Business of Boxing: How Does the Pay-Per-View Deal Work?
by Charles Jay
Where does the money go when a fan plunks down $49.95 to see a pay-per-view fight on television? Does it go directly to the fighters? Does it go into the hands of promoters? What role do the networks play? Maybe this piece will, in a basic sort of way, shine some light on it for you.
As the apparatus of pay-per-view has matured, it has evolved into a process that customarily works 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 as far as the fight itself is concerned 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.
Some semantics might be in order at this time. The term “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. As we mentioned in a story last week, that’s why promoters are interested in experimenting with going the theater route.
That method does not necessarily involve HBO PPV, but don’t get the impression that they are just going along for a free ride when they engineer the pay-per-view distribution. The strength of a company like that is that it not only can instantly make an event happen and effectively coordinate it over the television platform (not to mention produce it as well), it can also apply some marketing muscle on a national level. You have seen that with the “24/7” series that HBO airs, which doubles as an entertainment piece and a de facto infomercial for the pay-per-view telecast.
Now Time Warner is expanding that promotional vehicle to other outlets like CNN, which they control. Showtime Pay-Per-View has done the same through its “Fight Camp 360,” which was used in four parts to promote the Manny Pacquiao-Shane Mosley fight, and aired not on Showtime’s premium channel but to a wider audience on CBS, which is also owned by Viacom. This kind of programming might be the most effective in selling an upcoming fight to the more casual audience, because it shows the fighters in a more human “reality” setting.
In this atmosphere where media conglomerates own many properties across the spectrum of broadcast, cable, premium and even satellite programming, they are starting to expand their horizons and operate more creatively for a potential constituency that has many more choices on their remote than they had when pay-per-view first became a prominent part of the boxing culture. You can expect that activity on the part of HBO, Showtime and even ESPN (which has a pay-per-view apparatus), all of which are owned by a different conglomerate, will reflect that into the future.