My colleague John Nash wrote a piece examining the costs and benefits to the UFC of reducing the number of Pay-Per-View events. It’s a great piece that everyone should read, but it isn’t without its flaws, and it misses some important information and perspective.
Thirteen of the last 20 UFC PPV events have failed to sell over 219,000 pay-per-views, per Nash’s piece. Perhaps not coincidentally, that works out at almost exactly four events per year selling more than that – a number I mentioned as the ideal at the time, in a tweet John missed and didn’t include in his original article.
At this point it would be more profitable for the UFC to offer 8 of the “PPVs” to ESPN at the $10m per event ESPN are paying them just now, and just have 4 major PPVs per year that do 500k-1.5m buys.
UFC needs to break ~300k to make the same in PPV cash as they would from ESPN. https://t.co/H0I6grRyWK
— Iain Kidd (@iainkidd) July 10, 2018
Commercial PPV buys are something not included in my original tweets on the matter, and as they can account for a reasonable amount of revenue, they should be examined. A commercial buy is one from an establishment like a bar, which shows the event to patrons. Commercials entities don’t pay the $59.95 you do at home, but instead are charged thousands of dollars to broadcast the event.
The mean average revenue from commercial PPV buys per event is in the $3-4 million range according to John’s article. There are problems with using the mean average here, and there are additional factors that have to be taken into account.
Like residential buys, some commercial purchasers decide on an event-by-event basis whether or not to order the Pay-Per-View. Commercial premises like bars pay for cards based on their maximum occupancy. If a card isn’t going to pack your establishment, or get close to it, you’re not going to pay the thousands to tens of thousands of dollars to show them. Many commercial purchasers simply buy year-round contracts, but boxing’s model shows that’s not necessarily the most lucrative route.
The Mayweather vs. Pacquiao fight demonstrated that PPV providers can charge bars and other commercial venues significantly more for larger events. That PPV had a rate of $30 per occupant, based on the max occupancy in the fire code.
The amount the UFC charges commercial entities varies, but based on court documents we have seen in the past, it’s likely in the $8 per head range for most events. If the UFC suddenly lost eight PPV events, but started charging three times more—$24 per head—for the four huge tentpole events, they wouldn’t lose a penny of commercial revenue from PPVs. If that’s a leap too far, the UFC could charge $16 per head and walk away only around $14m short. The question now is could the other revenue make up for that shortfall?
The answer? Absolutely. If we use Nash’s math of $7 million per event, that comes out to the UFC being paid $56,000,000 for these 8 events. Even if we have to halve that number—because we’re only discussing main cards and the prelims are already paid for—that’s still $28,000,000; far more than the $14m the UFC may lose from commercial buys.
Boxing has shown that decreasing the number of PPVs doesn’t actually seem to translate into less buys overall. More consumers buy the few Pay-Per-View events that remain to make up the difference, this is something Nash acknowledges in his piece. The benefit to fewer PPVs is compounded when you are able to stack the remaining events with more recognizable names and title fights, as the UFC would be able to, and potentially charge higher prices, as with the Mayweather vs. Pacquiao and Mayweather vs. McGregor events.
What this tells us is commercial PPV revenue doesn’t disappear if you consolidate the number of events, it’s merely displaced. This fact undermines much of Nash’s argument, which is predicated on the idea of there being no pay-per-views, or that the existing PPV revenue will no longer exist. Based on what we have seen in boxing, the UFC wouldn’t see a significant drop, if any, in revenue from residential PPV buys.
There’s also another benefit to less PPVs – marketing. As things stand, being on a pay-per-view main card is one of the worst ways to get seen by people, because a low-selling PPV main card is often the least viewed type of content the UFC puts out, especially considering the ranking of the fighters usually participating.
If the UFC reduced the number of PPVs, it would increase the number of eyeballs on these fighters who now move to televised cards, and the few PPVs that remained would sell significantly more, once again increasing the number of people seeing those fighters.
In short, having a compressed PPV schedule could benefit almost everyone involved. The fans would have to pay less for events, “bigger” events would be possible, the UFC would make as much or more money than they do now, and marketing costs could be reduced and refocused around four large events instead of 12 smaller events.
The largest potential downside is increased salary costs for the UFC if they maintain the current pay-per-view points structure.
There are two other, rather weak, arguments as to why the UFC may not want to pursue a strategy of fewer pay-per-views that should be addressed. The first is by having a slate of PPVs, it gives the UFC 12 events which it can sell to a media partner down the line, or even use to increase digital subscriptions. The flaw with this argument is that it assumes a move to four pay-per-views is necessarily permanent, and that the UFC couldn’t add more pay-per-views later, if it so chose. Of course, in the real world, that’s an option the UFC would have.
The other reason is PPV competition. The idea is that by having less pay-per-views per year, it leaves more space for potential competitors to put on their own pay-per-views, but even Nash admits, “With the UFC’s current position in the market, one would assume that they would no longer have to worry about any rival airing PPVs.” To expand on that, if the UFC was putting on four tentpole events per year and raising the perceived standard of a pay-per-view product, it would, if anything, make it even harder for a rival to compete in that market.
There are positives and negatives to both approaches, but with the median PPV buys per event decreasing and the growing need to keep casual fans engaged in the big fights to grow the big names, a restructuring of the PPV model could be just the ticket for both fans and UFC executives alike.