clock menu more-arrow no yes

Filed under:

UFC background check: Former PRIDE CEO Sakakibara ‘not a person of suitable character’

New, comments

Bloody Elbow has obtained two key sections of the UFC’s PRIDE background checks, and one is on current Rizin Fighting Federation CEO Nobuyuki Sakakibara.

Akihito Tatematsu, MMA-in-Asia.com

How did you feel back in March 2007 when the UFC bought PRIDE? How about a few months later when it shut PRIDE down? While everyone misses PRIDE events themselves, opinions on the UFC's purchase sometimes vary depending on what people know and who they believe.

We know from Sherdog and FightOpinion articles that the UFC claimed the refusal of former PRIDE key personnel to cooperate with reasonable background checks, and sometimes their obstruction of such checks, necessitated a Notice of Breach issued on Aug. 22, 2007.

The due diligence background investigations were performed by Spectrum Gaming Group, LLC, and court documents over the years have provided snippets of the findings for key employees and vendors of Dream Stage Entertainment (DSE), then-owner of PRIDE. Today we move past snippets, as Bloody Elbow recently obtained two sections of Spectrum's final report to the UFC, a general overview section and the section dedicated to Nobuyuki Sakakibara, former CEO of DSE and current CEO of the new Japanese MMA promotion Rizin Fighting Federation.

PRIDE Purchase

According to court filings by Sakakibara, the process of PRIDE's purchase began as early as February or March 2006 in meetings with UFC President Dana White. By June 2006, Sakakibara alleges that UFC CEO Lorenzo Fertitta offered, "I will write a check now if the purchase price is $25 million dollars," which Sakakibara refused.

Following more meetings with the UFC in 2006 and what Sakakibara claims were other "various offers to purchase PRIDE," a Letter of Intent was allegedly signed with the UFC on Jan. 15, 2007 followed by an Asset Purchase Agreement on Mar. 27, 2007.

The transaction was completed with a Closing Slide Letter on May 24, 2007, the same day Sakakibara and his company, Ubon, also executed a consulting agreement with UFC subsidiary Pride FC Holdings to run through May 24, 2011. Somewhere around the March to May timeframe, Sakakibara also agreed to a seven-year non-compete clause.

The transactional money flowed from three documents: The asset purchase, consulting, and non-compete agreements. According to Sakakibara court filings, the final amount deposited into escrow for the asset purchase agreement was $3.7 million (following price reductions for fighter waivers, the inability to obtain some fighters' consent to UFC assignment, and "the general reduction in the value of the PRIDE brand based on the delayed Closing as a result of the Selling Parties' inability to satisfy all conditions to Closing and other Assets not being delivered to Purchaser as originally contemplated by the [LOI]."

The same court filings also state that on May 26, 2007, Sakakibara was paid $9 million for the non-compete agreement and $1.5 million for an immediate payment required by the consulting agreement. According to the filings, the UFC was to then make "forty-eight (48) subsequent monthly payments for the term of the Consulting Agreement."

Precise dollar amounts of the claimed 48 subsequent monthly payments are not mentioned. If all those 48 payments, as Sakakibara asserted, were also for $1.5 million the total effective purchase price of PRIDE would have been $86.2 million. While it seems unlikely the monthly payments would ever increase, it's possible they were scheduled to decline in value over time and end up closer to media reports of an initial $70 million purchase price.

According to Sakakibara, the UFC made the immediate consulting payment in May and the first three monthly payments through August at which point all future payments stopped "because [Pride FC Holdings, Zuffa and the Fertittas] are not satisfied with the results of an unprofessional and reckless investigation and background check by the Spectrum Group regarding Sakakibara."

Prior to the deal, media articles had already been written about Sakakibara's possible connection to organized crime in Japan, but the final background check report identified even more concerns. Here are the key findings along with the full document below.

Spectrum Background Checks

The following information is based on contents of the Spectrum Report obtained by Bloody Elbow. Sakakibara has disputed the results of Spectrum's investigation, calling it "reckless" and "unprofessional."

According to the report, investigators began running into problems almost immediately. "...it quickly became apparent that all of the Directors were reluctant to cooperate with the Due Diligence process. A number of incidents occurred ranging from Directors stalling or failing to provide relevant documentation to their refusing to answer questions, being untruthful during the interview process and even verbally abusing Spectrum staff."

Sakakibara was asked to complete a Personal History Disclosure Form (PHDF), which he allegedly submitted 24 days late with none of the requested supporting documentation. As CEO he was also asked to complete a Company History Disclosure Form (CHDF), but declined.

Sakakibara is described as the "least cooperative and most obstructive" of all company Directors. In Spectrum's view, his initial interview was "unsatisfactory in terms of [Sakakibara's] co-operation with the investigation" and after two follow-up interviews, Spectrum alleges Sakakibara had still failed to provide a PHDF, failed to complete a net worth statement, failed to disclose full details of personal and company loans, failed to disclose full details of tax anomalies, failed to disclose full details of his interests in other entities, failed to disclose all relevant civil litigation, failed to provide a full and accurate account of his business involvement with KK Ubon and KK Three Two One, and failed to submit a CHDF for DSE (i.e., PRIDE).

While investigators couldn't find any collaborating evidence of Sakakibara's alleged ties to organized crime, his behavior raised red flags. One year earlier, the Japanese tabloid Shukan Gendai had published a series of stories alleging DSE connections to organized crime and more articles later emerged about Sakakibara's alleged personal involvement. To Spectrum, "...[Sakakibara's] apparent inaction after repeated publication of the articles together with his lack of co-operation with this investigation lead us to believe there may be some validity to this information."

Sakakibara's ownership interests in entities related to DSE also caused concerns. Investigators discovered that Sakakibara owned 91.65% of DSE, 100% of KK Ubon, and 95% of KK Three Two One, and he didn't initially disclose his interest in the latter two companies. Spectrum had cause to believe that both KK companies were DSE vendors, which to Spectrum created "clear conflicts of interest" that "failed to observe the norms of corporate governance."

Another red flag arose with KK Three Two One when Sakakibara - the 95% owner - apparently claimed that he didn't even know the food trading company's major clients.

The Spectrum Report also identifies Mr. Yuji Sone as a former DSE in-house accountant who "suddenly resigned" when the investigation commenced on Apr. 17, 2007. Yet, according to the report, Mr. Sone was in attendance during all three Sakakibara interviews, still had full access to all areas of the DSE office, and was asked to retrieve financial documents by Sakakibara. Eight days later when asked to complete a PHDF, "...he denied being employed by DSE, denied being an independent contractor or vendor, and denied having any business of his own. He also refused to complete the PHDF. It is interesting to note that in the Corporate Records for DSE, Yuji Sone was listed as a Director and also the Liquidator of the company up until the company was dissolved on April 17, 2007..."

According to Spectrum, Sakakibara wouldn't even tell investigators his residential address or the make and model of his car. His financials are described as "questionable" and after having his 2004 and 2005 tax filings questioned by Japanese authorities, second filings were discovered to have "a much higher gross income..."

After months of investigating, Spectrum closes its report on Sakakibara with the following remarks and recommendation.

"[Sakakibara] has failed to co-operate with this investigation to the extent that he has demonstrably not acted in good faith. Important documents have not been supplied or only supplied as unverified extracts or copies. The investigation has been further hindered or obstructed by his failure to provide information and documents in a timely manner. [Sakakibara] would not provide clear answers to multiple questions, including innocuous issues such as his present residence and car brand.

"This investigation did not find any evidence of [Sakakibara] being a known or registered member or any Organized Crime entity. However, his alleged collaboration with Organized Crime entities published in the Japanese media has thus far gone unchallenged by [Sakakibara] despite the seriousness and repetition of the allegations in numerous publications over an extended period (more than one year). He has never filed any libel suits against the publications or the authors, or gone out of his way to deny the allegations publicly, apart from at one press conference (held for other purposes) on June 8, 2006.

"Moreover, [Sakakibara] appeared not to have any concern or understanding of the clear conflicts of interest that are inherent in his ownership of KK Ubon, a DSE vendor, and KK Three Two One, a company set up apparently to supply goods or services to DSE.

"As a result or all of the aforementioned issues, we have been forced to determine that [Sakakibara] is not a person of suitable character.

Recommendation

"Based on this investigation, it would be difficult to recommend [Sakakibara] as being suitable."

Some have questioned why the UFC waited until after the PRIDE deal closed to initiate background checks, but it's possible company execs had this exact scenario in mind when structuring the deal. One could imagine a plan where the UFC locks up PRIDE's assets immediately and is willing to let a court battle determine how much Sakakibara will eventually be compensated for the consulting agreement should he not pass his background check at a later date. A background check prior to closing could blow up the entire deal.

Just this week, the UFC submitted a court filing in its antitrust lawsuit which appears to corroborate the promotion's advanced knowledge of a low level of due diligence prior to closing the PRIDE deal. The privilege status of a Jan. 2007 e-mail sent from a UFC attorney to company executives is currently under dispute. The e-mail allegedly reports on PRIDE negotiations and, according to the filing, refers to the UFC attorney's "understanding of confidential information Zuffa shared with its attorneys to obtain legal advice as to at least both [REDACTED] including explaining his understanding of why his firm ‘set a low threshold of diligence before the [PRIDE] deal became binding on both sides.'"

Regardless of why the PRIDE deal was structured a certain way, the UFC (through Pride FC Worldwide) sued Sakakibara for fraudulent misrepresentation in 2008. Sakakibara countersued the UFC in state court and sued them in federal court, then separately sued Spectrum for good measure. According to court filings, Sakakibara received $10.5 million for the non-compete agreement and the immediate payment of the consulting agreement. He also allegedly received three more monthly consulting payments, "a significant portion of the purchase price" held in escrow, as well as whatever payments may have been a part of final settlements in the lawsuit bonanza.

In a different world, would the UFC have maintained PRIDE as a separate entity? We'll never know, but it seems clear that Spectrum investigators had genuine concerns about Sakakibara's character and suitability to serve in a business relationship with the Fertitta brothers and the UFC.

Many more details are contained in the two available sections of Spectrum Report, the full contents of which can be read here. The general overview starts on p. 1 and Sakakibara's section begins on p. 14.

Paul is Bloody Elbow's analytics and business writer. Follow him @MMAanalytics.