How the Economic Meltdown Affects MMA

by Michael Rome on Sep 21, 2008 11:55 PM EDT in MMA News

Today Luke spoke about the issue of the economic meltdown and the ways in which it will affect mixed martial arts on MMA Nation. He addressed consumer spending at length, and while that is a concern, I do not think it is the main concern. The main concern for the future of MMA is that it will dry up investment opportunities.

The fact that EliteXC could not get $3.5 million in loans to last the year says a lot. A few months ago they were reasonably confident they could get it. As credit lines freeze up for all but sure things, there will be no investors or venture capital firms pouring money into new MMA promotions. If EliteXC and Affliction go under as fight promoters, it will be a significant amount of time before we see a new competitor emerge. In this way, the credit crisis may actually be a boon to the UFC.

I have many friends that work in Silicon Valley, and I will likely be working there very soon. Talking to people involved with venture capital and investment, things are not pretty right now. Funding is drying up all over, and people are worried. Given the staggering amount that EliteXC, IFL, and Bodog all lost, it's inconceivable that an investment firm will pour money into an MMA promotion any time soon.

Tweet Comment 19 comments | 0 recs |

Do you like this story?

Comments

Yo biz: I did address the investor issue. I just spent significantly more time on the consumer end. I think it’s hard to make people care about other rich people losing money.

by Luke Thomas on Sep 22, 2008 12:21 AM EDT reply actions

I think I may have missed it somehow, did you do 2 segments on it?

by Michael Rome on Sep 22, 2008 12:31 AM EDT up reply actions

I mentioned it in a couple of segments. I didn’t go into it as much as this post, so a post like your’s is quite necessary.

by Luke Thomas on Sep 22, 2008 9:53 AM EDT up reply actions

good analysis…

Capital has been dry and will continue to dry up.

However whenever there is a downturn “entertainment” does well.

Events, Movies, etc…

when depression goes up so does the need for “numbing” (tv viewership, drugs,. alcoahol, movies, events, forum participation :)

by mmalogic on Sep 22, 2008 12:23 AM EDT reply actions

you like how zuffa already started diversifying in overseas markets before the meltdown :)

by mmalogic on Sep 22, 2008 12:25 AM EDT reply actions

It’s true but the meltdown is not confined to the United States. The dollar is still the reserve currency, and the UK’s economy is in even worse shape than the American one. If this economy collapses, the whole world’s will.

And yes, you’re right, fight promotions have traditionally done pretty well during downturns.

by Michael Rome on Sep 22, 2008 12:32 AM EDT up reply actions

I hear you but my estimates don’t show this effect…

The 1929 crash was felt globally – meaning it wasn’t just the US like most people think which gives your point more weight – however:

When the Detroit economy tanked it didn’t do much to the Manhattan economy.

Because of globalization the correction even though big in the US (depression/recession) will be just a correction Globally.

In the 1920’s there was no middle class… what you’re seeing now is a correction where the middle class is being diluted throughout the world – where it used to be just the US.

Consumption was the US and now it’s being diluted throughout the world.

The world is now just New York, London, Hong Kong, Dubai, Singapore, Moscow, Shanghai, tokyo, bangalore etc… That is where the new middle class and rich will be. The poor will be in the rest.

So my point is yes the world will feel it… but global consumption (entertainment, clothing, food, etc) will still be healthy and increase.

by mmalogic on Sep 22, 2008 1:48 AM EDT up reply actions

With the IFL recently going under and Affliction and EXC soon to follow, the UFC is poised to put on the their highest grossing PPV to date. (UFC 91) The current economic state will only serve to further widen the gap between the UFC and everyone else.

by nitro on Sep 22, 2008 12:30 AM EDT reply actions

Talk of the candidate most likely to win the upcoming election pushing for increasing the capital gains tax also does little to help with investment.

Intentional Blog on Balls

by Richard Wade on Sep 22, 2008 1:31 AM EDT reply actions

I don’t know why these politicians don’t use a little more common sense… it’s not like it’s revolutionary or anything.

Hong Kong drops their capital gains taxes and revenues on taxes go up and economy goes up…

And this isn’t an isolated example… ireland, singapore, etc…

America is behind in education, governing, taxes etc… you would think they would start learning from better models.

by mmalogic on Sep 22, 2008 1:36 AM EDT up reply actions

It's a proven effect,

with observational confirmation all the way back to Egyptian economics. If you take a smaller percentage of people’s income, they are (obviously) able to spend more, and it’s always on things which support peripheral systemic growth. Things like exercise equipment and hi-def TV’s are what those rebate checks get spent on, occasionally it’s used to pay down debt, but not often. And those pieces of high-end equipment secure high-dollar job sectors, which in turn solidify revenue streams for their associated enterprises.

I’m not a macro-economist, but I do know that marginal increases in circulating money results in a net gain of taxes received for the affected period. It’s pretty obvious when you think about it it simple terms.

There is no such thing as innocence, only degrees of guilt.

by misterjonez on Sep 22, 2008 3:04 AM EDT up reply actions

You wanna know why America is going down? go read mmapayouts latest post…

It has to be the most idiotic assessment you will ever read.

These are the types of idiots giving advice on wall street – are you still wondering why people are losing money… companies and banks are going out of business?

Proof the American education system is done… kaput.

by mmalogic on Sep 22, 2008 10:43 AM EDT reply actions

The American education system is for those who have money.

People complain about Affirmative Action but no one is complaining about Legacies.

"My job is a decision-making job, and as a result, I make a lot of decisions." --George W. Bush, The Decider, Lancaster, Pa., Oct. 3, 2007

by lovingmma25 on Sep 22, 2008 11:26 AM EDT up reply actions

Are you referring to the “Expanding the Base” article? Adam Swift bias shown through in that article.

First, Swift wrote “The UFC has clearly staked itself as an entertainment brand, while Affliction has leaned more toward a traditional sports promoter. Entertainment/profitability come first, sport comes second.”

For a guy who based his blog on analyzing the business of MMA, he is so off the mark that it’s not even funny. All profesional sports are about entertainment and competition. Only amateur sports are about competition only. Even then, college sports are very much entertainment and revenue over competition. In pro sports, you need to put on fights that people want to pay to see. That is what the UFC has done so well and it is in Affliction’s interest to model themselves after that. Pro Sport is first and foremost in an entertainment business. Adam Swift, the self appointed MMA business analyst fails to grasp this simple fact.

Swift also wrote: “Afliction on the other has spent considerable money to assemble the best available mixed martial-artist, regardless of their potential as draws, with the goal of promoting the best (i.e. most competitive) fights.” Other than Fedor, the so called best are UFC rejects. Arlovski? UFC didn’t resign him. Sylvia? UFC didn’t want him. Barnett? UFC didn’t want him. Lindland? UFC didn’t want him.

Affliction overpaid for fighters that the UFC felt was not worth it based on popularity. They scooped up fighters that the UFC management rejected because they could not draw. Why does scooping up rejects give Affliction the right to claim that they are promoting the best of the best? Other than Fedor, there are nobody there that can be said to be the best anywhere. In business, you don’t take rocks, spark fire and sell tickets to view it. You have to get people to want to see the fire.

MMAPayout can’t hide their obviously bias in their articles and their logic is ridiculously off. I’ve stated before that I think they’re mostly Sherdog fanboys with a business degree. My opinion of them hasn’t change one bit.

by cyph on Sep 22, 2008 1:05 PM EDT up reply actions

He also wrote: “The bottom line is that at some point, MMA’s audience has to become more than just 18-34 white males if the sport is going to fulfill the aspirations of its proponents.”

New sports have to grow their audience. In 10 years, the 18-34 demographic becomes 28-44. In twenty years, that demographic becomes 38-54. This demographics will have families who becomes life long fans. New sports don’t grow over night. The NFL and NBA took 50 years to catch on. the UFC will not be able to gain the older demographic because their values and opinions have already been ingrained in them. New sports have to grow them over time. Rock and Roll did not catch on with the 30-50 crowd until the 1970’s when the kids of the 50’s grew up.

by cyph on Sep 22, 2008 1:10 PM EDT up reply actions

Brother Cyph I hope it’s bias because if it’s the apparent stupidity that it reeks then I feel truly sorry for them…

To add to your points:

First he ASSumes both affliction and UFC has a “base” ala the Mcain Obama comparison…

If affliction really had a base why did they cancel their second show?

Secondly and this is where most of his foolishness comes from: he says: “the MMA base of 18-34”

MMA has no base… That’s the UFC’s base. When will these morons learn.

And thirdly: They should be kissing zuffa’s ass no matter what “business angle” they are taking because Zuffa is the only org that is making money and consistently putting on quality shows and consistently paying fighters, AND making it feasible for them to have their 25 cent blog.

Tell this doogie howser look alike that he is riding the UFC wave not his imaginary MMA wave.

by mmalogic on Sep 22, 2008 1:22 PM EDT up reply actions

Another serious annoyance is that they act like Affliction is promoting those guys because they are sport first, entertainment second, while ignoring the plain and simple fact that those guys are the only guys they can get to promote. You work with what you can get, not with what you want.

by Michaelthebox on Sep 22, 2008 3:33 PM EDT up reply actions

While the “credit crisis” is and will continue to be tough on MMA promotions, I don’t think it will the the primary cause of failures. The mainstream media has ramped up coverage of the credit situation recently, and things are now coming to a head with the government getting involved to bail out some of these financial institutions with exposure to mortgages that should have never been written in the first place. This is actually something that’s been going on for months. What’s unclear is if the situation will get significantly worse. I agree with Rome in that the problem will be for promotions looking for financing. I don’t think EXC’s potential failure has all that much to do with this scenario. Their demise may simply be accelerated.

The issue that I would be more concerned about in regards to consumer demand for MMA is price inflation. This has also been at work for quite a while as evidenced by price increases in commodities such as oil and gold – as well as lax lending by bankers. While this seems to have reversed a bit, government involvement in the credit arena has shaken things up further. I don’t want to get into this much further, because I’m afraid I’ve already bored potential readers to near death. In short, a choice between fueling your vehicle or buying a PPV is one that an MMA promotion should fear. Up to this point, it hasn’t seemed to affect the UFC much. I’m interested to see how the higher ticket prices for the Lesnar/Couture event will work out. Price increases on everyday goods have a tremendous affect on disposable income. This impact , in my opinion, is more direct than tighter credit.

by Cannon Jacques on Sep 22, 2008 10:14 PM EDT reply actions