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UFC Won’t Die Like PRIDE but the Rest of MMA Might

Our inimitable editor, Jim Genia, asked me a question after watching a recent video on the Japanese scene on Fightland: could UFC suffer the same fate as PRIDE & fade away? Could MMA die in the United States like it did after the PRIDE collapse in Japan?

The short answer is: no. The long answer is more complicated.

Why PRIDE died

When PRIDE collapsed in Japan, the product was still drawing enormous television ratings for broadcast Fuji TV. Fuji TV sports producer Kunio Kiyohara, who saw his career damaged due to the taint of PRIDE as an alleged yakuza front company, was heavily invested in tailoring the PRIDE product for mass consumption in the Japanese marketplace. PRIDE was pushed as the fight product that everyone from little kids to Grandma Tanaka would want to watch.

Once the yakuza scandal went public, PRIDE’s days were numbered, despite record-breaking business numbers at the gate and on the TV set. The police had enough of the shenanigans. Scandal publication Shukan Gendai went all-in. The PRIDE story was an easy sell and a lot of magazines were sold detailing how PRIDE and companies associated with it were front groups for a mysterious Korean-blooded yakuza boss who just happened to not know how to speak Korean.

PRIDE as an organization had many issues. Despite the organization’s earning power, it was on the decline — slowly, but still on the decline. PRIDE was built off the backs of the monstrous Japanese professional wrestling industry. Kazushi Sakuraba was the top babyface, along with Nobuhiko Takada, that helped PRIDE become the MMA monster. PRIDE brought in Japanese stars like Naoya Ogawa & Hidehiko Yoshida to bolster their New Year’s Eve events. However, the PRIDE machine had crippled the pro-wrestling industry in Japan and was losing ground on maintaining top Japanese aces. The gaijin were taking over. Sure, guys like Wanderlei Silva were really popular, but they weren’t Japanese. Race and nationality matter in Japan. Without major Japanese aces to draw, PRIDE would have eventually gone the way of the do-do bird, just like K-1 eventually did after PRIDE’s collapse.

PRIDE’s biggest problem? Once Fuji TV pulled out, there were no television partners willing to do business. The flight to Las Vegas was simply to scare the UFC into buying the assets. And that’s exactly what happened. PRIDE could have been a major casino property if they had sold the operation to Ed Fishman. Fishman, through Harrah’s, would have made sure to keep top Asian stars in the fold because of the gambling aspect. PRIDE would have become a casino property like the UFC currently is.

It wasn’t meant to be.

The structure of Japanese vs. foreign marketplaces

Cable & satellite television is growing in popularity in Japan but it is still not a major factor if you are a sports property that wants to gain market share. It is still a broadcast-network dominated market. PRIDE would have never been the monster it was if it had been relegated to cable. We saw a property on Japanese cable channel named WOWOW (their version of HBO) and that was RINGS. And RINGS got destroyed by PRIDE. RINGS made Fedor and PRIDE quickly snatched him away.

In the United States, however, cable means a fighting chance of becoming a major player. The UFC got a chance thanks to Viacom. Viacom’s resources helped build the UFC monster. UFC’s help from Viacom combined with casino resources made the Zuffa entity profitable. After all, if people can gamble money on your sport, you can survive. Without casino money, UFC would have to rely on cable money to survive. Even today, casino money is a significant factor in how the UFC does big business on their major PPVs. Zuffa’s ownership comes from the casino world.

With casino money invading Singapore & other Asian markets, it puts the UFC in a great position to expand globally or at least tour globally without a lot of risk. It’s a major reason why UFC will not die. As for whether or not other MMA organizations will be able to survive, that’s a different question entirely.

Lessons to be learned from PRIDE’s death

The UFC’s audacious plan to run 54 shows in 2014 has to be cause for concern. They are running way too many shows and producing too much product. That has created a problem for UFC’s hardcore base in terms of selecting which shows are important and which are not. It also is blurring the lines for fans in trying to figure out which shows exactly are important. Stars draw. UFC has fewer stars from the past to keep drawing from. It’s why the meltdown UFC management had over Georges St. Pierre was so ugly to witness. St. Pierre is simply the best ratings attraction they have. Once he and Anderson Silva are gone, the ceiling just dropped down quite a bit for the UFC.

The UFC will always be able to make money because they control all the leverage against fighters in the business. There is no Ali Act to oversee contracts in mixed martial arts. There is guaranteed TV & casino money to make from shows. There is the PPV business model which still dominates UFC’s cash flow. There’s merchandising and international television rights. As long as that formula doesn’t go away, the UFC will be around for a very long time.

Part of the survival equation has to do with the American cable landscape. There are so many channels now, television stations need anchors. Fox Sports 1 hopes the UFC can be their anchor. Even if the UFC ratings on FS1 are nowhere near what they used to draw on Spike TV, it’s still valuable to Fox because it means they can ask for a higher carriage fee rate when negotiating with television providers down the road. As long as the television industry can prevent a la carte legislation to allow customers choice to pick which channels they want to pay for, then bundling will ensure the excessive amount of cable channels we are currently paying for. For the UFC, that means their survival on television will last for a long time.

The one problem UFC will encounter that sunk PRIDE

Big-money bidding wars to recruit talent.

The UFC has lots of cash at their disposal. However, it doesn’t mean they are going to spend it. Zuffa has taken out some enormous loans and the owners are making out handsomely. The casino business is still important. The UFC is making $90 million a year from Fox. The question for the UFC going down the road, however, is whether or not there is a breaking point as to how much they want to pay fighters and how much money it will take to recruit top new prospects.

When the Fuji TV money evaporated from PRIDE, PRIDE started burning through cash. Even rich people, backed by clean or dirty money, don’t like losing their ass financially in business (money laundering or not). Once they started burning through cash, all of a sudden they weren’t able to keep their top fighters. PRIDE outspent everyone in the MMA space. Once the money advantage was gone, they lost talent to the UFC and other organizations.

Once you lose money, then it becomes impossible to entice gold medalists in amateur wrestling or boxing to make the jump to a sport that is still relatively new. Recruiting is key and money is the #1 factor.

MMA: UFC 166-Press Conference

The UFC faces a risk and that risk is a slowing of growth. Going backwards means less money. Less money means less recruiting. Less recruiting means lesser quality talent and lower fight quality. Then it becomes a death spiral. Unlike PRIDE, the UFC has a floor in terms of what they can spend. The question is what their ceiling is right now and how much money are they willing to spend to expand their growth so that the ceiling is raised much higher. Casino & cable money isn’t enough. PPV helps but not many fighters are going to draw above 400,000 buys given UFC’s television situation.

The risk for the UFC is that they get into a holding pattern that they cannot grow their way out of. It will ensure that they will never die like PRIDE but at the same time means that they face a delicate growth situation moving forward. Every business likes to say that China is their default answer as to where they are going to make money next on a big scale. The fact that UFC has failed to make significant in-roads in Europe should scare many of their loyal supporters.

There will always be fighters at the UFC’s disposal. The question is whether or not there is enough money to recruit the best fighters and to keep the sport’s evolution fueled. It’s critical for UFC to be able to recruit the next Jordan Burroughs. UFC has to compete with many different professional sports when it comes to making the sale pitch to amateur athletes that MMA is the sport to jump into. The next question: will the UFC pull a page from the PRIDE playbook and bring in potentially risky athletic prospects at a price tag of many millions of dollars in guaranteed money? The UFC is conservative with their bankroll. PRIDE was less conservative because of their two major financing sources. Once PRIDE lost their backing, they faded away because they couldn’t buy the best talent. UFC can afford to get into bidding wars but the question is whether or not they have the stomach to do so.

The UFC isn’t going anywhere. As for the rest of the sport of MMA, however? Viacom has the future of the sport in their hands with Bellator. If Viacom gets out of the business, then it will send a signal to other television networks that MMA is a UFC-only proposition and that investing in mixed martial arts is too much of a hassle. If that happens, then we have a major problem because the UFC needs a minor league circuit to attract and develop talent. The Ultimate Fighter isn’t that vehicle any more. While the UFC’s audience is heavily built upon professional wrestling fans, the talent the UFC acquires doesn’t come from the professional wrestling world. The irony, of course, is that the one major pro-wrestling name the UFC pushed (Brock Lesnar) was an incredible PPV attraction. The UFC doesn’t have the luxury that PRIDE did in raiding professional wrestling and building their product on the backs of pro-wrestlers.

If the rest of the MMA space shrivels, so does the money. If the money dries up, there’s less talent available at the UFC’s disposal to bring into their fold. That would put more pressure on Zuffa to get into bidding wars for top athletes from sports like football or basketball to find the next face of the UFC. What those sports can offer athletes that the UFC can’t is an ability to market themselves as individuals and make significant money in advertising. Very few UFC fighters ever make significant money through television sponsorship. The most famous UFC fighter to get TV sponsorship is one of their retired legends, Chuck Liddell.

MMA: UFC 167-St-Pierre vs Hendricks

The UFC has a safety net in cable & casino money that PRIDE didn’t have. They aren’t going away. The question is whether or not the rest of the players in the MMA space can survive by promoting MMA on the cheap. History tells us the answer is no. If the talent well dries up for UFC, then we may see some legitimate problems surface. The UFC’s biggest strength happens to be their biggest flaw — the brand is the number one attraction. The UFC likes it this way. The problem is that you’re not going to break the ceiling of 6 million television viewers on broadcast television if you don’t create new stars. During its peak ratings period on broadcast television, PRIDE could easily draw 20 million television viewers on Fuji TV. The UFC hasn’t even come close to matching the kind of peak business PRIDE did in Japan. PRIDE was a one-country powerhouse. The UFC is largely an American-dominated product. The UFC is able to make money in many different countries, unlike PRIDE, and that is what will maintain their diversified business success.

The danger for the rest of the MMA space? The bottom falling out when the UFC’s business declines. If Bellator isn’t able to become a counter-balance to the UFC, then there is no viable alternative in the space. Without an alternative, interest in the business becomes UFC-only and that would kill interest in the minor leagues if the UFC doesn’t have a developmental program in place for new talent. That would be a death spiral for non-UFC MMA.