Ring Of Sports Marketing


The Future Of The WME-IMG UFC

On July 10th reports hit the web that the UFC sold for $4 billion making it the biggest transaction in sports history. For perspective, the Los Angeles Clippers were sold for $2 billion. The only sports entity that is considered to be in the neighborhood of a $4 billion valuation is the Dallas Cowboys. What differentiates the UFC from the Cowboys is that the team in Dallas is a part of a larger organization. When one owns the UFC they nearly own the entire sport.

Below is a summary of information and insights I have onto the possible future of the new WME-IMG UFC covering the new roles of the owners, the business acumen of the investors, the marketing power of WME-IMG, what the purchase means to athletes, what global expansion will look like, what the new revenue streams are, and what the biggest risk is to the sport:

The New Roles Of Dana White And The Fertitta Brothers

While specifics have not been named it is believed that the Fertitta brothers have retained a minority stake in the company but has relinquished any real power in the overall strategy of the company.

Lorenzo Fertitta will lead the UFC for the first 6-8 weeks after the sale while the new owners begin their own leadership over the organization. It is necessary for this process to occur in order to create the easiest transition possible for the incoming owners.

Dana White will remain as President of the UFC and will take on more responsibilities in the day-to-day operations of the company. According to some reports, the likelihood of Dana White staying as the President was a big factor in their bids to buy the organization. White has been one of the driving forces in the success of the company because of his understanding of the fight game. Lorenzo Fertitta brought the business expertise and White brought the passion of a life-long fan who is one of the sport’s biggest fans.

One of the concerns, outlined by Kevin Iole at Yahoo, that still exists as a result of the buy is Lorenzo Fertitta leaving his leadership position. Lorenzo Fertitta was a business genius during his time at the UFC and he made a lot of smart business moves. As a result of White being such a strong face of the company, Lorenzo Fertitta probably does not get all the credit he deserves from the fans of the sport. An organization that loses half of the personnel that made the organization great has a real risk of failing. In the case of the UFC, Lorenzo knew how to look a couple years into the future and make decisions today. He knew how to develop stars and develop programs that fight fans wanted to watch and who would eventually make it onto network television.

The Future Management Of The UFC

William Morris Endeavor Entertainment (WME) and its subsidiary IMG (WME-IMG) are the new owners of the UFC with backing from a variety of investors including private-equity backer Silver Lake, KKR & Co., and Michael Dell’s investment firm.

Silver Lake and KKR can be seen as strategic investors. Both companies have a track record of growing businesses. For example, Silver Lake in conjunction with WME-IMG, purchased the Professional Bull Riders, Inc. From the press release:

Since 2015, WME | IMG and Silver Lake have completed a number of acquisitions to expand WME | IMG’s capabilities and client services globally and to broaden its owned event portfolio and content offerings through properties like the Professional Bull Riders, Inc. (PBR). The PBR Built Ford Tough Series has broken ten event attendance records and increased television viewership over 20% in 2016 following WME | IMG’s acquisition. As part of WME | IMG’s platform, UFC will leverage the same global relationships and capabilities to accelerate its growth trajectory.

It can be expected that leaders from Silver Lake and KKR, whatever that leadership team looks like has yet to be publicly said, will try to replicate and improve upon Lorenzo Fertitta’s now former role with the company.

Why Did WME-IMG Want The UFC?

WME-IMG is a global sports company that values content above all else. The purchase of the UFC, a global company that puts on 40 live events a year, is in 150 countries, and can be seen by 1.1 billion people, is an ideal company for WME-IMG to take over.

The UFC considered the content library of every company that they acquired and has even been creating its own content for the last few years through an internal production team. Digital Marketing has been a go-to medium for the UFC as it grew into a top niche-sport and has begun to break through into the mainstream. The prized 18-24 demographic that the UFC is so prevalent in also lives in the digital space. WME-IMG has a big commitment to creating content not only for itself, but for other organizations. From the press release on the purchase:

Each year, IMG produces more than 52,000 hours of sports programming and arranges to distribute an additional 32,000 hours on behalf of more than 200 clients including major sports leagues and associations like The All England Lawn Tennis and Croquet Club (Wimbledon), the National Football League, Premier League, Major League Soccer and Euroleague. The company also operates one of the largest sports training institutions in the world, IMG Academy.

Last year the UFC had over $600 million in revenue meaning that they made a profit of just under $200 million according to some industry experts. It’s financial success was largely due to the rise of stars within the company. Ronda Rousey fandom hit a fever-pitch with her shows nearing or exceeding 1 million buys and the rise of Conor McGregor has been a windfall for the UFC. There is a dedicated base of approximately 250,000 fans that will buy any PPV program but when a star is created the revenue can quadruple.

WME-IMG represents athletes and is a marketing juggernaut. They already represent UFC stars including Ronda Rousey and they probably see a lot more potential stars who aren’t being marketed and managed well. With WME-IMG’s ability to market athletes there could be more stars than ever in the UFC. There might be enough to have two stars on every PPV programs, which means that the UFC could approach revenue of $1 billion in a year.

The high valuation is also a sign that the ongoing legal struggles, such as the possibility of the Muhammad Ali Act expanding to cover MMA and a growing effort to unionize the fighters, do not worry the new buyers. They must have a firm belief in their ability to stabilize the company and industry.

The UFC And Global Expansion

WME-IMG is a global company that works with global companies and already has worked with global sports. Most importantly, WME-IMG has already been making a push to get into China and Asia by partnering with Tencent, the largest internet company in Asia.

The UFC has been trying to get into Asia for over a decade. Flash Entertainment was added as minority owners in the hopes that the company would be able to connect the UFC with other business leaders in Asia in order to get events and marketing assistance for tent pole events. Asian combat sports are deeply rooted in local cultures. MMA has been positioned as a global and innovative sport, which isn’t necessarily what some Asian countries want. The first MMA fight in Thailand just occurred two months ago. Thailand had been trying to protect the sport of Muay Thai from the MMA invasion.

Tencent has the connections, financial backing, and now has the right incentives to put their efforts behind getting the UFC into Asia.

New And Diversified Revenue Streams

WME-IMG runs and owns a variety of events from New York Fashion Week to Grand Slam tennis tournaments to managing athletes.   They’ve connected sponsors with athletes, events, and sports and entertainment entities.

Echoing earlier notes on the important stars in the UFC, there is no company better suited to creating stars that can transcend their performances in the octagon. With the connections to sponsors, events, and other programming, the cross-promotional possibilities are nearly endless. Fighters can have an easier time getting onto talk shows, appearing in movies and television, and getting sponsorships from large companies for a significant amount of money.

The UFC sought for years to get a big sponsor. The sponsorship agreement with Bud Light was considered a watershed moment for the UFC. MMA finally had a badge of success with the sponsorship because big companies don’t invest in entities that don’t make money. Now the UFC has connections with thousands of potential sponsors through WME-IMG who has spent decades partnering sponsors with sports and entertainment businesses, events, and athletes.

One of the most important things that WME-IMG can do is diversify the revenue streams of the UFC. The majority of the revenue is based on PPV sales and the last two years have shown how volatile PPV program, and thus revenue, can be.

It is important to note that Ariel Emanuel, co-CEO of WME and now CEO of the UFC, brokered the deal between the UFC and FOX. Nobody has a better idea of what the future looks like for the UFC on television than Ariel Emanuel. The current TV deal with FOX ends in 2019 and with the purchase of the UFC it can be concluded that Emanuel thinks that the deal will be worth a lot more than the original seven-year, $700 million deal. It wouldn’t make sense for WME and Ari Emanuel to buy the UFC if the value of the contract with FOX is going to decrease.

The UFC Sale’s Impact On Fighter Pay And Fighter Union

It is highly unlikely that the purchase of the UFC will result in any significant changes in fighter pay or the probably of fighters effectively unionizing. A huge selling point in this deal has to be the ability the owner has in controlling not only the industry but the payment to the fighters. There are no significant regulations applied to the MMA industry. The UFC has also been very successful lobbying at the federal and state level.

Companies don’t tend to give up potentially tens of millions of dollars as an act of good faith. A potential argument moving forward could be that the new owners can’t increase fighter pay because they just invested $4 billion and need to recoup that money as quickly as possible.

The largest hurdle that the fighters need to overcome is to actually unite to form a union. Good payment is so scarce in the sport that fighters will continue to take less and less payment in order to be compensated for fighting and to gain some financial security to be able to train full-time. This results in fighters being willing to step on each other to take fights on short notice and to replace a fighter who is battling with the UFC over a contract dispute. The mindset of the fighters is just not in alignment with the mindset needed to unionize.

The fighters are also legally not able to unionize because they are contractors. There have already been cases that show contractors cannot unionize. There are a couple arguments that could be made to show that the fighters are contractors only in name but are closer to the definition of an employee:

  1. Fighters are not allowed to work for more than one company. According to federal regulations contractors have to be able to work for multiple companies When the UFC and a fighter sign a contract one of the agreements is that the fighter will only fight at UFC events. This is clearly an example where fighters can be called employees. Fighters can make money from outside sponsorships but so can NFL players who are considered employees.
  2. Contractors must provide their own equipment and work attire.   The requirement of fighters to wear Reebok clothing, not to mention banning other sponsors from appearing on UFC attire, is another instance of fighters being employees. A true contractor would be able to wear his own uniform into the ring and be able to show whatever images he wants on his clothing.

Ultimately, the UFC fighters are contractors because they sign an agreement with the UFC saying that they are contractors. I’m not sure what legal actions would be necessary in order to force a decision by a judge on whether the relationship between the UFC and its fighters should be on a contractor or employee basis. My best guess would be a class-action lawsuit against the UFC by multiple, current fighters who are locked into contractor agreements.

Biggest Concern: Alienating Core Fan Base

The marketing of the UFC will change to be more “mainstream” friendly. After doing my own primary research with focus groups and surveys I can say that the marketing of the UFC to a mainstream audience is very different from marketing to the core fan base. The core MMA fan and the casual sports need to be marketed to in starkly different ways and trying to reach both groups can result in accidentally alienating the other. It is probably in the UFC’s best interests to move slowly as they roll out new marketing plans and business initiatives to test the waters on how the core MMA fan base is feeling. The core fan has been with the UFC too long and invested too much money to feel abandoned. Losing the core fan is a considerable risk that WME-IMG cannot make moving forward.

Conclusion: The Shape Of Things To Come

I am very optimistic about the acquisition by WME-IMG. There are risks involved with the loss of Lorenzo Fertitta but there is plenty of business acumen with Silver Lake and KKR. There is also enough money to push the UFC to the next level. The UFC has been bumping up against the ceiling on what a niche sport can make for five years now and I believe the resources are finally in place for the breakthrough to happen.

There are connections globally for the UFC to appear on every continent. There is more access to sponsors than ever before. Fighter’s have the opportunity to make more money on their personal brands than what they do in the octagon.

For years Dana White has had this prepared statement:

I think we’re going to be the biggest sport in the world. Bigger than the NFL. Bigger than soccer. Bigger than anybody. This thing crosses borders so well that, like, for instance, soccer’s huge all over the world. It’s never really become big here in the United States. NFL is huge here in the US. Isn’t big anywhere else. I put two guys in an octagon. They can use any martial art they want. It transcends all cultural barriers, all language barriers, because I don’t care what color you are, what country you come from or what language you speak, we’re all human beings. And fighting’s in our DNA. We get it and we like it.

With WME-IMG acquiring the UFC there is a whole new world of possibilities and the company will finally be able to test Dana White’s core belief.

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