The UFC's $300 Million Pandemic Dilemma

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Friends,

On March 11, 2020, the NBA season came to a halt following Utah Jazz center Rudy Gobert testing positive for COVID-19 — followed by months of quarantine, social distancing and uncertainty when it came to the future of sports within the United States.

The interesting part?

Rather than the NBA or MLB — organizations that bring in a combined ~$20 billion in annual revenue — putting together a plan and returning to action in short order, one smaller sports organization struck first.

Who was it?

Dana White and the UFC.

Now don’t get me wrong, I understand there is a polarizing opinion when it comes to the UFC as an organization, Dana White specifically, and their combined unwillingness to make fighters full-time employees — but to be honest, I’m not here to debate that.

On May 9, 2020 — less than 2 months after the NBA season shut down — the UFC returned to action with UFC 249 in Jacksonville, Florida.

Check out these quotes from when the event was announced.

Bob Arum, via CBS Sports:

The Guardian:

Rick Strom, via TYT Sports:

Brian Campbell, via the State of Combat Podcast:

While it’s unfair to make generalized statements like “everyone was betting against Dana White” or “no one thought it would work,” one thing is clear — a large portion of media professionals inside and outside the MMA industry thought it was reckless.

Dana White’s response?

“I don’t give a f**k.”

No, seriously — he said that.

But the real question is, did he even have a choice?

Before we get into how Dana White and the UFC pulled off the logistical aspect of returning to live events, we must first understand the economics.

Here are four important facts (source):

1. The UFC was bought by media company Endeavor PLC and private-equity firms KKR & Co. & Silver Lake in 2016 for $4 billion, which represented the largest sports asset sale of all-time when it happened.

2. Since being acquired for $4 billion in 2016, the UFC has taken on over $2 billion of debt, some of which has spent time trading at distressed levels in the secondary market.

3. In 2018, the UFC & ESPN reached a 5-year, $1.5 billion agreement — which saw ESPN pay $300 million annually for linear and digital UFC rights to carry 30 live events per year. The agreement was later extended to 42 fights per year, including 10 pay-per-view fights, at an undisclosed sum.

4. Prior to the pandemic, Endeavor — a company built on live events in sports & entertainment — carried $4.6 billion in debt, cancelled its planned initial public offering, and has furloughed, laid off, or cut pay for one-third of its 7,500 employees worldwide since the pandemic started.

In summary, Endeavor — a company experiencing recent financial struggles — bought the UFC for $4 billion in 2016, took on over $2 billion of debt, and had to deliver 42 live fights in 2020 to receive their $300 million-plus payment from ESPN — which represents a large portion of their $800 million to $1 billion in annual revenue.

So it was all about money?

Well, maybe.

Not only does Endeavor have plenty of cash to pay its debt service obligations this year and for multiple years ahead, but they also have the ability to access capital markets if necessary to stay solvent.

From ESPN’s perspective, it’s extremely unlikely they would cancel a 5-7 year relationship, which has netted millions of ESPN+ subscribers, due to a once in a lifetime pandemic.

More likely, this is the way to think about it.

Similar to other sports, the UFC was always going to return this year.

By stepping up and putting on live events, the UFC was able to make good on their contractual commitment to ESPN and receive $300M+ in return, but it also prevented them from firing or furloughing employees, and allowed their fighters to earn a paycheck — which they wouldn’t have done without fighting due to their employment status as contractors.

The interesting part?

Despite being criticized, the UFC actually invested heavily in safety.

For the last few months the UFC has held events without spectators in Florida and constructed “Fight Island” in Abu Dhabi for international fights.

In total, the UFC has spent more than $17 million on COVID-19, conducting over 28,000 tests with a positivity rate of less than 1%.

All things considered, those are excellent results.

Even more interesting — with the sports world craving live events, the UFC dominated in its return.

• Live event viewership was up 33% year-over-year

• Record high pay-per-view buys

• Record UFC store sales, up over 175% year-over-year

• Over $1.3 billion in earned media value from “Fight Island”

• Over 177 billion impressions generated from “Fight Island”

• UFC social media accounts reached 152M followers, up 62% year-over-year

• Over 2.5 billion views on YouTube, a new UFC record.

The best part?

While sports leagues & teams all around the world trimmed their workforce throughout the COVID-19 pandemic, not a single UFC employee was fired, furloughed, or saw their pay reduced.

Whether you like him or not, Dana White deserves a lot of credit for that.

In the end, there are peace-time CEO’s and war-time CEO’s. People will debate the details of Dana White and the UFC’s decisions, but one thing is clear — Dana White moved with a violence of action when confronted with a global pandemic.

This is part of the reason why UFC fans adore him.

Dana White doesn’t care what the media thinks about him, he just does what is in the best interest of the multi-billion-dollar company he represents.

It’s hard not to respect that.

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Extra Credit

Today’s extra credit tells the story of how Dana White got involved with the UFC, built it into a multi-billion-dollar business, and made over $350 million without investing a single dollar.

I’m biased, but it’s an incredible story.

Enjoy.

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