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Eastern Promises: Why the UFC will struggle in Russia

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Article Source – bloodyelbow.com

Karim Zidan looks at the various political, economic, and geographic reasons why the UFC should not host a UFC Pay-Per-View event in Russia.  

Following a well-publicized ownership transition in 2016, the UFC began formulating a plan to venture into previously untapped markets. In December of the same year, new owner Ari Emanuel and longtime UFC president Dana White flew to Moscow, where they met with deputy prime minister Vitaly Mutko in an attempt to set the wheels in motion for a potential UFC event in Russia.

The high-ranking government official was shown a presentation that highlighted the economic benefits of hosting a UFC event in Russia. Mutko later told R-Sport that “he met with the UFC owners” who informed him that they “do not have a single partner or a title fight in Russia.” The deputy prime minister continued: “They’ve shown me their presentation. I was shocked when I saw what they were doing. The revenues, how much they get from the TV.”

After years of promises to enter the Russian market, the UFC brass was able to score a meeting with a high-ranking Kremlin official and impress him. A UFC event in Russia seemed inevitable.

However, despite the UFC’s growing interest in venturing into the Russian Federation, momentum fizzled over the following months, and an inaugural UFC Fight Night event in Moscow or St. Petersburg was never announced.

Then, ahead of the Mayweather-McGregor world press tour in July – eight months following the UFC’s initial contact with the Kremlin – White rekindled the possibility of a Russian event when he revealed that lightweight champion Conor McGregor was interested in facing Khabib Nurmagomedov in Russia by the end of the year. The statement was later reiterated by McGregor during the press tour.

“That would be a spectacle,” McGregor told BT Sport. “It would be like something out of ‘Rocky.’ I suppose this whole story’s like a ‘Rocky’ story, right? So why not face a man in his home country, and in a crazy place like Russia?”

While McGregor’s interest in fighting in Russia certainly raises the potential event’s profile, it does not guarantee that the show will actually come to fruition. Whether it be political, economic, or even geographic concerns, the UFC is faced with a variety of obstacles when putting together an inaugural show in Russia.

A Barren Wasteland for PPV

Ahead of UFC 209 in Las Vegas, lightweight contender Khabib Nurmagomedov was asked whether he would push for a title fight on home soil in Russia. While Khabib showed interested in fighting in front of his fellow countrymen, he explained that the Russian market is not built for the UFC’s PPV strategy.

“For PPV show Russia is not very good,” Khabib said during a media scrum. “For PPV show, maybe Madison Square Garden or T-Mobile Arena. But Russia? Maybe UFC make Fight Night in Russia but why I need fight in Fight Nights? I need to fight on PPV.”

Khabib’s concerns perfectly summarize one of the primary obstacles facing the UFC in Russia: the largest country in the world does not have a substantial PPV market to monetize.

UFC 205: Ultimate Media Day
Photo by Michael Reaves/Getty Images

The Russian Federation has proven to be a prosperous market ripe with talent, as well as a handful of thriving promotions to showcase those fighters. However, none of these prospects are featured on PPV. All combat sports events in Russia are broadcast on television, primarily on channels like MatchTV and Fighter. None of the country’s three top promotions – Absolute Championship Berkut (ACB), Fight Nights, or M-1 Global – have a pay-per-view or subscription model for their domestic audience.

As a result, MMA fans in Russia are not used to paying for their dose of televised regulated violence. None of the programming requires premium channels, subscriptions services, or PPV to be accessed locally. In fact, legal streams for UFC events (including PPV) are all available on Russian sports sites. This all but guarantees that the UFC will not be able to successfully implement a pay model now.

While the UFC could present the potential McGregor vs. Khabib event as a PPV solely in the North American market—a strategy applied to UFC 204 in England—this approach could lead to geographic concerns with time difference. If the event were to be hosted in Moscow with the 10pm ET start time typical of UFC PPVs, the main card would begin at 5am local time. Given the seven-hour time difference between Moscow and the East Coast of the United States, it is highly unlikely that the UFC will be interested in hosting a PPV event in Russia that begins at 5am ET, even if that event features a bout between McGregor and Nurmagomedov.

As the UFC continues to rely on PPV buys as a pivotal monetary source for their business, time zone difficulties are likely to factor heavily into promotion’s decision to host a paywalled event outside of the USA. Much like the majority of the UFC’s international ventures, the limitations of the promotion’s PPV model is such that only Fight Pass and Fight Night shows are feasible outside of North America. As such, despite McGregor feigning interest in a fight in Russia, the logistics behind a PPV event in the Russian Federation makes it highly unlikely.

Limited Revenue Streams

In January 2015, the UFC announced a partnership with Russian broadcasters VGTRK (The All-Russia State Television and Radio Broadcasting Company), through which UFC events would be made available across a combination of Russia 2, Sport 1, Fight Club and Sportbox.ru. That deal lasted until November 2015, when MatchTV was created on order from Russian president Vladimir Putin. Shortly thereafter, the UFC established a deal with the newly established network.

According to sources close to the Russian broadcasting company who spoke to BloodyElbow on the condition of anonymity, the UFC’s 2016 deal with MatchTV was worth approximately $500,000 annually. However, once UFC ownership transferred over to WME-IMG, the Hollywood powerbrokers targeted dramatically increased profits, which included new TV deals internationally. With renewed interest in the Russian market, the UFC sold the broadcast rights in Russia to Telesport, an organization that primarily focuses on sponsoring sports events and advertising on sports broadcasts. Telesport then took over negotiations with MatchTV as a third-part mediator. They were eventually able to secure a more appealing deal for the UFC, though it remains less than $1 million per annum. Despite the slight improvement, the UFC’s struggle to find a lucrative space in Russia does not bode well for their profit margins.

Due to a significant time difference between the United States and Russia, the UFC is unable to leverage truly profitable broadcast deals because none of their programming is tailored for the local audience, nor does it air at prime time in Russia.

Indeed, despite fighters like Khabib Nurmagomedov claiming he has the support of the 150 million Russians that populate the largest country in the world, that figure has yet to translate into improved TV viewership and thus increased revenue. The broadcast rights for popular MMA events in Russia only cover approximately 20% of the average costs of a show. Naturally, the UFC, which airs in the middle of the night in Russia, is an even less appealing product for advertisers, which erodes its ability to leverage fruitful deal.

Given that a revived broadcast deal isn’t going to be an sufficiently effective strategy for the UFC to profit in Russia, the promotion will have to look elsewhere to compensate for the loss of revenue – a difficult task given the state of Russia’s economy.

Political Tension and a Fragile Economy

In 2015, the Russian economy plunged into its worst recession in over 20 years. The country’s Gross Domestic Product (GDP) shrank by 3.7% and real disposable income collapsed by 10%. A severe drop in oil prices coupled with stunning currency depreciation took its toll on Russia, causing the number of Russians living in poverty to increase by 3.1 million to 19.2 million in 2015. Soaring inflation rates impacted average households and government revenue, and led to a period of declined foreign investment that continues to impact the country.

One of the main contributors to the financial crisis in Russia was the sanctions imposed by the United States, the European Union, and several other nations. Following Russia’s military intervention in Ukraine and the annexation of Crimea, the aforementioned nations approved economic sanctions that inevitably exacerbated the challenges facing Russia’s economy. These included restricting access to Western financial markets, an embargo on technological exports to Russia, and an embargo on military goods.

In response, Russia placed a ban on food imports from Western countries. While this was supposed to impact European and North American markets, it also led to higher food prices and inflation rates domestically, ensuring that Russia’s economic problems would fester into long-term concerns.

While the Russian economy saw a 0.3% growth at the end of 2016 – putting an end to seven quarters of recession – it has yet to reap its benefits. Now in a state of recovery, figures suggest that the GDP may rise as much as 2% in 2017; yet despite the optimistic reports, US-Russia relations continue to deteriorate. Just a few weeks after United States president Donald Trump and Russian leader Vladimir Putin had their first official meeting at the G20 summit, the US House of Representatives and the Senate voted to pass a new bill (419-3) that would allow Congress to block any attempts from the Trump administration to weaken the sanctions against Russia enacted by President Barack Obama during his tenure in office.

Obama Holds Bilateral Meeting With Russian President Putin At UN
Photo by Chip Somodevilla/Getty Images

With less disposable income, the average Russian citizen is simply unable to spend as much on indulgences such as sports and entertainment. In fact, the recent economic downturn has resulted in a significant drop in ticket prices for MMA events in Russia. Ticket prices for a standard MMA event now begin at 500 rubles (approx. $8 USD), which is significantly less than the cost of cheap-seat tickets to UFC shows in North America.

For these reasons, it remains unclear why the UFC would be so keen to risk entering a market currently embroiled in a variety of serious political and socio-economic struggles. Indeed, if not deterred by the current contextual challenges, the UFC leadership will also have to face a hostile and increasingly anti-Western business environment in which MMA promotions are pet projects of oligarchs and military dictators.

Minefield of Politicized Controversy

When UFC executives Dana White and Ari Emanuel visited Russia last December, they met with deputy prime minister Vitaly Mukto, a high-ranking Kremlin official and a controversial figure in Russian sports.

Mutko, who previously served as Russia’s Minister of Sports, was promoted to deputy prime minister a few months after the McLaren’s report shed light on alleged Russian state-sponsored doping dating back nearly a decade. While Mutko was not directly named in the report, the independent Canadian expert behind the research later stated that Mutko’s claims that he was unaware of the program are “inconceivable.” Therefore, Mutko’s questionable past when placed in positions of control over Russian sports made his meeting with White and Emanuel all the more intriguing.

BloodyElbow reached out to the UFC for an official comment following White and Emanuel’s reported visit, but did not receive a response.

Mutko is isn’t the only public relations concern facing the UFC in Russia. Assuming the UFC were to successfully host a McGregor vs. Khabib event, a show of that magnitude would attract many of the country’s most recognizable celebrities, oligarchs, and politicians. This could potentially include the head of the Chechen Republic, Ramzan Kadyrov, the notorious dictator who owns and funds the Akhmat MMA Fight Club. Four Akhmat-affiliated fighters are currently under contract with the UFC (Fabricio Werdum, Abdul-Kerim Edilov, Ruslan Magomedov, and Magomed Bibulatov) and if any of them compete on the proposed show in Russia, Kadyov will likely attend the event.

After analyzing the various socio-economic, political, and logistical problems involved with McGregor and White’s proposition to host a UFC lightweight title fight in Russia, it is evidently clear that it is highly unlikely to occur. While the promotion will eventually penetrate the Russian market with smaller fight night and Fight Pass shows in the not-so-distant future, a McGregor vs. Khabib title fight on Russian soil is simply bad business.

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