Never one to shy away from a bold proclamation, UFC president Dana White boasted in August that the $1.5 billion pact he struck in May with ESPN to make his mixed-martial arts outfit its new TV home has contributed to boosting the company’s valuation to $7 billion. That’s nearly double the $4 billion price tag that Endeavor (then WME-IMG) and its investment partners ponied up in 2016 to buy UFC.
But White’s calculations may not factor in indicators that UFC’s popularity has been cooling off in recent years. While he has hyped the Oct. 6 UFC 229 event featuring the return of MMA star Conor McGregor as its biggest yet — predicting over 2 million pay-per-view buys — PPV numbers for 2018 have lagged well behind the buy rate the UFC enjoyed in 2016.
Two years ago, then-reigning stars like McGregor and Ronda Rousey routinely topped lineups that attracted 1 million per event. But Rousey jumped to WWE as a full-time performer earlier this year and McGregor has been absent from the UFC for almost two years.
Without the star drawing power, UFC’s best-selling PPV events this year to date have garnered under just 400,000 buys, according to industry estimates,. Its most recent event was about half the year-to-date average: UFC 228 on Sept. 8, headlined by current welterweight champ champion Tyron Woodley defeating Darren Till in two rounds, reportedly pulled in as few as 130,000 PPV buys.
On broadcast TV, “UFC on Fox” peaked at its 2011 debut by reaching 5.7 million viewers, but sank to a record low for its telecast in July 2018, down to less than 1.5 million. On cable, UFC 228’s preliminary bouts on FX drew an average 560,000 viewers — the lowest ratings in the past year.
And UFC is exhibiting signs of weakness just as the league is being challenged by smaller alternative promotions ramping up streaming strategies that could grow their audiences.
If there is a No. 2 in the MMA space, it’s Viacom-owned Bellator, which continues to poach UFC talent and is set to kick off a new digital-streaming play on Sept. 29. Meanwhile, a nascent player in the ring, the Professional Fighters League (PFL), recently raised $28 million from backers including Kevin Hart, self-help guru Tony Robbins, MGM Television chairman Mark Burnett, billionaire tech entrepreneur Ted Leonsis and Riot Games co-founder Brandon Beck.
The question is whether UFC will regain its luster when McGregor returns to the ring next month and ESPN takes over the TV rights package from Fox Sports in a five-year deal beginning January 2019. It also remains to be seen — for all the MMA leagues and their over-the-top melees, in which fighters often pound each other into bloody pulps — how much bigger their audiences can get. UFC execs, for the record, don’t have any plans to sanitize its MMA spectacles for ESPN.
“The folks who are running UFC did a hell of a job creating the brand, so I don’t know how much more room there is for them to grow,” said Ed Desser, president of Desser Media, a media consulting firm for the sports TV industry.
There’s no question UFC has become a media powerhouse. Founded in 1993, Ultimate Fighting Championship was acquired by casino execs and brothers Frank and Lorenzo Fertitta in January 2001, who sold it to Endeavor just over two years ago. Endeavor further consolidated its ownership of UFC by purchasing the 10% stake owned Abu Dhabi investment company Flash Entertainment in a deal that closed more than a year ago.
Today, UFC claims to have more than 284 million fans worldwide and has produced over 400 events in 21 countries since its inception, with programming broadcast in over 165 countries and territories to more than 1.1 billion TV households worldwide.
UFC is in good shape, according to the league’s chief operating officer, Lawrence Epstein. It continues to build out its strategy for China and recently entering into a joint venture in Russia. The Las Vegas-based company currently has about 330 employees, after a round of layoffs a few months after the Endeavor deal closed.
Asked about the declines in UFC’s pay-per-view business, Epstein said, “There are ups and downs. Over the last five years, we’ve had consistent growth.”
But Fox declined to bid up the UFC pact after spending north of $1 billion on a new WWE deal. Epstein believes ESPN will be a better fit for the league.
“One of the big things with Fox is, we never had great lead-ins to our events,” Epstein said. “At the end of the day, Fox doesn’t have the same ecosystem ESPN does.” ESPN’s audience is 2.5 times bigger than UFC’s current cable home, Fox Sports 1, and has a younger-skewing viewership that’s more in line with UFC’s fanbase, which has a median age of 40 and is 40% comprised of millennials, he added. And even as Fox’s total audience for UFC declined, there was still value in having one of the few reliable draws for young males on TV.
But UFC was widely reported to have wanted an even richer TV pact. Asked if the ESPN deal came in below expectations, Epstein said, “Negotiations are negotiations. Everybody on our side wants more — and the other guys don’t want to pay as much.” He said the ESPN deal is worth $300 million per year, around 2.5 times what the Fox Sports pact was worth.
Some observers still wonder if Endeavor and its partners overpaid for UFC. The $4 billion deal for the MMA property was a staggering 23 times UFC’s EBITDA (earnings before interest, taxes, depreciation and amortization) at the time, according to an industry source familiar with the deal. By contrast, AT&T’s $85.4 billion deal for Time Warner was around 10X the media conglomerate’s 2017 adjusted operating income.
Endeavor “paid a huge premium,” this exec said. “They bought at the top of the market.” (Endeavor and UFC declined to comment on the deal terms.)
According to Endeavor, last year was a record revenue year for UFC, and in 2018 major revenue categories — media, sponsorship and licensing — are again exhibiting significant year-over-year gains, though the company declined to offer specific numbers. In 2017, UFC produced 13 sellout events, the most in a single year in its history; as of last month, it had 10 sellouts to date in 2018 with 15 events remaining.
In the past two years, Endeavor says, it has helped UFC grow along multiple vectors, including by expanding international TV rights deals and winning new sponsorships. In addition to renewing UFC’s deal with Monster Energy as the official energy drink, the Endeavor marketing and sales team has landed deals with 7-Eleven, Modelo, BodyArmor, Van Heusen, and Trifecta Nutrition, among others.
For Endeavor, the signs are that it wants to leverage UFC into part of a bigger digital-entertainment service, one that would combine the MMA programming with its other media properties, which include Professional Bull Riders and the Miss Universe pageant. In March, the company paid $250 million for NeuLion, a technology product and service provider specializing in digital video broadcasting, distribution and monetization. (Endeavor declined to comment on its future streaming plans.)
UFC generated well over $700 million for the 12 months ended March 31, 2018, according to credit-rating agency Moody’s. However, while it said the ESPN deal was a “material positive event,” Moody’s left UFC’s B2 rating unchanged — a designation for investments considered speculative and subject to high credit risk.
Competition Comes Calling
One consequence of Endeavor’s huge deal for UFC was that its fighters started seeking more lucrative contracts. The blockbuster sale also drove additional investments into competing MMA circuits. “What happens when the name brand gets more valuable?” Desser said. “That raises the bar and creates opportunities for the off-brand alternatives.”
Bellator, majority-owned by Viacom since 2011, has been able to win over former UFC fighters, including Matt Mitrione, Rory MacDonald, Ryan Bader, Gegard Mousasi and Lyoto Machida. Its fights are exclusively aired on TV on Viacom’s Paramount Network (previously known as Spike TV).
“This is a business connected to the fighters,” said Bellator president Scott Coker. “I don’t know about UFC’s practices but we treat our fighters really fair. It’s a very good environment here.” (In 2011, Coker sold Strikeforce, the MMA and kickboxing organization he headed as CEO, to the UFC.)
The Bellator slate will expand from 22 fights in 2017 to 32 next year. It’s an anchor tenant on a new streaming-sports platform, DAZN (pronounced “da-zone”), which will be the exclusive home to seven Bellator fight cards per year, as well as an additional 15 cards simulcast on Paramount Network. Bellator launches on DAZN with the Sept. 29 middleweight title card of Gegard Mousasi vs. Rory MacDonald. DAZN launched in the U.S. on Sept. 10 priced at $9.99 a month, promising at least one fight event weekly; the service also is available in Canada, Germany, Austria, Switzerland, Italy and Japan.
Even as Bellator eyes a bigger slate for 2019, however, its TV viewership on the freshly rebranded Paramount Network have been down year-over-year: Through Bellator 204 (on Sept. 21) it has averaged 462,000 viewers per event this year vs. an average of 614,000 in 2017.
Along with Bellator, PFL has mounted a new challenge to UFC with a format mimicking major sports leagues, in which its fighters compete in a regular season, playoff rounds, and championships. The upstart company has distribution deals with NBC Sports Network (NBCSN) for live broadcasts and its events also are streamed live worldwide on Facebook Watch, where it has 472,000 followers.
The PFL’s inaugural 2018 season, which kicked off in June, had a field of 72 MMA fighters, with the top eight each of six weight classes advancing to single-elimination playoffs in October. The PFL Championship is set for New Year’s Eve, where fighters competing in the final bouts in each weight class will vie for a $10 million prize pool. “PFL empowers fighters to control their own destiny, which is new for MMA,” Robbins, one of the company’s new investors, said in a statement. “PFL is a meritocracy, giving all fighters an equal fair shot, which is what life and sports is all about.”
PFL said it drew over 2.5 million viewers for PFL 4, its July 14 event at the Nassau Coliseum in New York.
The ESPN Difference
White has huge hopes for UFC 229 featuring Conor McGregor vs. Khabib Nurmagomedov, which he says is tracking to be the biggest event in its history (he projected a PPV buy rate of 2.5 million). Epstein said UFC is in talks with ESPN about offering the McGregor-Nurmagomedov event on digital pay-per-view, and he expects ESPN to drive up PPV buys once the deal fully kicks in. In addition to McGregor, two other former stars, Brock Lesnar and Jon Jones, are expected to return in 2019.
Epstein believes the ESPN agreement will help catapult the sport to new heights. “We get a massive boost in our brand by associating with ESPN,” he said. “When you partner with the Walt Disney Co., that does a lot for the brand — especially with an edgy brand like UFC.”
Under the deal with ESPN, first reported by Variety, annually there will be 10 “UFC on ESPN Fight Night” events (with preliminary bouts live-streamed on new streaming service ESPN+), 20 “UFC on ESPN+ Fight Night” events, and 12 UFC pay-per-view preliminary events. In addition, ESPN+ and the ESPN App will sell UFC Fight Pass, the direct-to-consumer streaming service that offers additional live events, original content and thousands of fights on-demand, for an additional fee.
ESPN will feature more than UFC’s live fights. Content available to ESPN+ subscribers will include new episodes of “Dana White’s Contender Series” beginning in June 2019, a new all-access series produced by IMG Original Content, and exclusive pre- and post-event shows for all 30 “UFC on ESPN Fight Night” programs on ESPN and ESPN+.
Ultimately, Coker believes Bellator and UFC can not only coexist successfully but that more MMA promoters help the entire industry. “It’s good to have two healthy companies in the landscape,” he said. “There was a time when there was only one buyer [for MMA talent]. Now we’re going after every free agent we can bid on, and that drives up the market for purses.”
UFC’s Epstein echoed the rising-tide-lifts-all-boats sentiment. “We don’t see it as a zero-sum game. In a lot of ways, we’re rooting for PFL and Bellator to succeed,” he said, comparing the competing MMA outfits to college-football conferences working in tandem with UFC’s pro-league status.
But there are still other challengers for UFC overseas, including Singapore-based promotion ONE Championship, which serves up a variety of martial-arts action to Asian fans who aren’t as familiar with UFC.
It may be true that hardcore MMA fans in the U.S. will watch as much fight action as possible — on as many platforms as possible — whether that’s UFC on ESPN and ESPN+, Bellator on Paramount Network and DAZN, or PFL on NBCSN and Facebook Watch. But there are only so many hours in the day, and in order to grow, the UFC is going to have to battle it out with smaller upstarts for the attention of more casual fans.
“I’d say the UFC is a highly profitable, really good business, no two ways about that,” said the industry exec familiar with the company. “But the challenge for them is, with MMA there is no barrier to entry. You don’t have to build a stadium. It doesn’t cost a lot of money to produce their product, so you’re always susceptible to a challenger.”