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The Diminished Oligarch: How a Dagestani billionaire’s arrest will impact Russian MMA

Karim Zidan delves into the Kremlin’s decision to arrest Summa Group and Fight Nights owner Ziyavudin Magomedov on charges of embezzlement, and how this will impact Russian MMA moving forward. 

Eagles MMA

On Saturday, March 31, Russia’s Ministry of Internal Affairs announced that Ziyavudin Magomedov, the owner of Summa Group and one of the richest men in the Russian Federation, was arrested and charged with embezzling over 2 billion rubles ($35 million +).

According to Irina Volk, a spokesperson for the ministry, an investigation is being carried out to determine whether Magomedov embezzled money during the construction of a World Cup stadium in Kaliningrad, which his Summa Group company won the rights to build in 2014. Volk added that Magomedov was arrested along with his brother and co-owner, Magomed Magomedov, and charged with the “organization of a criminal community,” fraud, and embezzlement. The location of the stolen money is yet to be determined, though the prosecutor believes it is being kept in offshore accounts.

If deemed guilty, the brothers could face up to twenty years in prison.

A report from Kommersant revealed that investigators began to suspect Magomedov as early as 2014 when his company took over the initial construction of the World Cup stadium. Reports suggested that the quality of material used was questionable and did not meet the technical standards in place, and that several investigations were launched at the time. However, it was only in 2018 that investigators felt confident in the criminal case they had developed.

Following their arrest, both brothers appeared at a pre-trial hearing at the Tverskoy District Court in Moscow, where they vehemently denied the charges. “It would be strange to steal from yourself,” Magomedov said during the hearing.

The judge rejected an offer from the oligarch to pay a $35 million bail bond, and ordered him detained until May 30. Magomedov’s legal team plans to appeal the court’s decision.

Ziyavuidn Magomedov’s arrest on Saturday marks one of the highest-profile arrests of a Russian oligarch in years, and has left many wondering about the ramifications it will have on Summa Group and the various major investments the billionaire is involved in. His Caspian Venture Capital fund holds investments in Uber, and is a co-executive chairman of the technology firm Virgin Hyperloop One — a company chaired by Richard Branson.

Magomedov is also an avid sports fan who has invested significant sums into Russian mixed martial arts. He is the co-owner of Fight Nights Global, one of the most successful and popular promotions in the country. He also founded the Eagles MMA fight team, which UFC star Khabib Nurmagomedov is currently president of. Given his pivotal contributions to the development of the sport in the region, his potential incarceration could bring about significant long-term change in the sport.

Understanding the potential ramifications begins by analyzing how sports culture is a means to an end in Putin’s Russia.

Finding Fedor

Born and raised in Dagestan, Ziyavudin emerged from a troubled childhood on the streets of Makhachkala to become one of the republic’s most prosperous businessmen. According to Forbes, he is the chairman of Summa Group, a “conglomerate invested in port logistics, engineering, construction, telecommunications, and oil and gas.” His estimated wealth fluctuates, but was recently estimated at 1.2bn.

Summa Group prospered during Dmitry Medvedev’s presidency. During that time, Magomedov’s net worth rose to $2.1 billion and peaked at $3 billion in 2011. Medvedev, who was interested in establishing new oligarchs and contacts loyal to him instead of Putin, offered Summa Group hefty state contracts that helped the company flourish. In a matter of years, Magomedov was elevated from a local Dagestani merchant to Russia’s oligarch class.

Ziyavudin Magomedov Wikicommons

However, Putin’s return to power in 2012 brought with it significant changes for the oligarchs who benefited from Medvedev’s term as president. In an attempt to purge his government of those with questionable loyalty to him, Putin removed three of Medvedev’s ministers, including chief of staff Vladislav Surkov, from their positions. Once the ministers were removed, Putin focused on the businessmen who flourished during Medvedev’s reign.

Magomedov’s Summa Group was one of the political casualties of Putin’s reshuffling. His fortune had dropped to $800m by 2013.

It was here that the Dagestan-native decided to rethink his strategy. In order to regain influence in a Putin-run Russia, he had to shift his strategic investments to fit Putin’s preferred model of sports as a tool for diplomacy. He started with a failed attempt to purchase a portion of the UFC before eventually settling on local Russian promotion Fight Nights Global. Within a year of investing in the promotion, he was able to contract Russian legend Fedor Emelianenko to headline Fight Night’s 50th show.

According to sources who spoke to BloodyElbow on the condition of anonymity, the reason Fight Nights Global decided to host their Fedor vs. Maldonado show on June 17, 2016, was to coincide with the International Economic Forum in St. Petersburg. The 20th edition of the annual event is hosted by Putin and is an opportunity for ambitious businessmen to rub elbows with the Federation’s president. Some believed Magomedov hoped that Putin would decide to make an appearance at Fedor’s fight, as he had done in the past with M-1 Global.

Fight Nights Global

While Putin did not appear at the event, Magomedov was able to secure a meeting with him during the forum to sign documentation that would put Moscow at the helm of the Hyperloop One tube-transportation system — something Magomedov had been planning to invest in for months. The deal pleased Putin, who saw Hyperloop One as a project that could change the global economy. As a result, Magomedov was able to reestablish his influence in Russia and rebuild his fortune as Russia’s leading investor in technology — he ranked 63rd last year on the Forbes list of the richest businesspeople in Russia with $1.4 billion. He did this by using combat sports and the president’s favourite fighter to get the attention he needed.

A Pivotal Force in Russian MMA

In an April 2017 interview with Forbes, Magomedov revealed that he planned to invest “50-70 [million dollars] over three-four years” in his Fight Nights promotion. He embarked on a wide-scale project that involved building new fight clubs and expanding the promotion’s reach and market share.

“This is a business project that is not commercially successful in today’s Russia because the television channels in the US pay huge money for contracts with companies such as the UFC, and the consumer pays $65 for the event (pay-per-view),” Magomedov explained in the interview. “Russian consumers themselves will not do that now. But within two or three years, I think the situation will change.”

Apart from simply investing in the fight promotion, Magomedov expanded into gyms and fight clubs to expand his ever-growing MMA network. He established ‘Eagles MMA,’ a fight club and training facility now home to some of the top Russian talents. UFC contender Khabib Nurmagomedov, who is scheduled to headline the upcoming UFC 223 PPV against Max Holloway, serves as the entity’s president. The concept is similar to that applied at Prince Khalid bin Hamad Al Khalifa’s KHK MMA facility in Bahrain, and the Akhmat MMA team sponsored by Ramzan Kadyrov in Grozny, Chechnya.

Through his investment in sports that Putin favoured, Magomedov was emulating some of the more infamous oligarchs within Putin’s government, such as billionaire brothers Arkady and Boris Rotenberg. The Rotenbergs are some of the richest men in Russia, with a host of sports-related investments sprinkled throughout their extensive portfolios. In their youth, the brothers practiced judo alongside Putin. They later purchased the SKA St. Petersburg hockey club and heavily invested in its development. Years later, they became co-owners of the Stroygazmantazh group, the largest construction company for gas pipelines and electrical power supply lines in the Russia.

However, while the Rotenberg brothers remain free, Magomedov now faces up to 20 years in prison, which will have a major effects on his investments and the future of his MMA promotion. Fight Nights Global is home to over 100 local fighters who may be forced to find new employment over the coming months. Prior to Magomedov’s investments, the promotion was operating at a loss of over 18 million rubles a year and will struggle to stay afloat without the support of another wealthy backer.

Khabib Nurmagomedov with Ziyavudin Magomedov
Instagram

Magomedov also financially supports several fighters, including Khabib Nurmagomedov. Magomedov paid for the UFC fighter’s back surgery in 2017, which was done in Germany, and funded the majority of Khabib’s expenses during training camps. The UFC fighter released a statement in support of the diminished oligarch on Instagram, though made a point to disable comments to the post.

While Magomedov has been placed in pre-trial detention for two months, it remains unclear whether the charges will be the final nail in the coffin for the oligarch. Some experts believe that while it is unlikely that a corruption case of this magnitude was fabricated, Magomedov’s arrest likely has to do with the increased tension between the United States and the Russian Federation. As sanctions continue to impact Russian businesses that maintained relations with the European Union and the North America, oligarchs close to Putin are attempting to reshuffle assets within their country, which makes billionaires like Magomedov, who sit outside of Putin’s inner circle, vulnerable to attacks.

Dmitry Peskov, the press secretary to the Russian president, has denied any political motives over Magomedov’s arrest, referring to the such reports as “idle gossip.”

While the Kremlin denies any political motivation for Magomedov’s arrest, it appears that this is yet another example of Putin reshuffling the country’s elite following his reelection. According to The Financial Times, the Magomedov appears to be caught in a Kremlin power struggle that involves Igor Sechin, the CEO of the Russian state oil conglomerate Rosneft and a man reputed to be “the scariest man on earth.”

Sechin, who has earned himself the reputation as Russia’s “Darth Vader” for his ruthless approach to business, is believed to have been the architect behind the demise of oil giant Yukos in 2003, as well as the arrest of Mikhail Khodorkovsky, considered the wealthiest man in Russia at the time. Reports suggest that Sechin was interested in some of Magomedov’s assets, mainly the Novorossiysk Port so he can he expand his influence in the oil industry.

It should also be noted that Sechin is another Russian oligarch who has shown interest in combat sports. In 2013, Rosneft sponsored a heavyweight title fight between Wladimir Klitschko and Alexander Povetkin. According to Forbes, Sechin’s oil conglomerate partnered with Russian boxing promoter Andrei Ryabinsky and took on all costs associated with the contest, including the purses for both fighters. The fight incurred significant costs – well over $23 million – and made minimal profits.

St. Petersburg International Economic Forum Photo by Alexander Aleshkin/Epsilon/Getty Images

In 2017, Sechin announced his return to boxing, this time in an administrative position instead of a promotional one. Despite dozens of local articles addressing his involvement in the Supreme Supervisory Board of the Boxing Federation of Russia, his actual duties are shrouded in mystery.

The ongoing Kremlin power struggle involving Russia’s elite will likely have a major effect on combat sports, including mixed martial arts. Magomedov’s removal from a position of influence and the potential absorption of his assets means that Russian MMA will lose one of its main financial backer. It also implies that the sport will undergo significant change, including potential new ownership from other oligarchs looking to extend their legitimacy through sports, as is traditional in Putin’s Russia.

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