More on the Financial Struggles of Upstart MMA Promotions

Fronted by Luke Thomas.

A financially viable business is certainly much easier to outline than it is to accomplish.  With this in mind, it should be no surprise that a number of would-be competitors to Zuffa, and its dominant UFC brand, have failed to make a lasting mark on MMA's promotional scene.  Sam Caplan gives his recommendations for potential MMA promoters in an article up at CBS Sportsline.  Some of the recommendations are solid.  However, there are some points that I have to disagree with.  This is Caplan's take on necessary funding:

 If you want to compete with the UFC, have a bankroll of at least $50 million: The IFL started after an initial raise of approximately $10 million. They'd go on to raise approximately $20 million more through public stock purchases and private raises. But they needed to have all the money in the bank before beginning full-time operations as opposed to trying to accumulate funding over time. If your promotion only has $10 million in the bank, you can run a high-profile regional promotion that is a tier below the UFC, but that's not going to cut it if you want to be a major national promotion.

In order to be a major national promotion, you need multiple stars. You need a good staff. You need a large marketing campaign. You need to be prepared to take initial production losses when it comes to live events and TV. If you aren't properly funded and you try to go toe-to-toe with the UFC, you're going to be gassed by the end of the second round.

If your goal is to immediately compete with the UFC, you may be experiencing some level of insanity.  The UFC's most valuable asset, in my estimation, is its brand.  More people are familiar with the acronym UFC and the term "ultimate fighting" than the term Mixed Martial Arts, or MMA.  This is an enormous hurdle for any promotion looking to go head-to-head with Zuffa.  There is no brand name out there that rivals the UFC within the context of MMA.  In other words, a brand has to be built from scratch.  That's a process that takes time.  While a war chest brimming with cash will definitely help the process along, the promotion still has to gain the attention and trust of the paying public.  The UFC has obtained their standing over the course of years.

A more workable strategy would be to start off on a smaller stage, incrementally building the promotion's stature and roster.  If you were getting into the newspaper business, would you expect to compete with USA Today or The New York Times right out of the gate?  My point isn't to draw analogies between MMA and other industries, but to emphasize how unrealistic it is to start at the top.  If a prominent place in the MMA landscape could simply be bought, the number of promotions would be too numerous to count.

Here's another recommendation to chew on:

Do not go public: It's easier to fund a company through public financing as opposed to only having private channels available. But perception is everything, and it's hard to recruit fighters and gain traction with fans if they believe your company is nothing more than a fly-by-night operation. Nobody wants to invest emotion into something they don't think has a chance to last. As hard as the IFL tried to convince the media otherwise, everyone knew they were on their last legs simply by looking at their SEC filings. And as much as EliteXC would like to downplay its problems, it's hard for them to do it with a straight face when they publicly warn investors that they do not have enough capital to survive into next year.

Just about any new company in any industry is going to go through growing pains. Everyone in MMA talks and this industry is transparent enough. You don't need a bunch of amateur junior business analysts blogging about your every business decision. The UFC looks like a bunch of geniuses because as a private company, they control what the public does and doesn't know about how they operate.

As much as I respect Caplan and his knowledge of the sport, I find this excerpt ridiculous on so many levels.  First off, I'm sure if it were possible for an upstart MMA promotion to acquire the funding necessary to operate without going public they would.  The requirements for public companies are much more stringent than those facing private firms.  These requirements are there for the benefit of investors.  Because some amount of transparency is provided, the pool of potential of investors is increased significantly.  Going public is often more a necessity than a choice.  Without this option, I have my doubts that ProElite or the IFL would have ever existed.

Secondly, what long-term good is achieved by keeping your financial struggles hidden from potential employees, the media, and fans?  Sometimes perception is reality, but sometimes the reality is that lack of funding will lead to death.  I'm much more comfortable with SEC filings than rumors regarding financial strength.  A well constructed facade will not appease investors and creditors, and without funding from these groups, the promotion lacks the fuel to run regardless of public perception.

Lastly, do these so-called "junior business analyst" bloggers have the clout to do significant damage to a multi-million dollar MMA concern?  Companies like ProElite provide the ammunition for bloggers to write about.  We're not talking about malicious rumors here; we're talking largely about verifiable facts.  Is it better to ignore their financial struggles?  I think not.  Referring to the financial difficulties of ProElite, the IFL, or Affliction as "growing pains" is vastly downplaying the importance of having the necessary funds to operate.  The only people responsible for the financial trouble of these promotions are the executives making the decisions at each firm. 

In the end, decisions regarding the execution of the product in question are the most important elements of any business.  MMA is no exception.  If the business falls short in this department, no amount of restructuring or image manipulation can make the business viable.  Of course, that's just the opinion of a want-to-be "junior business analyst."

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