MMA News and Discussion Thread

[ACCBiggz]

Interesting article from Sherdog.

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 public 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.

[Fitzy]

I can't even access the MMAPlayground website. All I get is: Server not found. Firefox can't find the server at www.mmaplayground.com.

This really sucks.

[ACCBiggz]

I get that with Sherdog for some reason every so often, just try back because I got through to MMAPG, so just keep trying.

[JoeMimic]

Randy Couture's next move is foremost on the minds of those who closely follow mixed martial arts.

But bet on this: Couture will be in a suit in a court room before he's wearing board shorts preparing to fight Fedor Emelianenko any time soon.

Couture's resignation as UFC heavyweight champion and subsequent decision to sever all ties with the company dominated the reader response this week.

But before we get a sampling of what you had to say, here's a quick take on some of the key points in the case:

# Have no doubt that Mark Cuban, the Dallas Mavericks' owner, would-be Chicago Cubs owner and the fledgling MMA promoter, is somehow involved in the M-1 Mix Fight promotion that allegedly signed Emelianenko to a multi-million dollar contract last week. Cuban declined comment via e-mail when asked whether he is part of M-1.

# Non-UFC sources say that the contract Couture negotiated and signed before his comeback fight against Tim Sylvia in March is for four fights and between $13 million and $15 million, which puts him behind only Chuck Liddell, at four fights and $17 million, in the UFC salary pecking order. Those numbers are believed to include percentages of pay-per-view money.

# Couture believes he can be a free agent after sitting out nine months, which would mean he figures he can fight Emelianenko sometime in late spring or early summer of 2008.

# UFC president Dana White insists Couture must fight twice for the UFC to fulfill his contract and become a free agent

.

# Those differences of opinion are going to land the parties in court. After nine months, expect Couture to try to fight and the UFC to go to court to stop him. Couture will argue that time is of the essence, because he'll be nearly 45, and that if he isn't granted a court order and allowed to fight, he'll be irreparably harmed. The UFC will argue that its entire business will be undermined if Couture is allowed to break his contract.

# Couture handled the situation as poorly as he could have. He was in South Africa filming a movie when he made the announcement. He would have come off a lot classier had he been in the U.S. and faced the media to answer the tough questions.

# The winner of the Brandon Vera-Tim Sylvia fight on Saturday at UFC 77 in Cincinnati will meet Antonio Rodrigo Nogueira for the vacant heavyweight title sometime early next year.

[ACCBiggz]

Good for Zuffa. Brilliant move because the court case could take a long time and they have a legit shot for them to say Couture has to fill it.

[Fitzy]

Are the idiot MMA fans talking about how Dana is an asshole for trying to keep Couture to honor his contract? I wouldn't doubt it.

And MMAplayground now works for me again.

Edited October 18, 2007 by FZY_DL.06

[Blehschmidt]

UFC announced a new signing tonight at the PPV.....

Spoiler: Click here to view

Brock Lesnar has signed with the UFC!!

That should be interesting.

[ACCBiggz]

Anderson Silva is my new #1 P4P fighter in the world.

[Enter Blue Guy]

Clearly UFC needs Daiju Takase to come in and beat Anderson Silva.

I don't know what strategy Rich Franklin put together for this fight, but it was pretty much the same thing as the first fight, except with more movement and a better clinch defense. I think he got way too comfortable with his striking early.

I think Hendo would beat Silva. You have to put Silva on the ground and make him uncomfortable to beat him. And not like Nate Marquardt who comes out looking a spastic dog. You need a guy who can get into at least Silva's guard, attack the body, attack the head, throw punches, elbows, just make him feel out of control. Easier said than done, but if there is anybody who is going to beat Anderson, it will be Hendo. If Anderson is as eager to clinch as he was with Franklin, it could bite him in the ass big time. Takedowns from the clinch are one of the things Dan Henderson does best.

Up until the main event, I was kinda bored by the whole event. Nothing on the card really interested me much. Even without a big main event, UFC 78 looks to be about a billion times more fun to watch.

[ACCBiggz]

They need an open check book for Hendo. Henderson and maybe Lindland are the only two I see beating Anderson Silva right now. I agree with what you said, but with Fedor not fighting and Anderson walking through everyone, he's my new #1 P4P fighter.

[Enter Blue Guy]

Oh, I agree. Nobody is ripping through the competition like Anderson Silva. Leben, Lutter, Marquardt, Franklin x2, these are TOUGH opponents and Anderson is the hot knife to their butter.

[Fitzy]

Well that was not that great of an event. No fights outside of the main event stood out as entertaining at all. I also have to agree with Biggz on Silva being the #1 P4P fighter right now. He is awesome out there. Tim Sylvia looked so sad out there when he was getting booed out of the building. You gotta feel bad for him. I don't think he deserves that kind of treatment, he's not that bad. Can't wait for UFC 78 though. Originally I was kinda disappointed in the main event being Evans vs. Bisping, but I am now looking forward to the fight. I still don't think it is enough of a draw for a PPV though, but the fight itself should be good. And you got a solid looking undercard as well to look forward to.

[ramfan22890]

BROCK LESNAR IS THE LATEST HEAVY HITTER IN THE UFC

Cincinnati, Ohio (USA) – International superstar Brock Lesnar has already achieved high grades for his transition from pro wrestling to mixed martial arts. Now the former NCAA Champion and four-time All-American is ready for the next step in his career - taking on the best heavyweights in the world in the Ultimate Fighting Championship® (UFC®) organization.

UFC President Dana White announced the signing of Lesnar to a promotional contract during the pay-per-view broadcast of UFC 77 at the US Bank Arena.

“I don’t think there are any other pro wrestlers that can make the transition to MMA, except for Brock Lesnar,” said White. “And if you look at his amateur wrestling credentials, his size, and what he’s done, this guy can end up being a force in the heavyweight division of the UFC.”

“If you want to go with the NFL of the fighting game, it’s the UFC, and it was an easy choice for me,” said Lesnar. “Obviously I don’t think I’m ready for a title shot right away, but I will be there, and I’m not gonna turn down any opponent because I’m here to prove myself. I’m not here to pick and choose my fights. I’ll fight whomever they want. I don’t make the fights; that’s not my job. I’ve got one job to do and that’s to fight.”

The date and opponent for Lesnar’s UFC debut will be revealed in the near future.

A native of Webster, South Dakota who now makes his home in Minneapolis-St. Paul, Minnesota, the 6 foot 3 ½ , 265 pound Lesnar first made a name for himself as a wrestler at Webster High School, compiling a 33-0 record in his senior year. This success eventually led him to Bismarck State College and the University of Minnesota, where he was a four-time All American, two-time Big Ten Champion, a second place finisher in the 1999 NCAA Championships, and the 2000 NCAA National Champion.

After finishing his college career with an astounding 106-5 record, Lesnar became a household name as a professional wrestler, and even had a short

stint in the NFL® with the Minnesota Vikings.

In 2007 though, Lesnar was in need of a new challenge in his life, and he turned to mixed martial arts, where world-class wrestlers like himself have had enormous success throughout the sport’s history. On June 2, 2007, Lesnar made his long-awaited MMA debut and took only 69 seconds to destroy Min Soo Kim with strikes that led to a submission.

Lesnar’s signing to the UFC bolsters a talent-rich heavyweight division that includes former PRIDE heavyweight champion Antonio Rodrigo ‘Minotauro’ Nogueira, Cheick Kongo, former two-time UFC heavyweight champion Tim Sylvia, Brandon Vera, Gabriel Gonzaga, Mirko Cro Cop, Fabricio Werdum and Heath Herring.

[ACCBiggz]

The website MMA-Europe.net is quoting Vale Tudo news as reporting that Ricardo Arona has announced signing a four fight contract with M-1. It also appears that Arona could fight Fedor Emelianenko as soon as December

[Enter Blue Guy]

Yes, I love the fact that Ricardo Arona is going to get pounded into the mat. I can't wait to see Arona throw his Billy Gunn-esque jabs and only to have his hand break on Fedor's chin. I swear his jabs look exactly like the snap jabs that Gunn had in Wrestlemania 2000 for the N64.

Seriously, at least Fedor is possibly going to fight somebody that he can assert his #1 P4P fighter title with a win. Hopefully M-1 keeps giving Fedor top competition. And even though Arona is probably my least favorite fighter, the guy is a beast. As boring as he can be at times, he's extremely skilled and would be a waste if he didn't fight anywhere.

Edited October 22, 2007 by Enter Blue Guy

[Your Mom]

So I just finished watching UFC 77. Any guess on who Brock might fight?

[ACCBiggz]

EBG and I have two guesses early on as far as style and experience go... Antoni Hardonk and Eddie Sanchez are decent guesses at this point. I'm not sure who else unless they just go sign someone.

[Enter Blue Guy]

People are spreading this Cro Cop vs. Lesnar rumor around, which is retarded.

I'd say a guy like Antoni Hardonk would be a good start for Lesnar, since Hardonk seems pretty bad on his back and is all kickboxing. I don't think you even want to dream about Brock going up against anybody that has a reputable record right now.

[Adam Ryland]

What about someone like Brad Imes? He has the TUF name value, doesn't have the ground game to cause any trouble, will want to stand, and with his height he seems tailor made for Brock to do a spectacular takedown for the highlight videos?

[Enter Blue Guy]

Hey, Brad Imes just won a fight by gogoplata! He's only the 3rd person to submit an opponent with it.

He's won most of his fights by submission, but he's beaten random guys with little experience or success. I doubt he'll be able to do much with a big, powerful, renowned collegiate monster on top him, though and Brock should be able to put him down easy. The only thing is the triangle seems to be Imes bread and butter in terms of submissions, so if Brock was to get careless in Imes' guard and fires away without regard, it might three pointed submission time from Lesnar. Plus, it's an MMA-inexperienced wrestler's natural instinct to tuck low into the guard and not posture up, which is bad news when you got a guy with tree trunk legs who can pull off a nice triangle choke.

Edited October 22, 2007 by Enter Blue Guy