The Bottom Line: A Bold Move
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The surprising announcement on Monday that ESPN+ will be the exclusive distributor of Ultimate Fighting Championship events is going to have lasting ramifications, not just for UFC and ESPN+ but for the business of sports in general. Cable-distributed pay-per-view, which came to dominate boxing, then professional wrestling and then mixed martial arts over the last 40 years, is now on life support, if not dead and gone. In its place is a new system with uncertain consequences for sports companies, distribution outlets and consumers. As a company that has shown a willingness to take significant gambles throughout its history, the UFC is rolling the dice again.
For cable and satellite companies, the gravy train has ended.
Distributors were not getting a massive cut of pay-per-view revenue
because they had high expenses or because they were taking on
serious risk. Rather, for decades they were the only viable way for
Bob Arum, Don King and Vince McMahon to place their events in fans’
homes, and they could charge what amounted to extortion rates. It
was a much better system for distributors than for content
providers.
In recent years, that equation has been completely flipped on its head. World Wrestling Entertainment set up the WWE Network, making itself both content provider and distributor. DAZN then offered boxing and MMA promoters massive amounts of cash in order to stream their events. Before, combat sports companies took the risk if their events failed, and cable companies got a big cut if the events succeeded. Now, DAZN takes the risk if events fail to generate sufficient interest, and the combat sports companies get big payouts either way.
In that climate, the UFC had a lot of leverage in its negotiations with cable and satellite distributors. When it couldn’t get the revenue share it wanted, the UFC instead turned to ESPN. Those distributors find themselves cut out entirely with less than a month’s notice before the next UFC event. The WWE Network already actively undercut pay-per-view, and their traditional buy rates collapsed.
Boxing followed the same model, with major superstars like Saul “Canelo” Alvarez, Anthony Joshua and Gennady Golovkin signing with DAZN. The streaming service might eventually institute pay-per-view for its biggest events, but it seems unlikely it will do so through the cable companies. Now, the final domino has fallen and pay-per-view revenue for the likes of Verizon and Comcast has collapsed. It’s yet another challenge for an industry overflowing with them.
For the UFC, this new deal looks to be a remarkable victory. Not so long ago, the promotion was negotiating simply for a better piece of the pie. Now, ESPN is guaranteeing it a significant licensing fee that covers the company even if pay-per-view buys go down significantly as a result of the new arrangement. Like DAZN, ESPN is agreeing to take on the risk in the hopes of building up its streaming service. The success of Netflix and Amazon Prime has convinced companies that they can spend boldly as they grow in the space. Some will surely collapse in epic fashion, but the content companies will have made their money in the interim.
Even putting aside those financial benefits, the UFC gains in another crucial way: ESPN now has even more incentive to promote UFC pay-per-views. ESPN exposure has been an underrated factor in some of UFC’s biggest financial successes, as ESPN-heavy coverage drives sports fans to buy events. The fact that the UFC-ESPN partnership is being extended just months in speaks to how pleased the UFC must be with what ESPN has provided thus far.
As things stood, the UFC benefitted from ESPN running prelims before its pay-per-views. ESPN also had a general incentive to promote UFC pay-per-views because of their partnership. If the UFC got more popular, it would mean higher ratings and more subscribers to ESPN+. Now, ESPN’s incentives are even stronger. It is getting a cut out of whatever business it can create for UFC, and it needs those shows to do well in order to make back its money. ESPN has always promoted sports properties stronger when it has a financial interest in them, but the incentives now for ESPN to promote the UFC are stronger relative to its popularity level than any other sport. The UFC is partnered with ESPN in a much more meaningful way than it ever was with Spike TV or Fox.
If ESPN gets in the habit of hard-selling UFC pay-per-views throughout the weekends they take place, it’s a big boon for the sport. It will increase pay-per-view orders, and beyond that, it will make the top UFC fighters seem like bigger stars to the general public. It also encourages ESPN to cover the UFC in a more favorable light, downplaying stories that the UFC doesn’t want to talk about and promoting narratives it likes. That will present a challenge for ESPN’s MMA journalists, like the previous example of Bill Simmons and his criticism of NFL Commissioner Roger Goodell.
The increased synergy between the Ultimate Fighting Championship and ESPN is likely to benefit the UFC, but it does raise questions about the effect on pay-per-view numbers. Before this move, the distinct majority of pay-per-view purchasers did so through cable or satellite companies. This was an easy system that involved clicking a button on a remote a few times and one with which fans were familiar. Now, fans are asked to purchase events through ESPN+ and then find the app if they want to watch on television. These sorts of obstacles don’t seem like much to a tech-savvy MMA fanatic reading an MMA-specific website, but the base of potential fans is much larger than just that group.
When it comes to these concerns, the UFC does benefit from the age of its fan base. It has a younger audience than most sports, and that audience is less likely to have trouble migrating to a new technology setup. What’s more, beyond the logistics, in order to buy individual pay-per-views, you also have to commit to subscribing to ESPN+. Selling a relatively high-priced individual event and a subscription at the same time is a psychological obstacle. It’s entirely possible the transition to this new model will be smooth and that buy rates won’t be hurt. However, it’s very much uncertain.
From a fan standpoint, there was perhaps a positive omen buried in the press release that the UFC and ESPN put out. After outlining the per-event price for ESPN+ subscribers, the release noted that “ESPN+ may explore other potential packaging in the months ahead.” The UFC dealing with only one distributor makes it easier to experiment with different packages. It’s hard to imagine that line was put in on a whim, and it suggests that there are at least discussions about the idea of offering a package like NBA League Pass, where ardent MMA fans can purchase all UFC pay-per-views in a package for a reduced price. In an announcement that has more relevance for corporate entities than average fans, that could be a potential ray of sunshine to monitor.
Todd Martin has written about mixed martial arts since 2002 for a variety of outlets, including CBSSports.com, SI.com, ESPN.com, the Los Angeles Times, MMApayout.com, Fight Magazine and Fighting Spirit Magazine. He has appeared on a number of radio stations, including ESPN affiliates in New York and Washington, D.C., and HDNet’s “Inside MMA” television show. In addition to his work at Sherdog.com, he does a weekly podcast with Wade Keller at PWTorch.com and blogs regularly at LaTimes.com. Todd received his BA from Vassar College in 2003 and JD from UCLA School of Law in 2007 and is a licensed attorney. He has covered UFC, Pride, Bellator, Affliction, IFL, WFA, Strikeforce, WEC and K-1 live events. He believes deeply in the power of MMA to heal the world and bring happiness to all of its people.
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