Pro Elite's 10Q Filing
by Michael Rome on Aug 20, 2008 9:08 AM EDT
in MMA News
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PrintPro Elite filed its quarterly report, and it is not pretty. There is a ton of information in the report, and I haven't read the entire thing, but here are the key issues.
They are actively seeking financing: The only word that can really describe their financial situation is "desparate." They need $3 million in financing, and that is just to get to the end of the year. Investors are starting to realize after the failure of the IFL that investing in MMA can be disastrous.
They have lost unbelievable amounts of money: Over a period of 6 months they lost nearly $25 million. In the quarter leading up to June 30, 2008, they lost $18 million. This was the quarter with their big show on CBS.
CBS is barely paying them anything: CBS and Showtime paid them $900,000 for their show in May, and they had to pay $500,000 in production costs to get it. This is cheap programming for CBS, they are not really all that invested in it.
It gets worse than this: This report only covers through June 30, 2008. They surely lost a hell of a lot more on their July show.
To be frank, I think the situation is borderline hopeless for EliteXC. They need serious funding to keep taking these losses, and the only way they can pull out of the hole they are in is to do amazing numbers in October...which would require spending a lot of money in advertising and bringing in big names. Even if shows do a decent number, I do not see light at the end of the tunnel. They will still be big money losers.
As far as Pay Per View goes, I don't see it being a success, even with Kimbo Slice and Gina Carano. By the time they do it in 2009, a lot of the curiosity will be gone, but the even bigger issue is their lack of regular television. They are only doing shows once every three months, it works on a free basis, but we're yet to see that model work on Pay Per View. Even if it does, and the show does 300,000 buys, which I find unrealistic, they still are losing so much money so fast that it wouldn't make up for the losses.
If they do go down,I don't think anyone should dance on their grave. They took a good shot at it, but competing with the UFC may be impossible unless you get a dedicated billionaire willing to give up a significant portion of his fortune to fight them.
Note: Feel free to add anything you find in there of value to the comments and I'll edit it in. Also correct anything if I'm mistaken, this is complicated and dense stuff.
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I agree that it looks pretty hopeless. I think they’d have a chance at success if they could keep going through next year, but they won’t have the money to last that long, and they’d have to market better than they ever have before.
Most of these upstarts in the MMA market fail to recognize the enormous amount of brand equity the UFC has amassed. Even if they can steal their fighters, they can’t steal that branding they’ve done such a good job building.
Strikeforce has the best shot at long-term survival of the current crop of US upstarts, because they seem intent on building their image while keeping their business within bounds.
Yikes, that read was disheartening. Despite lots of criticism directed towards EliteXC, and perhaps Pro Elite in general, I don’t think most MMA fans want to see this ship go down. You’re right, for all their faults in the initial CBS show, they made a bold move. Probably bad timing that Affliction came around when it did.
With regard to the Strikeforce comment above, I agree, and it’s not just about building an image. They’re building an infrastructure of athletes, or maybe depth is a better way of putting it. I read they have the “Young Guns III” event planned, which may be comparable in some ways to the UFC’s TUF, in the sense that it’s a developmental tool. Seems they have vision and a sense of simply working within their own demographic, whereas ProElite and Affliction are trying to compete with the UFC nationally too soon, too fast.
Kind of a sad legacy for MMA if all these upstart companies that bought out others quickly die out.
Its not looking good for Pro Elite. I think the most unfortunate part of this is the smaller regional promotions they bought last year (in an attempt to create their own farm system, or build a tape library for their website, or whatever the reason was) are being going to go down with them.
At this point in the sport’s development, it needs many, many smaller regional promotions where fighters can gain experience and hone their skills. I hope that the story of Pro Elite is learned from by other new promoters, who think they can step in and make a quick buck off the sport.
Rome, thanks for breaking that down, I am not savvy at all when it comes to business. My question, if CBS and Showtime have some significant stake in the company, how come they are not putting a lot of money into it? Dana White looks pretty smart walking from this deal. It seems that their biggest mistakes was purchasing most of them smaller farm systems and not getting any significant results out of it.
Also, don’t mean to get off topic but how much, financially, is Trump backing Affliction. It seems like he just only has his name on it and Affliction is paying him.
by The Bronzeville Bully on Aug 20, 2008 7:19 AM EDT reply actions
CBS...
…doesn’t have a very significant stake in the company. They brought MMA on board for cheap programing in a bit of a low risk/potentially high reward move. If the ship sinks they don’t really lose much.
Contributing Editor - BloodyElbow.com - SBNation's mixed martial arts headquarters.
by Brent Brookhouse on Aug 20, 2008 7:45 AM EDT up reply actions
Or for Affliction. Then when that tanks, Japan. Dana doesn’t want him in UFC and neither do I.
by xFenixKnightx on Aug 20, 2008 8:37 AM EDT up reply actions
Affliction?
Who would he fight? I don’t think they’ll entertain that.
by Blackout612 on Aug 20, 2008 12:50 PM EDT up reply actions
Exactly...
Who is he fighting now? lol
by xFenixKnightx on Aug 20, 2008 1:48 PM EDT up reply actions
Kimbo would get crushed by any top-10
fighter in the LHW or HW classes the UFC has right now. Absolutely crushed.
Can you imagine feeding him to Brock Lesnar? Even the Lesnar haters would have to get behind that beatdown.
There is no such thing as innocence, only degrees of guilt.
You mentioned the problem with having shows every 3 months, and that’s a big one.
I think Elite could make it work, but they really are going about it wrong. They don’t have the depth the have shows as often as the UFC, but when was the last time you saw a UFC show that wasn’t laying the groundwork for the next show?
Every time the UFC has a card, they can advertise ALL of the details about at least the next event, who, where, when, etc.
Elite tried this with the last CBS show by pushing that Kimbo an Gina will be on the next show, but they should have had opponents lined up first. Because of Kimbo and Gina, this will probably do better than the second show, but they are just shooting themselves in the foot if they don’t have at least 2 matches confirmed for the 4th show that they can start advertising at the third show.
Their situation is so bad, that their cost of revenue does not even break even with their total revenue. Their total revenue for the 6 months up to june 2008 is 8.2 million and their cost of revenue for this same time period was 11 million. In other words, in order for them to make 8 million dollars it costs them 11 million to do. This is absolutely terrible.
And it gets even worse… this does not even take into account the operating costs of the company, which ramps up the number that mike talked about earlier, the loss of over 24 million in 6 months.
Another interesting thing i read was that their operating costs for the website were 1.3 million due to “an increase in staffing” (which is, in my opinion, exorbitant considering the quality of their website) and only took in about $250,000.
These guys are losing money hand over fist in every aspect of their operations… I think the majority of their losses is due to high staff and management costs (which they probably needed to lure in execs to ramp up the company, who have clearly showed no success) and ineffective marketing…
$1.3 million in website operating costs?!?!
That’s criminal. I own a website development company, and you have absolutely no IDEA what I could do with $1.3 million in a six month period. No idea.
There is no such thing as innocence, only degrees of guilt.
by misterjonez on Aug 20, 2008 10:03 PM EDT up reply actions
Right there with you
That’s just bad business. They can’t know where they’re putting their money.
by Blackout612 on Aug 20, 2008 11:04 PM EDT up reply actions
I posted a breakdown, on another forum, last night. Here is part of that:
One thing I found interesting was that while they got 900k from CBS/Showtime, it cost them 500k. So Adding CBS brought them only 400k. As I had pointed out at the time of the deal, the actual amount that CBS is paying is little.
Elite actually made more (1.2 million) in the first three months of the year just with Showtime.
As of the end of June, Elite had 3,460, 239 in cash. So Elite has about the same amount of cash right now as they did at the end of the first quarter (3.6 million at that time).
As has been said elsewhere, Elite is looking to secure more financing so they can continue.
Elite will be a leaner company from here on out, with fewer employees. This is not going to make things better all by itself, but will help.
The key for Elite will be using the next CBS show (or two) to build for PPV. It goes without saying that they need to deliver strong ratings for the next one or they will be in critical condition. A poor rating will make it hard to get advertisers to sign on board for a fourth show. Bad ratings and poor advertising revenue would cause CBS to dump them.
What I see as Elite’s biggest problem is they have not built up any stars, nor have they increased the depth of their roster.
Since getting the CBS deal, who have they signed? Nick Thompson and Yves Edwards come to mind. Who else?
The UFC has signed a whole slew of IFL guys (Markham, Gusamo, Wilson, Andy, the Millers, Horwich) as well as folks like Dan Hardy.
Affliction has signed Jay Hieron, Horodecki, Rothwell and Nelson.
Ryan Schultz has gone to Japan.
Strikeforce has even built their roster up more than Elite.
As the IFL crumbled, Elite should have jumped in right away and signed some talent. It would not have cost much and they could have picked up 2 or 3 talented fighters.
So now they have had two CBS shows and there is not one guy that folks are talking about. I am not even saying they should have made a superstar, I just mean a fighter that had folks talking at work the next day.
Right now, Elite needs to look long and hard at the rosters of KOTC, CR and the other smaller companies they own and decide who has what it takes to play on the big stage.
Where I them, I would look at Jason Miller. I think a Lawler/Miller bout could do well, even if it is just on television.
See if Frank Shamrock has any interest in facing Robbie Lawler. I really doubt he would take that risk, but it could garner interest.
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