Can Dana White and HBO work out a deal that would potentially make the UFC a dominant force in the subscription market? (Photo by Michael Cohen/Getty Images)
The UFC is heading into a murky business climate as we head into the latter half of 2011. With an existing television deal with Spike TV expiring in early 2012 and proof that the network is still the known home for the UFC's brand among fans, the decision to move may have gotten a lot tougher. Fortunately for the UFC, more options are sprouting up across the landscape, the most recent being HBO after reports surfaced that HBO Sports President Ross Greenburg would be departing from the position within a week.
Our own Brent Brookhouse explained the history of the relationship between HBO and UFC in an article this past weekend, setting the tone for what could potentially result in a long-term deal with the channel. In a nutshell, the UFC and HBO were close to a deal in 2007, but HBO Sports President Russ Greenburg was one of the strong opposing forces against bringing mixed martial arts to HBO. He was able to get his wish, but a history of monumental failures brought his reign to a close:
Under Greenburg and Davis, the product had stagnated and HBO had their share of embarrassing moments. A(n admittedly important) fight between Timothy Bradley and Devon Alexander in February was pushed by HBO with massive investment only to draw horrible ratings and only drawing slightly over 6,000 fans when hoping for somewhere around 15,000. It was a moment of violent disconnect between the network and what interested the casual boxing fan.
An inexplicable desire to bend to the wills of Golden Boy Promotions and boxing manager Al Haymon led to tons of safe fights for big stars and schedule that didn't hold interest at many points to the casual fan.
But there is likely nothing that represented as big of a nail in the coffin of the men in charge as Manny Pacquiao bailing on HBO for Showtime. An uninteresting schedule, money poured into fights like Bradley/Alexander and losing the biggest star in the sport was not a recipe for longevity for the men in these positions.
What does this all mean?
Well, for starters, it means that HBO realizes that it needs a change. The game that they're playing is not working. HBO bragging about 1.5 million viewers tuning in for fights like Andre Berto vs. Victor Ortiz isn't bad, nor is it the sign of a dead sport. But it certainly is a sign that the sport has declined from the Lennox Lewis vs. Vitali Klitschko days of drawing over 7 million viewers on the very same network in 2003.
The most relevant question being asked is whether this signals an opening for the UFC to take a spot on the combat sports line-up on HBO. Major changes are going to happen, and it's up to the executives at the UFC and HBO to iron out a deal that will please both sides. We all know what the UFC will be asking for in terms of production. Full control. But will HBO be willing to do that?
This could be the opportunity for the UFC to dominate the subscription-based channel market. Strikeforce as a secondary brand will fill the void on Showtime while the UFC would own HBO, bringing in revenues from the rights fees. The issue that will need to be carefully worked out is how much the UFC would receive from HBO. Obviously, HBO would be looking for quality, ratings drawing cards, and producing those events would take away from the UFC's pay-per-view revenues. The idea would be to make up or surpass the revenues generated from those missing pay-per-view cards, and HBO's higher subscription rate could do that if the fees are right.
The other interesting issue is the dominance, overall, of the television landscape by the UFC. They are in a prime position at this moment to gain more revenue from suitors looking to add the UFC to their line-up. The alternative to re-upping a deal with Spike TV has been the possibility that the UFC would purchase controlling interest in G4 TV. With rumors that Spike TV is paying roughly $35 million per year in television rights to the UFC, it's hard to imagine the UFC generating that kind of revenue on a new channel that reaches less households. Furthermore, reports surfaced that it would take upwards of $600 million to buy that controlling stake in G4. What exactly does the UFC gain from such a deal?
It is obvious that the UFC has confidence that their product will resurrect G4 from the basement of cable television, hopefully allowing the network to regain a spot on the DirecTV line-up and likely fueling a higher charge for the channel. The more enticing benefits are that the channel is owned by Comcast/NBC, thus allowing the UFC to have access to the valuable resources of a television giant. History also suggests that it could be a true revenue machine as other professional sports teams have done the same successfully. The only difference, however, is the sports teams who have been successful have been in incredibly large markets and teams that draw fans both locally and nationally. The UFC does the same, only on a smaller level.
Historically, the UFC has helped smaller channels gain huge ground in terms of viewership. Look what the UFC did for Spike TV. So, it makes sense that the UFC sees a takeover of G4 TV as a potential cash cow. In the short-term, the deal has the makings of a bust, especially if the UFC is set to pay back a $325 million dollar loan in 2015. But in the long-term, there are key benefits to such a deal that could snowball into increased revenues for the UFC.
One of those benefits is the fact that the UFC would have a tremendous means of advertising their product. Fans have speculated that G4's lacking viewership and household presence would hurt their pull, but that's bound to increase with the UFC's inclusion on the network. How much it will increase is a great question that only time will tell. There is, however, the added resources of sitting under the Comcast/NBC umbrella as a controlling company of a channel they own. More advertising across the network of channels, more leverage in advertising talks, and the possible inclusion of more prominent sponsors is a start. Those factors could make a deal much more logical despite the large price tag.
Other players lurk in the shadows, which could raise the price for the UFC's brand. TNT and FOX have been rumored suitors of such a deal and the only true alternatives that have been rumored to be shopping for cable television deals are Bellator and ProElite. Bellator isn't exactly shopping however. They are more of a pawn in Viacom's pocket with the ability to move into the UFC's spot as a replacement if the UFC chooses to jump Spike TV's ship. ProElite, on the other hand, isn't. But it's hard to fathom the promotion making any waves in the television market without any proven data on the benefits they can bring to the table. Andrei Arlovski isn't exactly bringing in a million viewers.
HBO opening its doors to a potential deal truly gives the UFC the opportunity to dominate the mixed martial arts landscape for years and years to come. While I'm skeptical whether a stake in G4 TV is the right move, I'm intrigued to see what the UFC has in store for it if they happen to pull the trigger on the deal. HBO is a tougher nut to crack, and my initial thoughts were that they would likely scoff at the idea of giving up production control. But they've fallen on hard times in the combat sports game, just enough to make concessions on issues they would normally not concede. Are we on the brink of having the UFC on four or five different channels? If so, the UFC may be setting itself up for record-breaking profits over the next five years.