Currency Movement Threatens UFC Expansion

by Michael Rome on Oct 27, 2008 4:57 PM EDT in MMA News

One of the major reasons the UFC was able to quickly move into the black in the UK was the strength of the pound against the dollar. They were able to charge (relatively) reasonable prices for tickets and still do well thanks to the exchange rate, which was close to 2 to 1 not long ago.

Over the past few weeks, the pound and euro have slid significantly against the dollar, largely as a result of bank exposure to emerging market loans.

Seeing as this is an MMA blog, I am not going to go into explaining that issue, though the article linked does a good job explaining the basics and notes that the U.S. mostly stayed out of the emerging market loan game.

Anyway, the point is that as of this afternoon, the Euro is at $1.24 and the pound is at $1.56. A £100 ticket that would have netted nearly 200 pretax dollars just a year ago will only net 156 now, and most analysts believe the slide will continue. The UFC has to make one of two bad choices: Either raise prices for UK shows while the UK is in a rough recession, or accept lower gates. The prospect of raising prices during tough economic times has proven itself to be a disaster for UFC 91, so my guess is they'll either choose the latter or run more shows at home.

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So Dana White makes a smart move in taking advantage of a weak dollar by holding these cards… and now that the dollar is making its inevitable rebound their expansion is threatened? Is the value of the real important when it comes to that Brazil show? How about the yen in Japan? The Phillibuck in the Phillipines?

Could it be that the UFC will do this REGARDLESS of the exchange rate? The title of this article has virtually nothing to do with the content (which I have no problem with), and is one of about a dozen articles I’ve seen that were some variation of ‘Bad Economy Hurts UFC.’ Well, bad economy hurts everything – and, to me, it just seems like desperate attempts to read the tea leaves in a way that challenges the UFC’s dominance over MMA.

And I just don’t see it.

by Derek Suboticki on Oct 27, 2008 6:02 PM EDT reply actions

Jesus, you try too hard. I have no doubt the UFC will dominate MMA, I have basically been the primary voice on the blogosphere arguing that for the last 2 years. However, I suspect that all the talk about the quick expansion will quickly be tempered. It will move much slower as a result of exchange rates and the recession.

I don’t know why you can’t comprehend that making less pre-tax and running into ticket sale problems for the “biggest fight ever” doesn’t suggest slow times ahead for the UFC. We saw them try one strategy for 91, it has been a disaster, and I’m interested to see how they deal with it abroad.

by Michael Rome on Oct 27, 2008 6:11 PM EDT up reply actions

Sure, the recession will hurt. However, it hurts everyone equally. With the UFC being best equipped to temper the recession, I don’t think they will change their plans at all. Look at it this way, the UFC is expected to lose money during their expansion irrespective health of the economy. Now, with a looming recession, the UFC may get better terms with stadiums and marketing companies since everyone is cutting back at the same time. I wouldn’t be surprised if the UFC will be courted by stadiums that see spening cut back.

I am of the contrarian view that the recession may actually help the UFC.

by cyph on Oct 27, 2008 9:36 PM EDT up reply actions

At least I’m not the only person on this board sans blood-boiling anti-UFC rage.

by Derek Suboticki on Oct 28, 2008 2:45 PM EDT up reply actions

Good analysis Rome

The only other option I see is opening up the shows to new cities within the U.K. which is usually good for a one time gate/sales boost. I know this effect is lessened due to the size discrepancies between the U.S. and U.K. but there is something to be said for attempting this.

On the other hand, opening up to a sub-par market just to capitalize on this effect might mean lower ticket sales if the novelty doesn’t offset the lower base strength if the market. I think we would have to see the data that the UFC has on this to formulate an informed opinion but its definitely something they are looking at.

by Day Man on Oct 27, 2008 6:05 PM EDT reply actions

What is the positive of fighting in the UK?

Don’t you get taxed out there in the UK and then taxed when you get back home to the U.S?

by steveoc24 on Oct 27, 2008 6:44 PM EDT reply actions

I say this because of a few fighter interviews I read disappointed about their checks when fighting overseas.

by steveoc24 on Oct 27, 2008 6:45 PM EDT up reply actions

The positive for the UFC

Is expanding their reach, and fulfilling their agreements with Spike, Setanta Sports, WOWOW etc.

For the fighters, there isn’t much upside unless they catch on with the UK crowd.

by smoogy on Oct 27, 2008 6:58 PM EDT up reply actions

The US, as far as I know, taxes its citizens on their worldwide income, even if they live or work outside of the US. But depending on what kind of agreements the US has in place with other countries, and depending on how good the fighter’s accountant is, there may be various treaties and ways to get around double taxation.

But as smoogy pointed out, it’s a chance for the fighters to also expand their reach. More exposure can help build their brand, as well as the brands of their sponsors and clothing lines.

by pud333 on Oct 27, 2008 7:06 PM EDT up reply actions

When the UFC converts dollars to pounds, or euros, to fund expansion, it’s going to cost them less in terms of dollars since fewer dollars will be needed to obtain the foreign currency than just months ago. As I see it, it’s not a complete negative as total expenses are reduced if you’re judging revenue and profit based on dollars – a purely nominal basis. The more troubling thing is that the global economy is in decline which should reduce demand for UFC tickets, or whatever. I agree on the point that raising ticket prices would be a mistake.

by Cannon Jacques on Oct 27, 2008 7:32 PM EDT reply actions 1 recs

I considered this, but the expenses saved in pounds are only the local ones, they dont count all the payment of fighters and flying staff over. It doesn’t completely cancel out.

by Michael Rome on Oct 27, 2008 8:17 PM EDT up reply actions

I see what you’re saying. After getting a chance to read the article you linked, it still seems the more worrisome aspect is demand going forward. It looks as if a credit freeze is in order, resulting in deflationary pressure. That’s certainly not going to lend itself to fans spending more money on UFC cards. We’re seeing the same thing here, but the article indicates that many of the Eurozone countries have more exposure to emerging markets than the U.S. financial system has to mortgage backed securities. It’s just not a situation conducive to expansion globally.

by Cannon Jacques on Oct 27, 2008 8:35 PM EDT up reply actions

Besides the Lesnar/Couture fight, which I’m extremely jacked about, the ufc 91 card is horrible. That could be another reason. UFC 92 is looking to be really good.

by Josh H. on Oct 27, 2008 8:07 PM EDT reply actions

That’s not the reason, cards routinely sell out with just one fight. The UFC does 85% of its ticket sales on the first week, when usually there is just one fight. They only sold around 6500-7,000 first week, completely due to ticket prices.

by Michael Rome on Oct 27, 2008 8:18 PM EDT up reply actions

Positives of a stonger dollar

With a strong dollar, all locally incurred expenses for UFC events go down; that means things like the venue fee, hotel & accommodation charges, transportation hire… everything right down to the catering bill. The cost of UK staff on the UFC’s payroll is also reduced.

Of course there’s the small matter of reduced £ to $ conversion of ticket sales… that being said, UK UFC tickets were already quite pricey and offered good returns. I bought two tickets as corporate hospitality for good clients of mine for ’89 and paid £237 each. These were lower tier tickets (Block 3, L 114 & 115) – not floor level. That translated to about $425 at the prevailing exchange rate when they were bought.

The same level of seating at UFC 91, which is supposed to be an overpriced event, is $300 per ticket. Any way you slice it, that means that the face value for like-for-like tickets is about 42% higher for UK events.

Whilst I appreciate that the production costs of putting on a show outside the UK are higher for the UFC – are they as much as 42% higher? Sure, traveling and accomodation costs must be factored for, but that’s still quite a hike.

Anyways, flight and hotel costs will go down with the stronger dollar. Assuming ticket prices remain unchanged – and why would they? – the net revenue shift will still see the UFC make money on UK and European shows.

As for the fighters: any UK fighters will also see an immediate benefit since a stronger dollar translates to more money in their pockets. So long as they have filled out the appropriate IRS paperwork, they will not be taxed on their earnings at source (i.e. Federal Withholding Tax) and will earn directly more money per fight than they used to when the dollar was close to the $2.00 = £1.00 mark.

Put it this way: Paul Taylor earned $40,000 for his part in Fight of the Night against Chris Lytle at ’89. When the dollar was weak, this would have translated to around a £20,000 payout. Today (in real terms) the dollar is sitting at around the 1.6 mark which would mean that Mr. Relentless will pocket around £25,000 instead.

Assuming he has a crappy accountant and pays full UK taxes and other deductions, Taylor today has a take home of £18,972 from his bonus. Do you see how close that figure is to what he would have pocketed pre-tax when the dollar was weak? The shift in exchange rate means that Paul’s UK deductions are practically paid for him.

Oh, and as for US fighters fighting on UK soil – no, they don’t pay UK taxes. Their employer is based in the US, their paychecks are cut in the US and thus UK domestic taxation does not apply. Even if they were paid by the UK arm of the UFC, there is a tax treaty between the two countries that means they still wouldn’t pay UK domestic deductions – so long as they had filled out the appropriate paperwork before their first check was cut.

by VikingPhotography on Oct 28, 2008 6:07 AM EDT reply actions