The business that is ZUFFA - MMA Forum - UFC Forums - UFC Results - MMA Videos
UFC The Ultimate Fighting Championship (UFC) is a U.S.-based mixed martial arts organization, recognized as the largest MMA promotion in the world. The UFC is headquartered in Las Vegas, Nevada and is owned and operated by Zuffa, LLC. This promotion is responsible for solidifying the sport's postion in the history-books. UFC is currently undergoing a remarkable surge in popularity, along with greater mainstream media coverage. UFC programming can now be seen on FOX, FX, and FUEL TV in the United States, as well as in 35 other countries worldwide.

Reply

Old 10-17-2007, 11:25 AM   #1 (permalink)
I'm the Decider
 
wafb's Avatar
 
Join Date: May 2007
Posts: 3,239
Blog Entries: 1
wafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By All
Post The business that is ZUFFA

This an article from S-dog.com


Behind the Curtain: Zuffa's Finances Come Into Focus




October 17, 2007
by Adam Swift (adam_m_swift@yahoo.com)

Randy Couture's (Pictures) resignation from the UFC and subsequent speculation about the company's pay scale have shoved Zuffa's finances back into the spotlight.

As a privately held company, Zuffa has no public reporting obligations. The information that is made pubic is carefully screened and released only when convenient to tout the growth and success of the UFC brand.

As a result the company's financial status and business model are largely left to speculation. But recent reports by Standard & Poor's, one of the leading financial services companies in the world, have provided new insight into the finances of the undisputed leader of the MMA world.

On Sept. 14, S&P cut Zuffa's credit rating outlook from stable to negative, but overall S&P reports revealed a business that is still growing. While profit margins are down substantially due to European expansion efforts, pay-per-view -- the company's key revenue source -- is up 35 percent through the first half of the year. Furthermore, despite more than doubling operating costs from a year ago, the company remains profitable.

According to S&P, roughly 75 percent of Zuffa's revenues are generated through the production of live events. Pay-per-view buys account for the lion's share of live-event revenue with gate receipts playing a much smaller role.

For example, although an average show might generate $2 million at the gate (ticket sales), it generates at minimum roughly $4.8 million in pay-per-view revenue (assuming 300,000 buys and a 60/40 split between Zuffa and the PPV distributor). The company's contract with Spike TV and assorted sponsorship revenues account for the remaining 25 percent of revenues.

Last year Zuffa experienced what can only be described as explosive growth. In 2006, S&P reported that the average buy rate per event nearly tripled compared with the previous year.

Accordingly the company's EBITDA margin (EBITDA represents earnings before interest, taxes, depreciation and amortization; an EBITDA margin is akin to a profit margin) more than doubled from the mid-teens in 2005 to more than 40 percent of gross revenues in 2006. Dave Meltzer of the Wrestling Observer Newsletter reported that Zuffa is believed to have grossed $190 million last year and posted a before-tax profit of $76 million.

Entering 2007 Zuffa was expected to post an EBITDA margin of more than 50 percent.

Pay-per-view buys for domestic events have increased 35 percent over the first half of last year and total revenue growth is up 30 percent, but the company's EBITDA margin has declined more than 50 percent due to dramatically increased operating costs.

Operating costs have more than doubled thanks to production expenses associated with two events held in the U.K. and an aggressive marketing campaign to establish the UFC brand in the U.K., the scale of which was criticized by the company's financial officers, according to the Wrestling Observer Newsletter. As a result the company's EBITDA as a percentage of gross revenues has fallen to roughly 20 percent for the year thus far.

S&P began covering Zuffa earlier this year in anticipation of the company securing a $350 million senior secured credit facility. That number represents a term loan for $325 million due in 2015 and a $25 million revolving credit facility (a so-called "revolver") due in 2012. With the arrangement, according to S&P, the company "will have few, if any, external funding requirements in the intermediate term once the new capital structure is implemented."

It is interesting to note that the term loan was originally proposed at $275 million, as of the May 22 S&P report, only to be increased to $325 million by the time of the Sept. 14 S&P report. This time frame coincides with the closing of Zuffa's purchase of Pride's assets, though the significance of the increase and its connection to the purchase of Pride is purely speculative.

Proceeds of the term loan were used to pay a one-time special dividend to Zuffa's owners, the Fertitta brothers (90 percent) and Dana White (10 percent), and to refinance the company's existing debt. The amount of debt Zuffa refinanced and the amount it paid out in dividends can only be speculated.

However, some comments in the S&P reports suggested that the dividend payments could be quite substantial. The company has full availability on its revolver, indicating that to this point Zuffa has funded operations out of its normal cash flow. Therefore the revolver currently represents little more than a rainy day fund. Meanwhile, as of June 30, 2007, Zuffa's total debt outstanding was $325 million.

The loans are secured by bank-issued securities as opposed to the company's assets. In fact, Zuffa has very little in the way of tangible assets. S&P expects meaningful recovery (50-70%) of the principal in the event of default, placing the estimated resale value of Zuffa's assets, namely its brands, contracts, and cash, assuming a forced liquidation, at roughly $150-240 million.

As a result of these numbers, free cash flow is paramount in the minds of the company's creditors. The company's credit rating outlook was cut because of weak free cash flow caused by decreased operating margins. Unless free cash flow improves, the owners will be forced to reduce dividend payments to avoid a cut in their rating.

S&P initially assigned Zuffa a credit rating of BB on May 21. A BB rating reflects a company that is less vulnerable in the near term than other lower-rated obligors. Yet the rating also indicates that Zuffa faces ongoing uncertainties and exposure to adverse business, financial, or economic conditions that could lead to its inadequate capacity to meet its financial commitments. Bonds rated BB and below are considered junk bonds due to the risk of failure associated with the companies that issue them.

At the time of the May 21 rating, S&P issued the following outlook:

"The stable outlook reflects our belief that Zuffa's ability to successfully market UFC events will continue to drive strong revenue and cash flow growth through the next few years. We also believe UFC has gained a solid niche following, which will add stability to the company's financial profile over the intermediate term.

"A shift in consumer interest away from MMA or a shift to a more aggressive financial policy could lead to downside rating pressure. Conversely, if the company continues to drive increased interest in the sport over the intermediate term while maintaining currently healthy EBITDA margins and free cash flow generation, the outlook could be revised to positive."

S&P also expected Zuffa "to reduce the scale of its international UFC bouts going forward, with the intent to limit potential losses generated by these events and return consolidated cash flow to a level more consistent with 2006 results."

It will be interesting to see if Zuffa can meet this expectation given Dana White's stated commitment to the European market place and aggressive expansion plans. Regardless, despite the anticipated cost reduction, S&P does not expect Zuffa to return to its previous EBITDA margin of 40 percent because of "increasing fighter costs and production expenses for domestic UFC content."

S&P's most recent report, on Sept. 14, concluded that Zuffa's credit outlook is negative:

"Failure to improve the company's currently depressed margins through more stringent cost controls and continued top line growth or a shift to a more aggressive financial policy over the intermediate term could lead to a downgrade. Conversely, if the company can restore its previously strong credit metrics through cash flow growth and debt repayment, the outlook could be revised to stable."

Still, credit outlook aside, the numbers behind the cut reflect a healthy, growing business.

Adam Swift is the author of Payout: The Business of MMA.
__________________


Pound4Pound, The Best There Is
wafb is offline   Reply With Quote
Sponsored Links
Advertisement
 

Old 10-17-2007, 11:41 AM   #2 (permalink)
Super Heavyweight
 
jasvll's Avatar
 
Join Date: Mar 2007
Posts: 4,104
jasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By All
Maybe this will give the 'screwing the fighters' crowd pause.
__________________
Quote:
Originally Posted by Joe Rogan
That longing to return to the retarded past can only be born of some collective, subconscious, internal desire to try to turn back the clock on humanity and halt our obvious progression towards the inevitable zombie apocalypse of 2012.
jasvll is offline   Reply With Quote
Old 10-17-2007, 12:11 PM   #3 (permalink)
Bantamweight
 
Braveheart's Avatar
 
Join Date: Oct 2006
Location: Staten Island, NY
Posts: 614
Braveheart is on another level nowBraveheart is on another level nowBraveheart is on another level nowBraveheart is on another level nowBraveheart is on another level nowBraveheart is on another level nowBraveheart is on another level nowBraveheart is on another level nowBraveheart is on another level nowBraveheart is on another level nowBraveheart is on another level now
great article from another side of the table. MMA is fortunate to have so many great writers.
__________________
"There something behind the throne, greater than the king himself."
- Sir William Pitt
Braveheart is offline   Reply With Quote
Old 10-17-2007, 01:34 PM   #4 (permalink)
Heavyweight
 
e-thug's Avatar
 
Join Date: Jan 2007
Location: Kelowna
Posts: 3,869
e-thug Is Respected By All He Crossese-thug Is Respected By All He Crossese-thug Is Respected By All He Crossese-thug Is Respected By All He Crossese-thug Is Respected By All He Crossese-thug Is Respected By All He Crossese-thug Is Respected By All He Crossese-thug Is Respected By All He Crossese-thug Is Respected By All He Crossese-thug Is Respected By All He Crossese-thug Is Respected By All He Crosses
Quote:
Originally Posted by jasvll
Maybe this will give the 'screwing the fighters' crowd pause.

Exactly, there are so many other things that go into running a business than just paying the fighters handsomely.

The UFC is still growing, hell its only just gone mainstream this year. Expansions in Europe do not come cheap.
e-thug is offline   Reply With Quote
Old 10-17-2007, 01:43 PM   #5 (permalink)
Amatuer
 
Nobilis's Avatar
 
Join Date: Sep 2007
Posts: 194
Nobilis has a little shameless behaviour in the past
Quote:
Originally Posted by jasvll
Maybe this will give the 'screwing the fighters' crowd pause.
It doesn't excuse fighters getting screwed. UFC created the wage disparity not the fighters. The UFC is ignoring the fact that it is the fighters that are the engine.

Aggressively expand the UFC is a good thing. Aggressively expanding the UFC at all costs is a bad thing. If you don't have your engine your car coasts to a stop. I don't know why this is such a big shock. Name me one business where labour costs are not the biggest expense.
__________________
MY FIVE

1. George St. Pierre
2. Anderson Silva
3. Fedor Emelianenko
4. Don Frye
5. Kenny Florian
Nobilis is offline   Reply With Quote
Old 10-17-2007, 01:49 PM   #6 (permalink)
Middleweight
 
hollando's Avatar
 
Join Date: Apr 2007
Location: Mississauga
Posts: 2,822
hollando will become famous soon enoughhollando will become famous soon enoughhollando will become famous soon enoughhollando will become famous soon enoughhollando will become famous soon enoughhollando will become famous soon enoughhollando will become famous soon enough
Quote:
Originally Posted by Nobilis
It doesn't excuse fighters getting screwed. UFC created the wage disparity not the fighters. The UFC is ignoring the fact that it is the fighters that are the engine.

Aggressively expand the UFC is a good thing. Aggressively expanding the UFC at all costs is a bad thing. If you don't have your engine your car coasts to a stop. I don't know why this is such a big shock. Name me one business where labour costs are not the biggest expense.
well on obvious would be

automotive.......the problem with the automotive industry is not the cost of the workers....it is the cost of the benefits of the workers....ie medical, dental, and of course pensions
__________________
The most solid advice I can give to anyone who fights BJ Penn is...do not motivate the guy. Lets face it, BJ although talented, is naturally lazy. Your job is to NOT convince him to step on that treadmill.
hollando is offline   Reply With Quote
Old 10-17-2007, 01:54 PM   #7 (permalink)
Amatuer
 
Nobilis's Avatar
 
Join Date: Sep 2007
Posts: 194
Nobilis has a little shameless behaviour in the past
Quote:
Originally Posted by hollando
automotive.......the problem with the automotive industry is not the cost of the workers....it is the cost of the benefits of the workers....ie medical, dental, and of course pensions
Uhm...how is that not included into labour costs?
__________________
MY FIVE

1. George St. Pierre
2. Anderson Silva
3. Fedor Emelianenko
4. Don Frye
5. Kenny Florian
Nobilis is offline   Reply With Quote
Old 10-17-2007, 02:00 PM   #8 (permalink)
I'm the Decider
 
wafb's Avatar
 
Join Date: May 2007
Posts: 3,239
Blog Entries: 1
wafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By Allwafb Is Beloved By All
Quote:
Originally Posted by Nobilis
Name me one business where labour costs are not the biggest expense.
Nike comes to mind, child labour and paying workers less than the American minimum wage. Tommy Hilfiger, any of the big companies that exploit Third World countries, shall I go on?

The company I work for, Canadian Tire pays a top rate of $28/hour for warehouse work so I somewhat agree with you on labour cost.
__________________


Pound4Pound, The Best There Is
wafb is offline   Reply With Quote
Old 10-17-2007, 02:19 PM   #9 (permalink)
Super Heavyweight
 
jasvll's Avatar
 
Join Date: Mar 2007
Posts: 4,104
jasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By Alljasvll Is Beloved By All
Quote:
Originally Posted by Nobilis
It doesn't excuse fighters getting screwed. UFC created the wage disparity not the fighters. The UFC is ignoring the fact that it is the fighters that are the engine.
The wage disparity is the outcome of negotiations between UFC and agents/fighters. If fighters can't secure the deal they want, that's not UFC's fault. Why would Zuffa pay more for a fighter than they think they're worth? Why would a fighter accept a deal for less than he thinks he's worth?

Besides, I was speaking about the general assumption many make that UFC fighters are underpaid based on the payout reports mandated by the athletic commissions alone.
__________________
Quote:
Originally Posted by Joe Rogan
That longing to return to the retarded past can only be born of some collective, subconscious, internal desire to try to turn back the clock on humanity and halt our obvious progression towards the inevitable zombie apocalypse of 2012.
jasvll is offline   Reply With Quote
Old 10-17-2007, 02:25 PM   #10 (permalink)
Middleweight
 
Flak's Avatar
 
Join Date: Jul 2007
Posts: 2,757
Flak Needs A HugFlak Needs A HugFlak Needs A HugFlak Needs A HugFlak Needs A HugFlak Needs A HugFlak Needs A HugFlak Needs A HugFlak Needs A HugFlak Needs A HugFlak Needs A Hug
The fact of the matter is that the UFC is not rolling in dough, and calls to pay the fighters more are unrealistic.

Granted there is a wage disparity, but with these big names (tito, couture, liddel, cro cop, etc) not looking to be around much in the long term, the UFC has an opportunity to scale back the high level fighters earnings and possibly up the lower level fighters earnings. Will that happen? I have no idea, but the opportunity is going to present itself soon enough.

That aside, name me one company where your most important workers are not paid 100, 200, 300, even 500% more (in some cases) than your entry level workers? Yes it doesn't seem fair that the entry level fighters make a pittance - but the UFC isn't running a charity, and they're in line with most employers in the free world. The more value you represent for the company, the more you get paid. Work hard, fight well, and you too can climb the ladder to the big bucks....just like everyone else that works for a living.
__________________
Demian Maia may be the Fred Astaire of jiu-jitsu, but it’s too bad Silva is the Gene Kelly of kicking everyone’s ass.

Last edited by Flak : 10-17-2007 at 02:30 PM.
Flak is offline   Reply With Quote
Reply



Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are On

VerticalSports
Baseball Forum Golf Forum Boxing Forum Snowmobile Forum
Basketball Forum Soccer Forum MMA Forum PWC Forum
Football Forum Cricket Forum Wrestling Forum ATV Forum
Hockey Forum Volleyball Forum Paintball Forum Snowboarding Forum
Tennis Forum Rugby Forums Lacrosse Forum Skiing Forums
Copyright (C) Verticalscope Inc SEO by vBSEO 3.3.2
Powered by vBulletin Copyright © 2000-2009 Jelsoft Enterprises Limited.
vBCredits v1.4 Copyright ©2007, PixelFX Studios