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Mayweather-Canelo Pay-Per-View: Breaking Records, and Breaking Even

Posted on 09/13/2013

by Charles Jay

It almost seems like part of the hype surrounding Saturday’s fight between Floyd Mayweather and Canelo Alvarez is whether this fight is going to break all records that have been established for pay-per-view telecasts of boxing in the past. Several of the people involved in the promotional end of this event, most prominently Richard Schaefer, the CEO of Golden Boy Promotions, have implied that it could go in that direction. For justification, they point to a record live gate they say has already been realized at the MGM Grand Garden that amounts to about $19.9 million.

But these guys want it to sound like they are in the midst of perhaps drawing more people than bought the De La Hoya-Mayweather fight back in 2007, or at least generating more revenue from pay-per-view buys, and though we would not just dismiss it as a cheap ploy, we understand that the more popular they can make this event sound, the more attractive it could come off to the “squares,” i.e., the members of the general public who may not be big boxing fans but who are needed if any event is going to score big with pay-per-view numbers.

In other words, it’s a party, and everybody’s coming. That’s where YOU should be. Hey, something has to have a little cachet to command a premium price like the $64.95 they are asking for here ($74.95 if you are ordering the HD version).

Is Schaefer, and the others who are talking those kinds of numbers, blowing smoke? And how much of a chance does it have to overtake this “all-time record” they keep talking about?

In fact, how far do they have to go to simply break even on the event?

Something of an informal breakdown might be in order.

First of all, let’s talk about who it is that has to break even.

The chief promoter; in other words, the one Showtime has made the deal with, is Mayweather Promotions, the “organization” that was formed by Mayweather himself to advance his boxing career, and which has only recently begun to bring more talent into the fold (including Ishe Smith, the IBF 154-pound champion, who is on Saturday’s undercard). In that way it would be somewhat unique from standard relationships that a network might have with a promoter, since in this case the entity is one in the same with the headline performer. Showtime is one entity that is certainly at risk here, in the business sense.

Golden Boy Promotions positions itself as the promoter, and certainly prefers that the public believe it. Indeed, the money generated would run through their hands, but that is only consistent with their function in this event, which is as a “promoter for hire,” as it were. Whereas Mayweather Promotions is not all that conversant with all the nuts and bolts, or doesn’t want to concern itself with all of those things, they have hired out Golden Boy to handle all of that for them.

What they do is give Golden Boy a basic fee of $2 million, and there are other considerations, including being able to make some money from sponsorships, and the privilege of being able to put some of their talent into action. Alvarez is an example of this. If you remember, he was on the undercard of the Mayweather-Ortiz and Mayweather-Cotto shows, and was offered the opportunity to be on the Mayweather-Guerrero undercard before he opted to headline his own Showtime card.

In fact, Alvarez is now the fifth consecutive Mayweather opponent to have a promotional relationship with Golden Boy (at least at the time).

So when you talk about the expenses that are involved in staging this show, the $2 million that goes to Golden Boy figures into it.

The amount that the main event fighters are guaranteed is, of course, the largest part of the expense sheet. Mayweather’s guarantee is reported to be $41.5 million, with a guarantee of $12.5 million for Alvarez. That’s $54 million. Part of Alvarez’s guarantee may be going to Golden Boy in the way of promotional rights, or their might be an additional sum of money, in the area of a million or two, that gets forwarded to Golden Boy for that purpose. That is the perk of having a promotional contract with someone. Mayweather obviously has to approve this kind of expenditure.

The fight between Danny Garcia and Lucas Matthysse, for WBC and WBA titles, is reportedly costing $4 million. Then there are other undercard fights, including the bout between Ishe Smith and Carlos Molina foe the IBF crown, and a ten-round feature with Mayweather Promotions signee Ashley Theophane against Pablo Cano.

When you figure in all the other expenses that are involved with putting on an event of this magnitude, including advertising as well, you are probably looking at a number that, conservatively, could be placed at between $70-$75 million.

That’s what basically has to be overcome. And without being able to be exact about where expenses and / or revenues could be divided between the various entities, we are exploring what the “promotion” itself has to overcome.

Well, there is revenue that has been generated outside of pay-per-view sales. For one thing, there is the $19.1 million that constitutes the gate at the MGM Grand. Taxes and fees are paid on that, of course, and there is also the closed circuit market, which consists of hospitality outlets, as well as some placement in theaters, which is supposed to bring in a little more than 100,000 viewers.

Along with international sales and merchandising, let’s say they have something in the area of $25-$30 million of non-PPV revenue.

They may have to do more than $40 million for a break even.

Well, then it is time to do the math. The retail price of this fight is the highest ever, at $64.95 for standard definition and $74.95 to get it in high definition. Studies within the industry have indicated that about 70% of the PPV buys for boxing are of the HD variety, so that skews the average subscriber price upward, in this instance to $71.95.

The way the split works is that 10% comes off the top and goes to In Demand, a PPV distributor that is owned by some of the “major systems operators,” or MSO’s. That leaves 90% of the pie that is divided between the local cable entities, almost all of which are owned by different MSO’s, and the promotion. So if you took 45% of the $71.95 average price you would come up with $32.38 per subscriber.

At that price, in order to generate $40 million in revenues they would need 1.235,330 buys. To generate $45 million they would have to draw 1,389,747 buys, and to overcome $50 million it would be 1,544,163. For the PPV monies alone to match the $58 million that is reportedly going out in guarantees to the two main event fights, there would have to be a little under 1.8 million buys.

To surpass the record of $132 million in total revenue from the Mayweather-De La Hoya fight, this event would have to get at least 1.85 million pay-per-view subscribers, or “subs” as they refer to it within the TV industry.

Going back to our possible break-even scenarios, if there was $40 million to be overcome, this fight would have to register a performance that was somewhere in the area of the second Mike Tyson-Razor Ruddock fight (1991), the first Evander Holyfield-Lennox Lewis fight (1999) or the De La Hoya-Manny Pacquiao fight (2008) and that would seem quite achievable.

At the high end of that, if the promotion had to pull in $50 million in PPV to break even (remember, that’s 45% of the total), they’d have to do buy figures that are similar to the Mike Tyson comeback fight against Peter McNeeley (1995), the first Tyson-Holyfield fight (1996), or, yes, Mayweather’s fight against Miguel Cotto last May. They would have to far surpass anything Pacquiao has done as a featured performer in his career. In fact, it would have to be one of the five or six most heavily-subscribed PPV boxing programs in history.

Only in a few instances has a big PPV number like the ones we are talking about here occurred with someone who has never been in a pay-per-view main event before. And you’re always taking a chance in a situation like that.

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