The UFC Sale: Knockout Deal or huge bust?

In news that rocked the sports world, just a few weeks ago, the Ultimate Fighting Championship was sold by its ownership Zuffa, LLC to WME-IMG for an astounding $4.2 billion dollars. Zuffa’s principals, casino entrepreneurs The Fertitta brothers (along with parnter and UFC president Dana White) bought the franchise 15 years ago for 2 million dollars, giving them a return on investment of just shy of 200,000%. How about that for ROI?

If you're unfamiliar WME-IMG, they’re a massive talent and entertainment agency powerhouse headed by co-CEO and dealmaking legend Ari Emanuel, who was the inspiration for Ari Gold of Entourage fame. In one season of that show, Gold tried his hand at becoming a part-owner of an NFL team but it fell apart. Now the real-life Ari has an entire sports league at his fingertips. Did his company make the right move? Or was this a classic case of catching a falling knife? We've got five reasons why we believe they bought the company at its highest value and that this deal is no sure thing.

1. The sports bubble might be about to burst
Sports Business Journal shared the details of the sale, including the information that three media companies were interested in buying the UFC at one point or another. Time Warner, ESPN and Fox Sports were all interested, with the first two dropping out relatively early. Fox Sports submitted a bid of $3.6 billion that the UFC rejected. According to that same SBJ story, the UFC estimates their next broadcast deal (up at the end of 2018) will land them roughly $400 million annually, which comes out to a 50 percent revenue increase. That two of the three media companies that bid on the company pulled out early signals they think these projections might be a bit bloated.

2. The trouble with the UFC's biggest stars
The UFC generates most of their revenue via pay-per-view, which has proven to be very dependent on the quality of talent that appears on their fight cards. Their five biggest stars currently are all dealing with a variety of issues. Conor McGregor, the outspoken former featherweight champ announced a surprise retirement (and then unretirement) after a tough loss to Nate Diaz and disputes with management. Former champs Jon Jones and Brock Lesnar both have had recent have violations and health problems to deal with. Former women’s champ Ronda Rousey still hasn't returned from being destroyed by Holly Holm last year and might never fight again after a successful foray to Hollywood. Sure, another star could be born to fill these voids but it’s high-draw star power appears to be in rebuilding mode.

3. The unknown future of Dana White
When the sale was announced, White was quoted as saying he will very much miss Lorenzo and Frank Fertitta. Many have likened White to a modern Don King as his outsized persona has done so much to elevate the UFC from an afterthought in the sports cellar to a major property. But how will he act now that the UFC is owned by a major company? White has sometimes caused problems due to his big mouth and abrasive style, often going in on detractors on Twitter in less than a politically correct manner. If White is unable to rein things in a bit, who knows if he's in it for the long haul. He loves the UFC but he will no longer be able to pull rogue moves like ban respected journalists from ringside for breaking news before they wanted it reported. Whether or not White can go corporate and still maintain his edge remains to be seen.

4. Turmoil with all of its fighters
When the Fertittas and White took over the UFC, they modeled their business after boxing in the way that it treats its fighters as commodities that are easily replaceable. A 2015 story at Bloody Elbow estimated that from 2011-2015, the UFC paid somewhere between 13.6 and 16.3 percent of their total revenue and there's already a class action lawsuit against them. The UFC also made a massive deal with Reebok, giving them the exclusive sponsorship rights. This cost loads of mid-level fighters the ability to make a decent living through outside sponsorship deals and this has really pissed a lot of people off. Add to that the intense schedule the UFC forces on its stars – which is what currently has Conor McGregor at odds with them – and you can understand how things might be less than peachy even after this big-money deal. With the UFC in the limelight, fighters might push harder on these things and demand bigger paydays. To compensate at the bottom line it could cut into that massive revenue split that they currently enjoy over the fighters that risk life and limb. Additionally, with WME now in charge, the company is in a weird position with some fighters who have different representation, like. heavyweight champion Cain Velasquez who is repped by WME rival CAA.

5. Who will replace Lorenzo Fertitta
Though most people consider Dana White the face of the UFC, it was CEO Lorenzo Fertitta doing a lot of the heavy lifting and dealmaking behind closed doors. Three manangers who spoke to USA TODAY on the condition of anonymity expressed concerns on who would replace Fertitta, saying that he was a “vital executive force behind closed doors.” What does WME-IMG know about UFC? At present WME is promising that they’ll keep White in the fold to bring leadership and experience, but there are certain decisions that will need to be made beyond his pay grade and these high-level decisions will be made by executives with limited to no MMA business experience. While it’s clear that WME isn’t shy on smart, capable sports exectutives, just a few wrong decisions and continuted difficulties with it’s workforce could sent the UFC into and expensive downslide.

Interesting times are sure to be ahead for the UFC (as well as MMA as a a whole) as it continues it’s journery into mainstream success. While it’s no doubt a massive step the further legitimization of what was once considered a brutal bloodsport that was banned from TV, it remains to be seen if the UFC can truly supplant boxing as the combat sport of the future.