FanPost

The UFC's Profitability and How to Fix Fighter Pay

I want to start by breaking down how much the UFC currently pay fighters, how much they make, and how much profit is paid out in dividends to Dana White, Lorenzo & Frank Fertitta, and Flash Entertainment.

UFC Income & Profitability

As of 2011 the UFC paid approx $45million to fighters. Some estimates have that as high as $65 million. Due to the obfuscating nature of how much the UFC pays out in PPV revenue and discretionary bonuses, it is hard to get an exact figure.

What we do know, is Lorenzo Fertitta said that between 2005 and 2012, the UFC paid out ‘Over $250 million‘ to the fighters. A figure of $45 million (A down year compared to the previous year) makes sense in that regard, and fits perfectly with Lorenzo’s given figure.

We also know that the UFC is very profitable. According to credit rating agency Moody’s, the UFC had a debt-to-EBITDA ratio of x4.6 in 2012, on debt of approximately $510 million. What this means is the UFC’s EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortizaion) was roughly $110m.

Moody’s reports that in 2011, the ratio was x3.3. According to Standard & Poors, the UFC’s debt at the end of 2011 was roughly $475m, which puts 2011′s EBITDA at roughly $145m.

The UFC’s EBITDA generally ranges from between 20% and 30% of revenues. The monetary amount of EBITDA is generally between $100m and $160m, from 2010 to 2012 inclusive.

When we take the UFCs interest payments, Amortization, etc. into account, the amount paid out in dividends each year is likely in the $70-120m range. Both credit rating agencies have noted at various times that the UFC have a habit of paying out as much as possible in dividends, rather than reduce their debt. In fact, a large portion of Zuffa’s debt comes from a special dividend payout estimated to be $199million in 2007.

Dividends, for those who do not know, are profits paid out to shareholders. In this case, the shareholders are Dana White (estimated 9%) Lorenzo & Frank Fertitta (Estimated 40.5% each) and Flash Entertainment (Estimated 10%). That means each year these men/companies receive an average of $100m split between them.

How does that compare with what they pay the fighters? Well, the entire roster of fighters combined makes about half of what the shareholders do each year. Lorenzo Fertitta himself likely makes as much as every UFC fighter combined.

That’s not necessarily a bad thing, you understand. Lorenzo and Frank took a huge risk with the UFC, put up a lot of capital, and for a while it looked like they would lose a lot of money. It’s right that they should receive significant compensation for that.

Problems With Fighter Pay

Where my issue comes in, is how little lower tier UFC fighters are paid. The starting pay for a UFC fighter, as of January 2013, is $6,000 to show and $6,000 to win. On average, a UFC fighter will fight twice per year. In 2012 there were 341 total fights, meaning 682 spots. The roster was approx 350 fighters. 682/350 = 1.94.

That means a fighter who comes in and loses his first fight, then wins his second fight, will make $18,000. That’s not a great starting wage, but it’s just about enough to live on, right? Now lets examine fighter costs. A fighter will generally pay out approx 15% of his income to his manager. Now he’s down to $15,300. He also has to pay for his camp. At the UFC level a 3 month camp will generally cost an absolute minimum of $2,000. He’s had two camps, so now he’s down another $4,000. He’s at $11,300 now. The UFC only pays for one corner man, and one hotel room so he had to fly out and pay for a hotel room for his other two corner men for those fights, so he wouldn’t be at a disadvantage. There goes another $3,000.

So now our fighter has $8,300. That’s before he pays for pre-fight medicals, any taxes etc he owes. Could you survive on $8,300 a year?

What if our fighter had lost both of his fights? Well, he would have made $12,000, and after expenses he would be down to $3,200 to live on for the year. Ouch.

Lets examine the third possibility, a guy who comes in and wins both of his fights. Typically, the UFC will bump your contract up by $2k to show/$2k to win after a victory at this level. So our guy wins his first fight and gets $12,000. He then wins his second fight and gets $16,000. He’s undefeated and made $28,000 that year before expenses. After expenses he made $16,800 before taxes. I should also point out that some fighters claim they pay out even more than this. If you have an agent you can expect to lose another 10% of your pay, for instance. You also need to pay local taxes if you fight in foreign countries. I also did not factor in equipment costs or nutrition costs.

Now, I don’t know about you, but if I’m 2-0 in the UFC, and undefeated, I’d expect my guaranteed pay to leave me with more than $16,800 for the year.

At this point, I want to come in and note that the UFC regularly pay out discretionary bonuses. From the fighters I have spoken to, at this level $5,000 is pretty much what you can expect your bonus to be, and unless you put on a bad fight, you’ll get one more or less every time. With that in mind, our guy was probably sitting on closer to $25,000 for the year. The UFC are not required to pay this, however, and the fighters cannot rely on it. Fighters at the top will sometimes receive much larger bonuses, but it’s rare for a guy not on the main card to get a bonus over $5,000.

There are also "Of The Night" bonuses, however 70%+ of those go to main card fighters, so it’s very rare for an entry level fighter to receive one.

Still think fighter pay is fine? Chris Weidman, the new UFC Middleweight champion, was only guaranteed $24,000 for his latest title fight with Anderson Silva. $48,000 if you include his win bonus. Here is an undefeated fighter, competing for a title against the greatest fighter of all time, and if he loses he is only guaranteed $24,000.

Again, I have to point out that it’s almost certain the UFC would have paid him significantly more than this, but they wouldn’t have been required to. If they chose not to, he would have had no recourse.

How To Fix Things

Firstly, what do I mean by fix things? I mean ensure every fighter on the roster can afford to train full time, to reach his maximum potential, without worrying about being able to pay his bills. Whether or not the UFC pay their top fighters enough is a completely different argument, this is purely about the bottom 70% or so of fighters.

Step 1) Guaranteed contracts. If a fighter knows he will get at least 3 fights in the UFC, he can plan ahead a little. It also lets him fight in a more exciting way, because he knows if he loses, he’s not going to be cut on a whim. Currently the UFC can cut any fighter after any loss.

In addition guaranteeing fighters that they will be offered a minimum of 2 fights per year. This isn’t something the UFC typically have an issue doing, but putting it in writing can’t hurt.

Step 2) Raise the minimum to $20k/$20k. This would cost the UFC, at most, $6.6million per year. That’s approx 1.25% of overall revenue. The UFC currently pay out significantly more than this each year in discretionary locker room bonuses.

At a minimum of $20k/$20k the average fighter would make $60k a year before expenses, and roughly $40k a year after basic expenses. $40,000 a year would let fighters be comfortable enough to not require a second job.

Step 3) Pay for flights & rooms for 3 corner men per fight, instead of one. This would save fighters thousands of dollars per year – money they currently have to pay if they don’t want to be fighting at a disadvantage against local opponents. This would cost the UFC approx $1m per year.

Step 4) Pay fighters a training stipend. Work out the cost of a basic camp (I’ve estimated it at $2,000 for lower level guys) and pay them that up front as a stipend. This would cost the UFC about $1.35m

Cost Of Fixing Things

So, what is the overall cost of all of these changes to the UFC? Roughly $9 million. That’s under 2% of their overall revenue, to ensure all fighters can train full time and fight to their maximum potential. It’s less than the UFC makes from one average Pay-per-view event.

That $9 million is about 10% of what the UFC pays out in dividends on average. The UFC could change the lives of their 300 bottom fighters by giving Dana, Lorenzo, Frank and Flash a 10% ‘pay cut’.

As Dana himself pointed out recently, "This isn’t a long-term f****** job … This is a f****** short-term gig … You have a window of opportunity that’s about this big, if you’re lucky."

With that in mind, how crazy is it that we’re still campaigning in 2013 for guys to make enough money to live on year to year, let alone have enough to save or invest for the future?

Sadly, Dana generally refuses to acknowledge the issue, either resorting to insulting the people who bring the problem up, or misdirecting, by suggesting that the average fighter is making $50k/$50k and fighting three times a year. He recently tried to compare the UFC to the MLS financially. When I broke that down, it turns out the MLS pays out a higher percentage of revenue to players, a higher dollar amount to players, and a higher dollar amount per head to players.

I’ve yet to find a sport the UFC’s payout model compares favorably to.

What’s your take on it? Do you think the UFC pay structure is fair, or do you think paying an extra $9 million per year to ensure every fighter can train full time is a worthwhile cost?

Notes

I deliberately did not cover sponsorship pay in this article for two reasons. Firstly, it’s not an expense for the UFC, in fact, the UFC make money from fighter sponsorships. Any company wishing to sponsor a UFC fighter first has to pay a fee to the UFC, which is in the $50,000 a year range. The article is focused on making certain fighters can afford to fight, not on optional extras that may or may not be available to them.

Secondly, sponsorship income ranges massively between fighters and any sort of blanket average would be impossible to accurately estimate at the moment. I hope to go into the current state of sponsor pay in a future article. Suffice to say fighters make less from sponsorship than most people expect, and even the most well known clothing companies bounce checks.

\The FanPosts are solely the subjective opinions of Bloody Elbow readers and do not necessarily reflect the views of Bloody Elbow editors or staff.

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