Issue 118

August 2014

Combat sports’ pay-per-view sales appear to be on the ropes. So is there an alternative? And if there is, how could the UFC implement it for MMA?

When it comes to profit margins in fight sports, nothing compares to pay-per-view (PPV) earnings. Cash generated by PPV sales has been a fundamental part of the success of both mixed martial arts and boxing – and, for that matter, pro wrestling. The three form a triumvirate of pay-per-view television stars, but times they are a changing.

Prior to PPV TV, boxing’s biggest fights were shown in cinemas worldwide where viewers had to pay an entrance fee to watch. So when the opportunity arrived for people to view those same events in the comfort of their own homes it was a no-brainer that boxing would look to cash in, particularly given the caliber of boxers plying their trade at the time.

The first big PPV event was 1975’s The Thrilla in Manilla, when Muhammad Ali and Joe Frazier collided in their epic heavyweight title super-fight in the Philippines. Fast forward five years and it was the turn of the welterweights when Sugar Ray Leonard lost his 147lb WBC title to Roberto Duran in 1980, and that was followed just 18 months later when Leonard beat Thomas ‘The Hitman’ Hearns to unify the division’s titles. And boxing continues to utilize pay-per-view today, albeit on a more regular basis than in those formative years.

But where a problem arises, as far as boxing is concerned, is that despite an increase in the number of events over the years, these days the sales for the sweet science’s PPV, very much unlike the MMA and WWE models, lie squarely on the shoulders of just two fighters: Floyd Mayweather and Manny Pacquiao.

In fact, the last 18 months have not been great for PPV boxing. Despite the incredible 2.2 million sales for last September’s Mayweather-Alvarez event, the numbers are way down as the two leading lights enter the latter stages of their respective careers.

Floyd Mayweather failed to break one million buys for only the third time in his PPV career last time out, in May, against Marcos Maidana; while prior to that, both Manny Pacquiao’s last two fights, against Brandon Rios and Timothy Bradley (their second meeting) generated just 475,000 and 800,000, respectively. And if you factor in the 875,000 who bought the Mayweather-Guerrero fight at the start of 2013, boxing has broken the golden one-million-buys number just once in the past two years.

Meanwhile, in the same year and a half the UFC has staged a total of 18 pay-per-view cards, ranging from UFC 156 in February 2013 through to UFC 173 just last month. And while the numbers per event are much more consistent, last December’s one million-plus for the Weidman-Silva rematch was countered by a couple of cards that failed to generate 200,000 buys. Which beats the 100,000 rival organization Bellator earned with its first PPV stab in May. Better than expected, but not UFC caliber.

The UFC, and indeed mixed martial arts, was actually born on pay-per-view, due to the fact it was unable to secure a free TV slot. It wasn’t until 2005 that the UFC managed to get on cable regularly in the US, and by then it had a rich history in producing cards exclusively for PPV. So why, you may ask, would they ever consider stopping?

Well, similarly to the UFC, the WWE – the planet’s leading pro wrestling promotion – built its business on pay-per-view. Their midweek shows on broadcast TV, currently on NBC stations in the US, are built around selling the monthly pay-per-view card, and that’s a system that’s worked for years.

But the WWE revolutionized the market this year when it launched its very own network in February, a digital streaming service that effectively cuts out the middle man: the PPV broadcasters. By streaming live events the WWE can ensure not only global coverage, it can also retain all profits, as PPV dollars are always split between the promoters and the television companies – in this case the WWE Network.

And while the UFC’s own web portal, Fight Pass, is doing relatively well since its launch at the start of the year, it’s still only scratching the surface in terms of what it could produce in the future. And no doubt UFC president Dana White and owners Frank and Lorenzo Fertitta will be keeping a close eye on happenings with their old friends over at the WWE.

Lorenzo and Dana have both stated on more than one occasion how they’ve based certain aspects of the UFC business model around that of the WWE, specifically how the WWE bosses were able to get their Raw and SmackDown viewership so invested in the product that purchasing an upcoming pay-per-view was a given for any genuine fan. 

“It wasn’t about their (the WWE) product, it was about their business model, they had become very astute at selling their product and getting people to buy pay-per-views by using free television,” Fertitta explained during a business leaders Q&A in London earlier this year. 

“When we started, we had no traditional free press. Nobody was covering us, no one took us seriously as a sport. Therefore we had to turn to the WWE: they had Raw and SmackDown, which were television shows that told a story, and the story was what was meant to convince you to transact on Sunday night on PPV. 

“So we said, ‘Look, it’s going to take a while for the free press to cover us, but we don’t have that long to wait, therefore we must buy our way on TV, get on that free-to-air format, tell our story, let the fans know who these fighters are and convince the fans to buy the PPV on Saturday night.’ So looking at their business plan was the key.”

Since the UFC managed to successfully follow the WWE model of getting on free TV in the US, first Spike and now Fox, its PPV buys have increased significantly and it often pulls in bigger numbers than boxing. Now with the WWE launching its internet-only platform, and the UFC introducing Fight Pass to hardcore fans, it appears the UFC and WWE models have replicated each other once again. 

Both viral TV platforms contain libraries from various promotions both have acquired over the years, both have exclusive shows that can’t be seen anywhere else except online, and they also both include live broadcasts of smaller cards that won’t be shown live in some regions on TV. 

However, aside from its biggest events each year – WrestleMania being top – there’s been a steady decline in PPV sales for the WWE, which has hurt it financially. To offset the decrease in fans purchasing events, the WWE has done something that has the potential to destroy PPV forever.

For just $9.99 a month, with a six-month sign-up, WWE fans get access to everything mentioned previously, plus every single PPV. For wrestling fans, it’s an incredible deal: decades worth of content, plus PPVs which can cost in the region of $60 to $70 each, for a flat rate of $9.99 a month.

This business plan makes financial sense because the WWE has cut out the middlemen – the TV companies who get 50% of the revenue. In doing so, the WWE can now earn every single cent from PPVs, which could see a huge increase in revenue.

And for fans, well, signing up is a no-brainer. Previously, the WWE’s usual 12 PPVs a year would have cost around $650 per annum depending on whether they selected HD or not. That’s a whole chunk of change. With the new WWE Network format that outlay has come down to just $120!

Of course, the move has come as a surprise to both fans and analysts alike. The WWE has taken, some would say, a massive gamble, and reportedly lost a significant amount of money initially. According to information released in its quarterly financial meetings, the WWE needs a staggering one million subscribers to make up for lost earnings from the old PPV format. However, once the network goes global the numbers should spike.

“There’s not a lot of positive feedback on the financial side of the WWE (Network), but the fans love it,” UFC president Dana White relayed to FO. “Obviously not enough people have paid for it for this thing to work for them right now. But I don’t ever doubt Vince (McMahon, WWE president). He’s been a game changer for 30 years. Let’s see what happens.” 

The UFC has taken a more cautious approach, mostly because it only needs 10% of what the WWE requires to turn a profit. Over time, the Fight Pass subscription numbers should increase, and if the WWE Network is as successful as PPV pioneer Vince McMahon surely hopes it will be, the UFC could very well follow suit and get out of the PPV market all together.

“PPV is important because it’s one of the big revenue drivers for us in North America, but as time has gone on it has become a smaller percentage of the overall revenue,” Fertitta explains. “We are not as dependent on PPV. We are very focused on generating rights fees. It’s not just about PPV anymore, it’s about extending the company into becoming a media company as opposed to a fight promoter.”

So what has the WWE Network shown the likes of the UFC and others? That PPV is dying and there is a new way to get the product out to people. 

Back in the early ‘90s and ‘00s there were no platforms other than PPV for sporting events that weren’t on cable or network TV. Fast internet means brands can now share their product without having to split half of the revenue.

OK, so promoters like the UFC still get a huge 50% of profits from current PPV deals, but don’t forget they then have to pay for the production and fighter wages, among a plethora of other outlays. So while that $50 PPV charge may be substantially reduced per household, the added numbers globally, and the fact every cent goes into the UFC’s pockets, make the web TV model viable.

Technology dictates the way we live our lives and receive our content. Today’s on-demand generation are just as likely to dive into Netflix or YouTube (or less legitimate means) for their viewing pleasure as they are to flick on HBO or Fox; and that’s thanks to iPads, Apple TV, game stations and the rest. So having UFC content available 24-7 via Fight Pass, including the PPV cards, seems more like destiny than possibility.

Internationally, the WWE Network model works perfectly for the UFC’s Fight Pass service. Selling numbered UFC events via pay-per-view is strictly a North American thing, anyway. Over in the UK, for instance, all UFC events are shown on pay TV via BT Sport, and so consumers simply pass their monthly fee directly to that broadcaster. 

But imagine if pay-per-view cards were only available via UFC Fight Pass internationally. The global sign-up income would be off the charts. The European events and magazine shows could continue as normal, while the Fox and Fight Night cards could also keep being shown via the cable station. But, just like the WWE Network, all numbered UFC PPVs would be Fight Pass only. That’s not a bad deal for $10!

Reportedly the UFC generates $1 million in gross revenue per month for every 100,000 Fight Pass subscribers. And while officials refuse to confirm how many subscribers have already signed up, the fact Fight Pass is now available in 178 countries means it’s very likely to have passed that mark already.

Presently, UFC PPV cards appear on Fight Pass no sooner than 30 days and no more than 90 days after an event. At that point, they become part of the fight library and therefore accessible as part of the $9.99 monthly fee. But it would simply be a case of flipping a switch in regards to making that content available live to Fight Pass customers outside the US, ensuring the UFC makes additional money on the back of PPV cards.

“Fight Pass is absolutely the future,” asserts

Dana White. “We didn’t dive in head first the way that Vince (McMahon) did; we’re just sticking our

big toe in there and testing it out, but we’ll

definitely see where it goes from here. It’s

definitely the future.”

Dana White

“Our idea with Fight Pass was, ‘We have this entire library, the biggest in MMA, with UFC, Pride, and all the other organizations we’ve bought over the last 13 years. And so imagine if we can make all that content available to the fans,’” UFC president Dana White told FO. “Then we took it one step further by opening up all these other markets and doing all these other live events. So let’s offer live events on there too. The fights from Macau, and Germany and the UK. Meanwhile, still having our deal with Fox and still having our pay-per-views. And it’s been the right move.”

Lorenzo fertitta

“It wasn’t about their (the WWE) product, it was about their business model, they had become very astute at selling their product and getting people to buy pay-per-views by using free television.”

BOXING ON PPV

Boxing on average stages just 3-4 big pay-per-view fight cards per year

Record buy rate 2.4 million De La Hoya vs Mayweather 2007

Since 2007, boxing has staged 20 notable PPV fight cards and in that time only two have not included either Floyd Mayweather or Manny Pacquiao – not surprisingly, they were the two with the lowest buy rates. 

UFC ON PPV

The UFC on average stages between 12-13 pay-per-view events per year

Record buy rate: 1.6 million Lesnar vs Mir UFC 100 2009

Anderson Silva and Georges St Pierre are the two biggest pay-per-view draws in the UFC today, yet both are presently on sabbaticals from the sport.

WWE ON PPV

The WWE on average stages 12 pay-per-view events per year

Record buy rate: 1.2 million Wrestlemania XXVIII 2012

WrestleMania, SummerSlam and Royal Rumble are the WWE’s three big PPV events today. Around 3–4 million tune it to watch Raw every week for free on NBC’s USA Network.

BY THE NUMBERS PAY-PER-VIEW 2013

BOXING

Events held 6

Total No. of buys 5.625M

Biggest event buys 2.2m

Lowest event buys 375,000

Average buys 937,500

Based on $50 fee:

Total cash estimate $281.25m

Average event profit $46.875m

UFC

Events held 13

Total No. of buys 5.745m

Biggest event buys 1.025m

Lowest event buys 140,000

Average buys 414,900

Based on $50 fee:

Total cash estimate $287.25m

Average event profit $22.096m

WWE

Boxing UFC WWE

Events held 10

Total No. of buys 3.315m

Biggest event buys 1.048m

Lowest event buys 175,000

Average buys 331,500

Based on $50 fee:

Total cash estimate $165.75m

Average event profit $16.575m