Business of Boxing: A Boxing Pay-Per-View Primer
by Charles Jay
No one in the boxing business these days makes a lot of money unless he is able to break through on pay-per-view. That goes for both fighters and promoters. There is really no two ways about it. There have been fights available through so-called “pay television” for over fifty years, but in recent years the apparatus of pay-per-view television, in the home, has dominated the boxing landscape, and changed the way the movers and shakers look at this business completely.
Also, the fights that you talk about the most, and want to read about the most, are the ones that ultimately wind up on pay-per-view.
Therefore it is appropriate that we discuss it.
My intention, at least initially, is to make my way through it in rather simple terms, because we are going to have plenty of time to get around to talking about it in more detail.
At its most basic, the way a boxing promotion works is that a promoter finds a venue and sells tickets for that venue, with the objective, naturally, that the amount generated by the tickets sold exceeds the expenses that were spent.
In effect, the magic created by the technology of pay-per-view expands that venue to include an entire nation. Just look at it in terms of being the world’s biggest ballroom.
Some semantics might be in order. The terms “pay-per-view,” as it applies to fights that are transmitted into the home in exchange for a fee, is kind of a misnomer, as promoters have discovered. When fights go into a movie theater or another venue that gets it via closed circuit, it is much closer to the actual concept of “pay-per-view,” because it gets much closer to the ideal that everyone who views it has to pay for it. When it goes into homes, it may turn out to be, in fact, pay per MANY views, as buyers often invite multiple friends over.
Be that as it may, this was considered to be a phenomenon and curiosity back in the late 1970’s and early 1980’s when the fights were exhibited on an experimental basis, with the primary revenue source still being the closed circuit telecast that was shown in larger venues. Fights like the “Thriller in Manila” were made available for home viewing, but in rather small doses. Talk of a pay-per-view “universe” probably started back in September 1981 with the first fight between Sugar Ray Leonard and Thomas Hearns, which constituted a welterweight unification and an honest-to-goodness “mega-fight.” At that time, there were about 1.2 million addressable homes, of which a whopping 48.6% bought the fight. It is indeed the highest buy rate for any fight that has been made available to at least a million homes on pay-per-view, though perhaps with the small sampling a little deceptive.
Now, there are at least 75 million homes that can receive pay-per-view in that “universe,” meaning that the same buy rate that a fight got twenty years ago would yield a great deal more money today. For example, Ray Mercer’s KO win over Tommy Morrison in 1991 drew a 1.2% buy rate, which meant 206,000 homes and $4.1 million in revenue at the $19.95 price. At the time the universe was 17.2 million homes. Based on 75 million homes, there would be 900,000 subscribers, producing just under $18 million, and at a more probable 2011 price of, say, $39.95, that’s a take of close to $36 million.
As the apparatus has matured, the way it customarily works is something like this: the promoter will make a fight between two combatants, along with an undercard to support it. He approaches the pay-per-view distributor, like HBO PPV or Showtime PPV (or the new entrant, Epix) with that fight, and the distributor makes the decision as to whether to carry it or not. If the fight gets the green light, the distributor goes to work clearing the fight with the MSO’s (multiple system operators) who control virtually the entire cable universe. These include companies like Time Warner, Cablevision, Comcast. Cox and Charter.
The cable systems are in on the deal; that’s their price tag for carrying a certain amount of weight on the local and regional level. They are going to run commercials for the event, and sometimes the promotional materials can be provided by the promoter, although often the cable people will put together their own, because they may have certain special promotions they will do in association with the event.
The standard breakdown as far as money is concerned is a 10% fee off the top for the distributor, with 45% each for the cable system and the promoter. So when you see a price tag on a fight, you know that the promoter will get about 45% of that.
Let’s say a fight is priced at $49.95, which for the sake of simplicity we are going to round up to $50. If it’s HBO PPV that is being used, HBO is not a party that is at risk but will take the 10% fee off the top ($5). The promoter and the cable companies both wind up with $22.50 per “sub” (or subscriber).
If a fight sells a million pay-per-view subscribers, HBO’s pay-per-view arm will get $5 million and the promoters will pocket $22,500,000. If that level of revenue, along with the other revenue streams (live gate or casino site fee, merchandising, international rights, etc.) did not meet what the promoter guaranteed the fighters, well, let’s just say that would be an unfortunate occurrence.