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Flashback: Gaming license issues related to UFC/PRIDE asset sale deal

By Zach Arnold | February 6, 2008

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As many long-time readers of this site know, I have been drumming the beat about PRIDE’s problems for at least two years. When the rumors first started that Zuffa was interested in doing a PRIDE asset sale purchase, I warned that there would be many problems that would arise if such a deal occured.

Those problems are surfacing right now.

I am going through some of the archived posts on this site in relation to warning signals about the PRIDE asset sale deal. One of the warning signals fired by me was that the Fertitta brothers were possibly putting their gaming license at risk by doing a business deal with Dream Stage Entertainment.

On March 21st of 2007, Ed Fishman did a radio interview with Sherdog and had this to say:

In regards to the stories about Ed being interested in buying PRIDE, he said that was true. He told the Japanese (who wanted $60-65 million USD) that he would need 30 days for due diligence to find any outstanding debts or secret owners. EF said that due diligence was critical in buying an operation like this, especially if he wanted to keep his gaming license in Nevada (and expressed the same concern if the Fertittas bought PRIDE). Ed said that he asked for paperwork from PRIDE such as legal documents, contracts, bills, etc. Nothing was ever presented to him. He was told by the Japanese that they couldn’t wait 30 days for the due diligence process to occur (and yet it’s 45-50 days after the initial buy-out request and now PRIDE is interested in being sold to the Fertittas?). Ed expressed that by this point now, due diligence by his team would have already taken place and he could have bought the promotion. Ed said he didn’t know if $60-65 million USD was a good price for PRIDE because his legal team didn’t get a chance to perform due diligence on whatever assets existed (VTR library, contracts, name/logo, etc.) He needed time to study the fighter contracts for opt-out clauses and other issues.

On March 22nd of 2007, Dave Meltzer reported that Nobuyuki Sakakibara was telling PRIDE employees that an asset sale deal had been finalized. I raised some serious questions about it:

Now, the last sentence by Meltzer… more than likely, the fighter contracts with PRIDE are personal service deals and could have real problems being transferred to UFC. Therefore, the only guaranteed way to enforce the contracts is if The Fertitta Brothers bought shares into Dream Stage Entertainment Inc. If that’s the case, the risk factor just went up exponentially on a lot of levels with a lot of important authorities.

In the case of a money transaction to Japan, you’re talking about raising the awareness of the Tokyo tax bureau (along with the Kanagawa Police and perhaps Tokyo Metropolitian Police). In America, certainly there will be awareness raised by the Nevada Gaming Commission and by the Fishman Companies legal team. This is far from over as far as a business transaction.

On March 23rd of 2007, we posted some notes from our radio interview with Ed Fishman:

Ed talked about the process of inspection from the Nevada Gaming Commission and how it’s a 20-year background test check, where you (the person being investigated) have to pay all of the investigation costs. He pointed out that only one Japanese person has managed to pass it (and had ownership in The Aladdin Hotel). Ed stated that while he wasn’t a lawyer and that UFC was likely doing an asset sale with PRIDE, he felt that the NGC could prove to be an issue. Jeff Thaler asked him if Ed’s lawsuit could turn out to be a poison pill and Ed said yes, because his legal team has to put witnesses (including ex-DSE staff, which he didn’t name Yukino Kanda and Hideki Yamamoto specifically but clearly hinted at it) under deposition for a full day.

On March 26th of 2007, I wrote this preview post right before the asset sale deal occured:

Let’s analyze each option (the rewards and risks).

1. UFC does an asset purchase of PRIDE from DSE. This would be (relatively-speaking) the cleanest business transaction in terms of Zuffa LLC putting up cash. The risk would be limited in the sense that they would be buying the VTR collection, fighter contracts, and the PRIDE name/logo trademarks. This kind of deal might raise an eyebrow with the Nevada Gaming Commission, but it would be unlikely that anything negative from the NGC would take place.

The major risk of this kind of deal is what kind of fighter contracts does PRIDE have. Are they assignable or not assignable? This is key, because if the contracts are not transferrable to a third party then whatever asset transaction takes place will allow all of PRIDE’s fighters to become free agents and receive bids from BodogFight, K-1, etc. Zuffa LLC lawyers would need to perform due diligence, and so would company accountants. Due diligence takes anywhere from 30-60 days on a deal like this, and you don’t know how many of the contracts are in English or Japanese.

2. UFC does an asset purchase of PRIDE from DSE and Zuffa LLC starts their own subsidiary organization to run PRIDE in Japan. The risks from the first option apply to this option, plus there are more added risks. In the Japanese marketplace, it is likely not going to be palatable to the fans to support a foreign company that has a false Japanese face to it. In the modern history (since the 1950s) of the Japanese fight game, there hasn’t been a single gaijin President, boss, or owner of a fight promotion that has had long-term success in the Japanese marketplace. Race and nationality is a major issue here. Another element of risk on starting a subsidiary in Japan is not only losing a lot of cash (Japan is one of the most expensive places in the world to do business in), but also encountering angry gangs and criminals who are looking to disrupt or get a piece of the action.

On April 2nd of 2007, I reviewed the article that Shukan Gendai wrote about PRIDE’s asset sale deal with UFC. Spend a few minutes reading it and put it into context for the big picture.

On April 27th of 2007, I wrote a laundry list of questions that Ed Fishman’s legal team should ask Zuffa management in the Fishman vs. DSE Inc. lawsuit (before it was settled). Read the questions and fill in the blank for answers and compare what answers you have now versus what answers you didn’t have last year.

On August 30th of 2007, I addressed Todd Martin and explained the importance of the Nevada Gaming Commission in relation to the PRIDE asset sale deal:

Todd,

Here’s the logical fallacy with Dana’s “tainted” comments.

Lorenzo Fertitta and Zuffa had to have known about the yakuza scandal. You couldn’t avoid it if you read this site and others — and some people inside Zuffa likely read this site (because of past e-mails I’ve gotten). When they purchased the PRIDE assets from DSE, Dana went around bragging about what a “strong brand name” PRIDE is. As recently as a month ago, he said in a Japanese magazine that PRIDE was Japan’s #1 brand and HEROs was #2. Given the circumstances, this was such a laughable statement.

So, why did White suddenly change his tune a month after making those comments to the Japanese press? We don’t know. I can make guesses and assumptions relating to certain events, such as the Ed Fishman lawsuit settlement with DSE Inc. and the rumor that one of the provisions of the settlement is that PRIDE won’t come back, but I don’t have any concrete facts to prove why Dana keeps flip-flopping on the PRIDE brand value.

Here’s the problem for Dana and the whole “tainted” comment. The Nevada Gaming Commission is extremely sensitive about licensees and who they do business with. In other words, if you’re licensed by them stay the hell away from the mafia. That’s why I was always puzzled as to why Zuffa took a risk in dealing with DSE Inc., considering how high-profile the yakuza scandal was in Japan and translated in English on several top sites. It was a known story. All Dana is doing by using the word “tainted” is drawing attention to the fact that they did business with an organization that had accusations and allegations made against them in a high-profile scandal, which is not a good move on his part. Too many logical inconsistencies and flip-flops for him not to get called out on the carpet for it.

When he says stupid things like “it’s hard to rent an office in Japan,” how can you not laugh at him? Those kinds of statements are total crediblity killers. However, the joke was on him when DSE had Hustle running angles and doing business in the PRIDE offices while Zuffa’s staff were supposedly trying to take over the operations in Japan.

Feel free to access our past archives and read through all the stories related to the series of stories that Shukan Gendai did on the PRIDE yakuza scandal and also freshen up on who Seiya Kawamata is.

One other note… notice how Zuffa’s lawsuit against DSE surfaces a week after The Godfather of PRIDE died. Life is funny in some strange ways.

Topics: Media, MMA, PRIDE, UFC, Yakuza, Zach Arnold | 18 Comments » | Permalink | Trackback |

18 Responses to “Flashback: Gaming license issues related to UFC/PRIDE asset sale deal”

  1. The Gaijin says:

    I’d like to know where you have this crystal ball hidden!

    It seems maybe Zuffa should have hired you as a high priced consultant for this deal…even at the expensive going rate, it would have saved them millions.

  2. ilostmydog says:

    This quoting of yourself seems eerily similar. Zach Arnold, are you really Don Cherry?

  3. Mike David says:

    It remains shocking that nobody at Zuffa paid attention to the numerous warning signs present in this deal. It’s not as though they had to look very far to find this information.

  4. The Citizen says:

    Very deep doo-doo indeed. Once again, this is why I love Fight Opinion!

  5. stanky says:

    hey zack do you think this also has anything to do with the ufc supposibly being up for sale? and also the xyience tie in as well

    maybe the fertittas are trying to get out of the fight game asap before he affects there main business in gaming

    if therey license was yanked in nevada couldnt that spell doom for there empire.

    i remember reading somewere but i dont remember , that the fertittas gambling enterprises are carrying a high amount of debt.

  6. Zack says:

    Zach…shoot me an email with next week’s lottery numbers.

  7. Fan Futbol says:

    Zach,

    Lawsuit filings are public record and absent a Court confidentiality order, can be requested by anyone, although you’ll have to pay copying fees. Here is the procedure for getting a copy of the Zuffa lawsuit file: http://www.co.clark.nv.us/ClarkCountyCourts/clerk/records-search.html

    You have to submit a request by mail or in person, because they don’t make the complaint (which is what you want here) available online.

    I’d love to see Zuffa’s complaint. Even if they did due diligence, they could have been defrauded.

    FF

  8. mmaguru says:

    can somebody in plain english please describe whats going on

  9. Captain says:

    Hmmm… if Zach’s English is not plain enough you may have to ask someone like FightLinker to do a translation.

  10. white ninja says:

    Dana should ask Ken Imai (crocop’s manager – who didnt apparently tell crocop about Dana’s deadline for hearing from crocop) all about his close relationship with sakakibara and dse

    ken imai was very very close with Sakakibara. In fact, Ken and Saki were both protected by the same yakuza (ishizaka). Funny that a ex-cop has a yakuza for a manager, but MMA is a funny game

    Dana will be able to get a lot of interesting info from putting the heat on Ken Imai

  11. David says:

    “I’d like to know where you have this crystal ball hidden!

    It seems maybe Zuffa should have hired you as a high priced consultant for this deal…even at the expensive going rate, it would have saved them millions.”

    Thread-saver… and a response to the question:

    “It remains shocking that nobody at Zuffa paid attention to the numerous warning signs present in this deal. It’s not as though they had to look very far to find this information.”

    This is what arrogant immature males do. Irrational arrogance and money make bad things happen.

  12. JP says:

    I’m just confused. Pass the beernuts…

  13. Zurich says:

    How did DSE get licensed by the NGC, if their Yakuza connections were so apparent?

  14. Zach Arnold says:

    Ed Fishman was the promoter of their Las Vegas event.

    The NGC regulates those with gaming licenses, while the NSAC does basic regulation for MMA events.

    Where UFC found themselves in a delicate position relates to the actual money transaction of the asset sale with DSE.

  15. mmaguru says:

    you know i just find it hard to believe zuffa didn’t see this coming. i would bet that zuffa has not paid the full amount of whatever they agreed upon. i think the key for zuffa was to keep pride out of the hands of another invester and while the contracts didnt transfer they did gain access to all of the fighters for new deals before they hit free agency

  16. Body_Shots says:

    You’re cherry picking here.

    If I remember correctly, you predicted the NGC would somehow get invovled in the Zuffa-DSE asset transaction. That wasn’t case at all, what you should take credit for is your evaluation of PRIDE’s worth. Which apparently wasn’t much and that seems to be the crux of this whole lawsuit.

  17. klown says:

    Has everyone seen the Kongo vs Herring trailer? Dana White says the division is “stacked” and that those two are Top 5 fighters.

  18. iain says:

    I think we should all shut up until 45 huddle speaks. He will show us the light.

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