they never actually PAY for the accrued expenses with cash, they use stock shares and warrants that represent ownership stakes instead. My position is that these shares and warrants are worthless, so it’s a case of bigger fools here).

    What WILL put you out of business is a lack of cash, and they have had a significant decrease in cash on hand in the last six months. What exactly the cash was actually spent on isn’t particularly clear (they’re only presenting an indirect cash flows statement that reconciles net profit or loss from the income statement to the beginning and ending cash balances on the balance sheet, the way we do this here is basically to just take the starting and ending balance sheets and then group the differences between them, with a few adjustments) because their income statement is basically BS since they’re “paying” for their expenses with worthless stock and options (common stock is the last thing you want to hold when a company is going down, because they come last in terms of receiving assets when a company is liquidated during bankruptcy … now if you actually believe that the company is going to turn around and become a profitable going concern, then it’s a different story).

    I don’t regard this as a company that you can put any sort of faith into. Their cash position isn’t as bad as it looks because they’re entering into what I consider dodgy equity arrangements to pay for their events (this is beyond running up a credit card or issuing junk bonds, this is a situation where literally, they’re giving away something of NO VALUE WHATSOEVER in exchange for forgiveness of debts, and that is unbelievable to me), but schemes like this only last as long as there is a bigger fool down the line.

  10. Kev says:

    The IFL should just reorganize themselves as a charity, cos it seems that’s what Kurt Otto thinks he’s running in the first place. At least that way, creditors that forgive their debts can receive a warm, fuzzy feeling.

  11. Zach Arnold says:

    Can you imagine if Fight Opinion existed anytime between about 1997 and 2004 or so? We would have gotten weekly updates about how UFC will never make it and should just throw in the towel, due to their crushing debt.

    To even compare the UFC to the IFL in terms of the course of business these groups took is laughable. Under Zuffa LLC ownership, they have used their own cash to fund their own operations. Did they lose significant money in the first few years? Yes they did. Did they go to the public and try to get money mark investors to pump money into their then-fledgling operation through a stock gimmick? They sure didn’t.

    I’m glad the IFL and Pro Elite are publicly-traded companies (well, IFL is anyhow). Promoters like to have the PR benefit of saying they are publicly-traded and are clean, but the flipside is that you see the books — and most of the time in MMA or pro-wrestling, that’s a really bad idea to have.

    Furthermore, the difference between the early years of Zuffa LLC and the IFL in terms of losing money is quite the contrast. Zuffa LLC reportedly lost $40-45 million USD in five years. In one year, the IFL has lost $23.5 million USD — which is half of what Zuffa LLC lost in five years.

  12. PizzaChef says:

    Hate to mention this, but from reading PuroresuPower…How the hell did HUSTLE get a free tv contract, even though most of DSE’s old people still work for HUSTLE Entertainment? While PRIDE cannot get a free one at all with Zuffa ownership?

  13. Zach Arnold says:

    TV-Tokyo is usually a pay-for-play network. It wouldn’t be inconceivable if a barter deal was worked out, either.

  14. MickDawg says:

    # Zach Arnold Says:
    August 15th, 2007 at 5:31 pm

    Furthermore, the difference between the early years of Zuffa LLC and the IFL in terms of losing money is quite the contrast. Zuffa LLC reportedly lost $40-45 million USD in five years. In one year, the IFL has lost $23.5 million USD — which is half of what Zuffa LLC lost in five years.

    ^^^^^

    I agree with the other guy. Zach would’ve been sitting here bagging on the UFC every week about how much money they are losing.

    Zach wouldn’t have had the IFL to compare it to…so the UFC losing 9 million a year would’ve been a big deal.

  15. Jeremy (not that Jeremy) says:

    Mick,

    Zach does sit here bagging UFC every week. You haven’t been paying attention. He is an equal-opportunity bagger.

  16. Zach Arnold says:

    Bad business is bad business. However, throw in an element of using a gimmick like raising funds through the stock market, and that bad business just got a lot worse — and a lot more public.

  17. LR says:

    Thanks for the mention of my new site at MMA-analyst. The aim of the site is to really spur some intelligent conversation when it comes to picking fights, and analyzing the matchups as opposed to “GSP is gonna win because he freaking RULES!”.

    We are also going to be covering WEC 30 this week, and I have a contributor coming on board to help do some exclusive interviews as well, anything to really help gauge the MMA world and help the fans get all the information they crave.

    Thanks for the mention.

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