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Lessons From IFL: How to lose $55 million dollars in two years

Posted on 02/15/2011

By Zach Arnold

When the IFL repeatedly announced in 10Q SEC filings that they were losing millions of dollars, MMA fans online started turning against the company. You could even see fans on message boards rooting for the IFL to collapse and go away. After all, the company managed to lose $30 million USD in the time span of a couple of years. Gareb Shamus and Kurt Otto, simply put, failed miserably in the MMA business. Of course, they also got paid through the stock market to play around with the IFL experiment.

The failure of the IFL brought a negative light on the MMA business in terms of outsiders viewing the industry as anything other than UFC-dominated. We know Zuffa LLC is the only game in town, but the question was whether or not someone with a legitimate business background could come into the MMA game and produce a league that could turn a profit. The answer was and still is a resounding ‘no.’

On Tuesday, the news got even worse for fans looking for an alternative to UFC.

Pro Elite, the parent company of Elite XC, announced in their 10Q SEC report that the company has lost an estimated $55 million USD in the timespan of 18 months. Simply put, the financial math and bloodletting from Elite XC headquarters is unfathomable. The company claimed that they had spent $1.3 million USD on their web site alone in six months of expenditures.  At a time where MMA bloggers can’t get $500/month sponsors for a business that still has growth potential, Pro Elite is handing out the cash like chocolate at the Willy Wonka factory.

This is beyond embarrassing. It’s shameful.

How can an organization with a Showtime & CBS TV deal manage to lose money like a company? One look at the 10Q report quickly shows that the TV networks are paying little more than the price to buy stock in Pro Elite. The TV revenue for the events Elite XC has produced are miniscule. The cost to generate that TV revenue is pretty high, too.

It’s not hard to imagine a scenario now where we could see Showtime or CBS take over Pro Elite soon. Is that something that people are rooting for? Before you get your hopes up too high, remember what happened when a corporation (Time Warner) took over a fight promotion (WCW). You ended up with a former Pizza Hut executive coming up with an idea to book a tag team called The Ding Dongs.

Is this what we want in MMA?

Simply put, there’s a complete lack of accountability and financial restraint going on amongst UFC’s wannabe competitors. They are wannabes, by the way. In my last article on MMA Memories, I pointed out that the one common denominator that all of UFC’s rivals are currently lacking in the MMA business is consistency. Boy, was I ever wrong. There’s consistency all right — consistency for all of these groups to lose their financial ass and for the key players of the failed projects to walk away with a salary and money on the table.

All of this is damaging to the health of Mixed Martial Arts. In order for the sport to grow on a global basis, it’s going to have to take more than just Zuffa LLC’s money to finance the growth of the business. This business desperately needs fresh blood and cash. More importantly, the industry needs solid and respected businessman who will not try MMA as simply a play toy. In order for MMA to expand into countries like China, Brazil, and Australia, it’s going to take a lot of big businessmen to get involved to finance these types of operations. Unfortunately, I greatly fear that a backlash is about to begin in regards to investing money in MMA and that the recent failures in the business are going to drive away people who would otherwise be a good fit in the sport.

Put yourself in the shoes of a rich millionaire or billionaire. You just watched the IFL go out of business and lose over $30 million in the process. Pro Elite has admittedly lost $55 million USD in the time span of around two years. DREAM, which is the bastard child of K-1 & DSE, is one more show away from being completely finished off if it can’t pop a good TV rating. Sengoku is in horrible shape and may not last much longer given the way the company is running huge buildings with lackluster cards. Affliction, after one show, reportedly lost a lot of money and may very well lose a lot of money on October 11th in Las Vegas. At what point, as a rich person, do you sit there and go, “Look at the track record of this business. Why would I put money into it other than for a tax write-off?”

There will always be rich people who will try to get into MMA and think that they can do better than the others. “Well, I won’t make this mistake like the other guy did” or “I know how to run a business unlike these guys.” However, most of the rich people who make these statements usually end up being talkers only and don’t put their money where their mouths are. Why? Because they’re not stupid enough to blow away money in a business that is so volatile right now and has little or no upside in terms of investing serious cash.

All of the current financial turmoil in MMA is good for UFC in the short-term but terrible for that organization in the long run. UFC can’t be in the position of being MMA’s version of Mother Theresa — they can’t pay for every fighter in the business. Pro Elite’s attempt at building up a successful farm system of B-level promotions has failed.

What’s next for an MMA industry where the only certainty these days seems to be uncertainty?

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