UFC Finances: Why doesn’t the UFC get rid of PPV?

According to Dave Meltzer, pay-per-view sales for UFC 226 look like they may have been “disappointing.” “[T]he most preliminary of pay-per-view estimates,” he wrote,…

By: John S. Nash | 5 years ago
UFC Finances: Why doesn’t the UFC get rid of PPV?
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According to Dave Meltzer, pay-per-view sales for UFC 226 look like they may have been “disappointing.” “[T]he most preliminary of pay-per-view estimates,” he wrote, “have the show doing a little under 400,000 buys.”

If this doesn’t get revised upwards it would continue a trend for the UFC of sub 400,000 selling PPV events. So far this year, not a single show is estimated by Meltzer to have broken that barrier. And last year, only two events — UFC 214 and UFC 217 — sold more than 400,000 buys. Compare that to 2016, when six events are estimated to have sold more than 400,000, or 2015, when seven events are estimated to have done so.

What does this mean for the future of UFC pay-per-views? Well, if our own Iain Kidd had his way, it should spell their demise. As he tweeted Monday:

Under 400k buys for #UFC226 should spell death for he UFC’s current PPV strategy. Clear the market won’t support 10-12 per year anymore.

According to Iain, with the amount they are making from their new ESPN broadcast deal, it would make more financial sense to sell their pay-per-views as television or streaming content.

If they have the ability to, they would make more money doing it for the $10m per event they’re getting from ESPN.

They make less than that on average on PPV buys for the last 12 months

Iain makes a strong case. Unfortunately, it’s based on a faulty assumption, for even at the lower buy rates we’ve seen for PPVs and the higher license fee that ESPN will be paying the UFC, it is still often more profitable to air a PPV than it would be to package it as a television product.

In most ways there’s very little difference between a UFC PPV event and non PPV event. Revenue is generated for both through ticket and merchandise sales, while sponsorships are usually sold on a contractual basis and then allocated to each card. The major difference between the two is when it comes to how it can be viewed by the home audience. One can be viewed on their TV partner’s channel and the other can be purchased individually for $55 to $65.

After their split with providers like Comcast or Time Warner, the UFC is thought to make on average around $32 a PPV buy. A 400,000 selling PPV event would therefore generate just under $13 million in revenue for the promotion; slightly more than the $10 million an event Kidd estimated.

That $10 million per event figure though is surely overestimating what the UFC will be paid by ESPN. While the calculation seems simple enough — $300 million a year divided by 30 shows — it fails to recognize that the Fight Night shows are not the only content ESPN will be paying for. Along with the events, they will also get the right to air Dana White’s Tuesday Night Contender, “[a] new original, all-access series produced by IMG Original Content”, pre- and post-event shows, and other UFC branded content.

In addition, ESPN attains the rights to the UFC prelims, including those for PPV events. So when discussing what the UFC is receiving for each main card of their Fight Night events, a more reasonable number is probably $7 million instead of $10 million.

To match the $7 million they will be receiving for a televised main card, the UFC would have to sell 219,000 PPV buys, a threshold 13 of the last 20 PPV events have passed. Even this number of buys is too high because it ignores another source of revenue available to PPV events — commercial PPV (closed circuit).

Commercial PPV sales are most commonly generated by bars and are not included in Meltzer’s PPV estimates. According to the UFC’s July 22, 2016 Lender Presentation, commercial PPV’s totaled approximately $42 million in revenue in 2015, an average of a little over $3 million per event. Therefore, to match the $7 million paid by ESPN, the UFC would have to generate only $4 million in residential PPV sales for an event. This comes out to 125,000 PPV buys, a number that only 2 of the last 20 numbered UFC events has failed to surpass.

Now, that is not to say that the UFC couldn’t cut down on the number of PPV they hold every year. As I have written before, boxing’s experience with pay-per-view shows that cutting down on the number of PPV events a year doesn’t shrink the number of PPV sold or the revenue generated. Instead the overall number seems to stay the same, only individual shows sells more the fewer of them there are.

So why doesn’t the UFC at least shrink the amount of PPV they hold per year? There are a couple of likely reasons.

First, the UFC views retaining a large bundle of PPV events a potentially valuable package to sell to a media partner down the line. Some have even suggested it could be put on Fight Pass, similar to what the WWE did with their network, only at a much higher price, say $20 or even $25 a month. By keeping up their current PPV schedule they maintain their future value.

Second, the UFC uses it to protect their current stranglehold on PPV for MMA. While others have successfully aired PPVs, individuals involved with Bellator’s and Affliction’s forays in the market have informed me that they ran into numerous problems with the providers, namely their commitments to marketing. This suggests the UFC has some form of non-compete similar to their arena agreements, making it more difficult for any potential rival to stage a successful PPV.

With the UFC’s current position in the market, one would assume that they would no longer have to worry about any rival airing PPVs. Even so, the financial incentives still remain. As much as fans may tire of paying for UFC PPVs, there is still no alternative as of yet thatwould satisfify Zuffa’s bottom line.

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John S. Nash
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