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UFC is facing its most important contract negotiation

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With the UFC’s seven-year contract with FOX expiring at the end of next year, the company is in talks with a number of networks and hopes to wrap up a deal shortly.

The UFC is in the midst of negotiating a contract that will do more to determine its long-term economic success than any other for perhaps a half dozen or more years.

The seven-year television contract between the UFC and FOX expires on Dec. 31, 2018. According to sources close to the situation, the UFC is hoping to have a new deal at least verbally agreed to by the end of this month, or at worst, in early 2018.

Unlike most major sports, where television revenue is far and away the leading source of income, the UFC has had two major revenue streams: Its television deals, particularly in the U.S. and Brazil, and revenue from pay-per-view.

But long-term, since pay-per-view is so unpredictable — almost entirely predicated on a few major stars who themselves often seem bent on self-destruction — television looks to be the key as we go forward.

Sports Business Journal reported recently that the UFC’s exclusive negotiation window with FOX expired in October and the company has opened talks with a number of potential suitors.

The story indicated that the UFC, which will receive $160 million from FOX in 2018, the final year of the current deal, could have gotten an increase to $200 million on a multi-year contract from FOX. The UFC had been seeking anywhere from $420 million to $450 million for U.S. television rights. It was a belief that they would get a sizeable increase that pushed the bidding for ownership last year to reach just under $4 billion last year.

But so much is about timing.

In 2016, the prevailing opinion in television was that people were scared of the future. Between more and more DVR usage — meaning people were less likely to be watching advertising — and more competition as people familiarize themselves with streaming content, there was great concern about the economic future of television as it had been for decades. And there still is.

Live sports were considered the saving grace. The idea is that live sports were DVR proof, and thus, rights fees for sports started skyrocketing as networks went to sign long-term deals with the NFL, NBA, MLB, NHL, NASCAR and major college football and basketball. The skyrocketing numbers came at a time when the UFC was locked up with its FOX deal, with numbers that looked great in 2011 when it was put together, but not nearly so great by 2016 standards.

The positive is with the other major sports all locked in for many years to come, the UFC would be the lone major sports franchise up for grabs at a time when interest from major television conglomerates looking to lock up long-term deals for live sports was peaking. Currently, the UFC runs anywhere from two to five-plus hours of live prime time programming most Saturday nights.

And, the company was loaded with stars. Conor McGregor was a phenomenon as a draw, and Ronda Rousey wasn’t far behind. While not as big a draw, Jon Jones was just entering his prime, could draw big with the right opponent, and was viewed by many as the greatest fighter in history. Georges St-Pierre, one of the company’s biggest drawing cards in history, was all over the news talking a comeback. Even more attractive to television is that women fighters like Miesha Tate, Holly Holm, and Paige VanZant had proven they could headline events and draw strong television numbers. And the UFC was still reaching a younger audience than most major sports, which theoretically looked good for the future.

The television industry itself, whether it was sports or entertainment programming, had become accustomed to numbers for most things eroding. Yet, the UFC was appearing to be on the ascent, and more importantly, its fan base showed no sign of burning out over the endless hours of content.

While FS1 main cards were almost unchanged from 2015 to 2016, increasing 0.6 percent, the prelims were up 9.7 percent, averaging 996,000 and 767,500 viewers respectively. Essentially that meant the UFC’s audience was more willing to watch more hours of Saturday night programming than ever before.

The FOX shows were up six percent, to a 3,005,000 average, and increased from four shows to six, including a taped replay of a pay-per-view event on Christmas Eve that did phenomenal numbers.

UFC president Dana White recently scoffed at talk of the company having a bad year in 2017 economically, saying it was the best financial year in company history. For straight profit and loss, when you consider a combination of all the cost-cutting, the annual escalators in the television contract and the company’s cut of the McGregor vs. Floyd Mayweather windfall, this easily could be the most profitable year in company history. But the UFC is not as popular.

Timing is everything. Had the UFC’s contract expired a year earlier, and potential suitors were looking at last year’s numbers and the growth, the value of the new television contract would be sky high.

But FOX offering only a modest increase is because one year later, everything looks very different. While there are exceptions with some major events, televised sports aren’t holding up as well as hoped for, and the UFC has hardly been an exception. At the same time, the number of people with access to the major cable channels is falling, most notably with ESPN, a company that has had two recent rounds of major layoffs, but also figured to have interest in the UFC for the next contract term.

ESPN is faced with substantial declines in accessible homes, which its main revenue stream is based upon. ESPN is also on the hook for gigantic long-term contracts, numbers that escalate for years to come, most notably its NFL and NBA deals. This may not be the time for ESPN to add another expensive money deal.

Thus far in 2017, with two FS1 shows and one FOX show left, the FS1 main cards are averaging 866,000 viewers, down 13.1 percent. The prelims of the FS1 shows are averaging 722,000 viewers, down 5.9 percent. FOX specials are down 30.9 percent to 2,077,000. Pay-per-view is down even more, but those numbers really aren’t significant when it comes to a new television deal.

The only close to encouraging sign is those who are watching FS1 on Saturday this year are, on average, even more apt to watch the prelims than even last year.

Worse, the starpower going forward is a lot less secure. White openly said recently that he didn’t know if McGregor would ever fight again, and hoped Rousey wouldn’t. Jones is facing his second drug suspension and could be a nonentity for some time to come. St-Pierre eventually did come back, which was a positive. On the women’s side, Tate retired, Holm kept losing and her drawing power on FOX declined greatly from the prior year, and the celebrity boost VanZant got off her strong showing on “Dancing With The Stars” has faded.

Still, as White has pointed out, the history is that new stars will emerge. The reality is that the shelf life on top of most stars is going to be only a few years, and every few years somebody new emerges. But right now, nobody has shown signs of being that future superstar who can carry the company.

The Sports Business Journal story said that the UFC has held meetings with CBS, NBC, ESPN, Turner Sports, Amazon, and Oath (the parent company of Yahoo). The key to this is that even if ratings and star power have declined, if the UFC gets multiple bidders, it can still drive the price up. It’s also possible they can cut a deal like the NBA or NFL, where they are on multiple networks.

Sources have indicated the NBC pitch included having big fights on the network, regular shows on NBC Sports Network, as well as live shows to help build an NBC Sports digital streaming service.

Sports Business Journal claimed Turner Sports showed the most interest. An exclusive with Turner Sports would eliminate the UFC’s most-watched shows, the major broadcast network Saturday night shows that CBS, NBC and FOX could offer.

On paper, NBC Sports Network vs. FS1, doesn’t look like a major difference. As of August, FS1 was in 84,421,000 homes, while NBC Sports Network was in 84,439,000 homes. ESPN was in 87,217,000 homes, but it draws far higher base ratings and is considered the home for sports fans. Plus, ESPN would offer more coverage on SportsCenter, which would give the average sports fan the impression that the UFC was more important. Turner Broadcasting’s key stations, TBS and TNT, are in 91,894,000 and 90,881,000 homes respectively.

Another key in the negotiations is the quality of shows. If the UFC cuts back to six pay-per-view shows per year, that would leave openings for a lot more high-profile fights and championship fights for television, which could turn the numbers around.

Most UFC shows these days, if we eliminate the big-attraction events that will almost surely remain on pay-per-view, are doing around 200,000 buys. If we estimate they generate about $30 per order in revenue, that’s about $6 million per event. That means, to give up six shows on pay-per-view and provide stronger television matches, the UFC has to get a minimum of $36 million per year extra. And that also becomes an issue with certain main event and championship fighters, because those with pay-per-view points in their contract, now not on pay-per-view, would also have to find a way to recoup that lost income.


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