How will we remember the Zuffa era?

The long rumored, reported, and denied UFC sale has finally been confirmed. After 15 years under the ownership of Zuffa, LLC the Ultimate Fighting Championship is going to…

By: John S. Nash | 7 years ago
How will we remember the Zuffa era?
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The long rumoredreported, and denied UFC sale has finally been confirmed. After 15 years under the ownership of Zuffa, LLC the Ultimate Fighting Championship is going to be sold for the astronomical price of $4 billion to a group led by WME/IMG making it the most valuable sports franchise sale in history. What that means for the UFC, the fans, its fighters, and the sport itself remains to be seen, but what is clear is that Lorenzo Fertitta, Frank Fertitta, and Dana White will go down as one of the greatest successes in sports business history.

The Fertitta brothers and Dana White formed Zuffa, LLC in 2001 and shortly thereafter purchased the Ultimate Fighting Championship from its original owners, the Semaphore Entertainment Group, for what now seems like the ridiculously low price of $2 million.

At the time, the UFC was struggling and a victim of its own success. The ill conceived campaign advertising it as having “no rules” may have made it a household name but also made the promotion powerful enemies. Most important of these was Sen. John McCain who led an infamous crusade against what he referred to as “human cockfighting,” successfully getting the UFC banned in 36 states and pulling the pay-per-views off most cable providers.

While the Fertittas and White and are often credited with bringing rules to a rule-less sport and seeking state regulation where the previous owners ran from government oversight this is false. By the time they sold SEG was already operating under what would become the Unified Rules and had managed to get the sport sanctioned in New Jersey, Mississippi, and California (although it would be years before the state assembly budgeted for it) as well as actively lobbying Nevada, where Lorenzo Fertitta had been the commissioner of the state’s athletic commission.

Even without repeating the Zuffa Myth, the Fertittas and White’s impact on MMA and the UFC can’t be underestimated. Almost immediately after buying the promotion, the NSAC voted to sanction the sport, and with sanctioning came a return to pay-per-view. While Bob Meyrowitz, the owner of SEG, was cutting corners to stay afloat, the Fertittas started pouring money into improving production and retaining fighters. Zuffa claims they put another $44 million into the company (although there’s no confirmation of the exact amount and what it was spent on) before finally getting their big break in 2005 with Spike TV and the Ultimate Fighter reality show.

Flush with the cash that came with their newfound success, the UFC hired NSAC executive Marc Ratner in 2006 to head their regulatory efforts. Thanks in large part to the UFC’s efforts, the sport is now sanctioned in every state in the Union. The UFC has also spearheaded efforts to expand the promotion outside the United States, transforming it into an international company. Brazil, the UK, Canada, and Poland have all supplied the UFC with not just champions but audiences as well.

Over the years the UFC has also added additional weight classes, signed network television broadcast deals, started promoting female divisions, introduced expanded injury insurance for its fighters, and mandated year round USADA drug testing, all while carving a place in the mainstream sports landscape.

For fans, the UFC’s success has practically been a godsend. With nearly all the best fighters in the world competing under a single promoter’s roof the UFC has been able to deliver, more often than not, the fights fans want to see. The UFC champions are now viewed as the only true champions in MMA, a claim boxing can’t make with its alphabet soup of sanctioning body titles.

All of this has led to the UFC being incredibly successful financially. While Zuffa reported a measly $4.6 million in total revenues from 5 shows in New Jersey and Nevada in 2001, by 2015 this had grown to $608 million from 41 events that were held in 11 different countries.

While Zuffa and the fans can celebrate all this success, much of it seems to have been at the expense of the fighters. The disparity in leverage between the UFC and its athletes is telling. Any time a dispute arises, it’s almost a given that it will be the fighter that will be forced to concede, be it to the Reebok deal, drug testing, where/when/who they fight, or the terms of their contract. More fighters are making more money than ever in the UFC, but their slice of the pie, compared to the owners, is still remarkably small.

Since 2006, all data seem to indicate that less than 15% of the total revenue goes to paying the fighters, while Earnings before Interest, Taxes, Depreciation, and Amortization margins has averaged over 30% for Zuffa during those same years, meaning the owners have been making at least twice what the fighters have. For 2016, it was almost three times as much. Meanwhile, as revenue has grown over the year, nearly doubling since 2009, the number of fighters has also grown in that time, from around 200 fighters to almost 600.

Thanks to this fact that the UFC has learned from the experiences of both boxing and the WWE, they have developed a business model that lets them operate as a promoter, manager, and sanctioning body all at once, a practice that would be inconceivable, let alone illegal, in boxing. It is a model that has led the UFC to focus on putting the brand over the fighters, so that the promotions biggest star has been its president Dana White. A very smart business tactic that has made, according to a memorandum sent to potential lenders, the UFC brand “more recognizable than the sum or its individual fighters” who are “relatively interchangeable at events.” It is a strategy that has also led many to cheer for the financial success of the owners over the fighters.

Some claim that the UFC’s actions are more than just smart or even ruthless business practices, but instead cross the line into antitrust violations. A class action lawsuit by a group of fighters has accused the UFC of foreclosing competing promotions and using one-sided contracts in order to attain a monopoly and monopsony over MMA.

If the UFC attained their dominance of the market illegally or not will be up for the courts to decide, but there is little doubt they are, for all practical purposes, the only game in town for top MMA fighters. They contain 85% of all the top 10 fighters, and reportedly bring in 90% of all MMA revenue. Any fighter wishing to prove he is the best or hopeful of making the kind of money only a UFC star can make has little options but to sign with the “800 pound gorilla.”

The UFC is well aware of the leverage they have in comparison to their fighters and have used it again and again to their advantage. In 2008, in order to “grow the sport,” the already very profitable UFC demanded that their fighters sign over their merchandising rights. In return the fighters would get the generous amount of 10% of gross revenues or 20% of gross royalty revenues. This was followed by demands that fighters sign over their image rights in perpetuity so that they could be used in a video game for which there was no guarantee of compensation.

When Jon Fitch resisted signing, he and other AKA fighters were temporarily released until they relented and were brought back.

Last year, the UFC banned all independent fighter sponsors in the cage in order to implement an exclusive apparel deal with Reebok. Again, fighters had little choice but to accept. In each case the UFC claimed it was working on growing the sport without explaining how exclusive image or merchandise rights were necessary to bring the UFC and MMA into new markets or why the splits could not be more equitable. Where the UFC has added close to a $100 million to its revenues last year from these three moves alone, the fighters in turn have received roughly 1/10th that amount.

For years both fans and the media largely ignored the disparity in this split, but it’s because of this disparity that the UFC likely fetched a price of $4 billion. This comes in the wake of a previous sale of 10% of the promotion that reportedly netted Zuffa $200 million, $269 million in special dividend payments from the long term loans they took out, over a billion dollars in distributions from the earnings the promotion has made over the last decade, and whatever salaries the executives drew. In fact, it is possible that Dana White, who owns a 9% minority share in Zuffa, after this sale is combined with his previous distributions and payments, will have made over the last 15 years, as much from the UFC as every single fighter that has appeared in the Octagon during that time combined.

I have no doubt that Dana White has played an incredibly important part in the success of the UFC, bigger even than the part played by Matt Hughes or Anderson Silva or TIto Ortiz. But has he played a bigger part than Hughes and Silva and Tito, as well as, Brock Lesnar, Ronda Rousey, Chuck Liddell, Randy Couture, Rampage Jackson, Georges St. Pierre, Conor McGregor, Vitor Belfort, Ken Shamrock, Rich Franklin Forest Griffin, and every other fighter that has competed in the cage over the last 15 years have together?

Zuffa will likely be remembered, deservingly so, for “saving” the sport and leading the UFC to its current position as a widely popular global sport. But while they enjoy the fruits of their labor, it shouldn’t be forgotten that the people that played an equally important – if not even more important role – have not enjoyed the same rewards over the years.

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John S. Nash
John S. Nash

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