The UFC Is On a Roll, But Will Fox’s Roll Turn Up Seven?

by Charles Jay

Say what you want about the “arrogance” of UFC president Dana White, but he has been on a roll for about a decade now, and that was capped by this week’s announcement that the UFC has inked a deal with Fox that is worth between $90-$100 million per year over the next eight years.

And speaking of rolls, I have heard the disclaimers about White; that he got a “freeroll” because he was using other people’s money, or that the UFC was on the verge of extinction at one point, having gone through $44 million or so in capital before an additional cash infusion.

That might be true, and it might also be true that if the Fertittas did not have such deep pockets the UFC might not have ever gotten past its period of high anxiety to be so prominent on the world scene today. At the same time, it spent money at a certain clip with the knowledge that it could inject more capital into the situation if absolutely necessary, so I doubt the company was going to go broke that easily if its principals were motivated to keep it going. And a lot of companies have to get over some speed bumps before they start to turn the corner.

Let me tell you something from real experience – I can’t tell you how many guys who have owned a small gym and trained a few fighters thought that they had a scheme to take over the boxing world, but couldn’t get out of their own way. This guy did it, in MMA. He found the capital to make it happen, to begin with, and has done a lot more than take the ball and run with it. I wonder where the Fertittas would have been without HIM more than the other way around.

With the monster Fox deal that was officially announced on Thursday, White has effectively taken the ball and crossed the goal line.

And the UFC has gotten to the point that puts it in very exclusive company, in that it has managed to convince a major media conglomerate that it is perhaps much more valuable than it really is.

There’s nothing wrong with that; in fact, it’s their job to do it. And value, I suppose, is in the eye of the beholder. But can Fox monetize this deal to the point where it is profitable? We’ll see about that.

Obviously the people at Spike TV/MTV Networks/Viacom did not think it was worth it, because they opted out of dealing with the UFC, at least for new programming (they retain rights to archived material through next year) going forward. Let’s not forget that Spike, which had seen ratings for some of the recycled shows they had done with the UFC, saw a drop in the ratings and chose not to renew. They were not left “high and dry” as some people have tried to point out to me.

But if you follow the business of licensing fees, you are aware that Fox has not been afraid at all to overspend for product. In 1993, they made a bid that knocked the NFL’s socks off, pledging $1.58 billion for four years of rights to the NFC. How good was that offer? Well, CBS’ competing bid was $290 million. And consequently the Columbia Broadcasting System found itself pushed out of the NFL picture for the first time in almost forty years, a factor that weakened it considerably on an overall basis.

Fox was not going to make money on the broadcasts themselves, but they turned out to be an effective loss leader, because they brought residual benefits. For example, they served as a great lead-in (running 4 to 7 PM ET in the “nightcap”) for a marquee night of prime-time programming, and it gave a genuine boost to shows like “The Simpsons.” Of course, it went way beyond that, to the in-game promotion of numerous other shows. It also had the effect of growing a network, since new affiliates felt compelled to come on board in order to receive the NFL programming. Aside from all this, the foray into the NFL was a prestige buy, because it put Fox into the rotation to televise the biggest sporting event in America, the Super Bowl.

To put the UFC deal in perspective, let’s use some simple arithmetic: on the basis of what the NFL is getting paid right now from four networks (CBS, Fox, NBC, ESPN) on a COMBINED basis, the UFC will be receiving roughly the same amount annually as any individual NFL team. If the deal is on the high end (which according to reports would be very close to $100 million) they would, for example, be making more money on an annual basis from ONE television entity than the Dallas Cowboys are making from ALL broadcast and cable television revenue (disclaimer: we’re not including NFL Sunday Ticket money on DirecTV).

It is almost $30 more than each NFL team made as of 2005. It is an amount almost equal to 20% of the entire NFL package as recently as 1989. It is roughly 14% of what Fox gives the NFL right now.

It dwarfs the $22.3 million each Major League Baseball team gets from its national television contracts, a figure that Fox, ESPN and TBS all contribute to. It is more than 15% of the total national baseball agreement.

It is more than the Versus Network ever paid the entire NHL at any time during its agreement, and almost half of what the combined NBC/Comcast/Versus entity will pay on an average annual basis for the next ten years (Versus is being renamed NBC Sports Network), in what NHL commissioner Gary Bettman has recently called “the most significant U.S. media rights partnership in the league’s history.”

It is more revenue than the UFC is reported to have realized for its top four pay-per-view events combined in the year 2010; that is, it would be greater than their share of more than four million pay-per-view subscribers.

And the best part of the thing is that the UFC, which correctly describes itself as a pay-per-view company, gives up nothing out of its PPV business. In fact, it gets additional ammunition to promote it. AND it retains absolute control over production to boot.

OK, we’ve had our fun with numbers. Dana White and his colleagues are having more fun with them, I can assure you.

I have no doubt that there is a method to Fox’s madness here. But is the UFC going to create residual benefits, the way that football, and to a lesser extent, baseball did?

I suppose that could be the $800 million question right now, give or take fifty or a hundred million.

And believe me, when you are in the position where you can think in terms of “give or take fifty or a hundred million,” you’re in some rarefied air.

So don’t tell me for a minute that just anybody could have pulled this one off.