||09-07-2012 05:31 PM
UFC 151 Cancellation Was at Least a $40 Million Hit for All Parties Involved
Sep 7, 2012 - While people can debate forever on who was right or wrong, and who deserves what blame for the cancellation of UFC 151, there is no question who financially is taking the biggest hit.
While Jon Jones may make a few less bucks, since he fights on a pay-per-view percentage, facing Vitor Belfort as compared with a fight with Dan Henderson or Chael Sonnen, whatever losses he suffers are paltry in comparison to those of the UFC itself, as well as the cable and satellite industry throughout North America, and countless businesses in Las Vegas.
When Dana White was interviewed by Ariel Helwani on Tuesday night's UFC Tonight show, he noted the company had already spent $2 million in marketing costs for UFC 151 at the time the decision was made to pull the plug, because Jones wouldn't agree to face late replacement Sonnen. But that's only a tiny part of the picture. For UFC, the irretrievable losses incurred by the event not taking place will almost surely be well into eight figures. One source in UFC estimated the figure at $20 million. And that is just for the company.
There are similar losses when it comes to a number of businesses in Las Vegas like hotels and restaurants, taxis, clubs, and weekend gambling revenue from those attending. There is also a somewhat conservative estimate of $7.5 million in losses that won't be made up for both cable and satellite companies throughout North America based on projections for what would have been the revenue from UFC 151 and UFC 152, which will now only be revenue from UFC 152.
Because major Las Vegas events are largely commuter shows, with people coming from around the country, and extensively from California, the impact on the local economy for a typical pay-per-view event can easily reach $20 million. And that's direct lost revenue because even though all the fights scheduled have been added to shows between Sept. 22 and early December, none of those events are in Las Vegas.
Because UFC is a private company, exact revenues and profit margin numbers for the year are unavailable. But this is a very significant hit to the annual ledger. While there are some issues mitigating total losses, such as the cost of actually doing the show, production costs of the show itself, paying people to work on the show, and producing events related to promoting the show that will be saved, the vast majority of the money losses would be from the profit end and not just the total revenue end.
For Zuffa, the most obvious irretrievable revenue loss is the live gate. While the advance for the show wasn't through the roof, the live gate would have been more than $2 million and probably closer to $2.5 million. There is also another total, likely high five figures to low six figures, when it comes to merchandise sales at the live event. There is also the expense of whatever payment UFC is making to the fighters who didn't appear. Dana White noted that aside from the fighters whose bouts were moved to Sept. 22, UFC is paying the displaced fighters something to take care of at least some of the money they'd have been expecting and to pay for training costs.
If there is any kind of a direct site fee style revenue coming from the Mandalay Bay Hotel for housing an event that brings in so many tourists, you can tack that figure as well onto the UFC losses.
On the flip side, one can argue that they can make some of the money can be made back in Toronto on Sept. 22, which added Jones vs. Belfort, greatly strengthening the drawing power of that show. But as of the first week of ticket sales since the fight was added to the show, new sales were only about $200,000 and there would be no added sponsorship fees or site fees involved in adding a main event to a show a few weeks out.
There are also sponsorship losses for the live event, as well as sponsorships deals related to having two hours of prime time television on FX that leads into the pay-per-view.
But the lion's share of losses are also the ones hardest to pinpoint because of so many unknown variables in place, which are from the pay-per-view end.
In 2011, a typical Jon Jones headlined show did in the neighborhood of 500,000 buys, at $44.95 for standard definition or $54.95 for high definition. Jones' last main event, against Rashad Evans on April 21, is believed to have done closer to 700,000 buys. Much of the increase was due to the nature of the story behind the fight, the former training partners and friends who had a falling out. But that level of a win could easily have raised Jones' baseline value. While UFC is not on fire right now on pay-per-view, a match with Henderson could have done well over the 500,000 mark.
Even with only a week-and-a-half of publicity, facing Sonnen, would have likely done substantially more, since Sonnen is a far bigger drawing card than Henderson. Sonnen's fight on July 7 with Anderson Silva was estimated at doing 925,000 buys, UFC's best numbers in more than a year, and right now, Sonnen is one of the company's big four drawing cards right now with Jones, Silva and Georges St-Pierre.
If we go with the idea the show would have done 550,000 at a $50 average, and that's a conservative estimate, that's $27.5 million in revenue, of which roughly half goes to UFC and the other half goes to cable and satellite distributors. Of UFC's share, that also has to include paying everyone involved with the show, including fighter salaries and bonuses.
But this is where estimating losses gets tricky.
Jones is facing Belfort on Sept. 22. UFC 152, previously headlined by Joseph Benavidez vs. Demetrious Johnson to crown the first UFC flyweight title as well as the prior main event in everything but name only, Brian Stann vs. Michael Bisping. That lineup was not likely to do big numbers on pay-per-view. Adding Jones vs. Belfort for the light heavyweight title should take the show from being at the low end to probably the fourth-highest numbers for this year.
The question becomes, what does Jones vs. Sonnen with a weak undercard pull in comparison to Jones vs. Belfort with a strong undercard? UFC shows generally draw based largely on the main event, but card depth is also a factor.
UFC fights are usually sold based on publicity generated in the final week. Belfort does have some great highlight reel footage and he did draw well the last time he was featured against Anderson Silva. But he was also knocked out quickly in that fight. Verbally, Belfort isn't going to be able to promote a fight nearly as well as Sonnen would have, nor can Belfort as an opponent open up the kind of media doors for promotion that Sonnen could have.
But they key factor in how UFC 152 will draw is the public's view of Jones. If the publicity of the past two weeks has created a situation where people dislike Jones to the point they will pay to watch in the hopes of seeing him lose, then his popularity drop could actually increase his drawing power. If they dislike him to the point they don't want to see him, or don't care about him, the opposite would be the case.
But even with a best case scenario, a Belfort vs. Jones fight would be lucky to come within 100,000 of a Belfort vs. Sonnen, and right there, that's $2.5 million more in irretrievable revenue losses.
Yet another factor is that while a large percentage of the pay-per-view losses from a Jones main event at UFC 151 will be made up at UFC 152, one has to figure UFC 152 was probably good for 200,000 buys on its own, so had UFC run both shows, that's another added $5 million or so in revenue UFC is taking a hit on.
There is another factor, which can't be measured. The fans who were flying into Las Vegas for the show, the people buying the expensive tickets, and spending money all weekend, had likely made plans well in advance. Some may have purchased non-refundable plane tickets, given there was no reason to be concerned that the show wouldn't happen, since such a cancellation had never taken place in modern UFC history. The inconvenience of having Labor Day plans change at the last minute, or expenses incurred without even getting a show is going to leave a bad taste in people's mouths. These are also the fans who are most likely to attend a number of UFC events each year. The long-term effect of this happening once is impossible to ascertain, but it's incumbent on UFC for it to not happen again or risking those fans feeling it's just easier to stay home and watch on television.
It's an expensive lesson. UFC simply can't afford to rely everything so much on one fight to the point they can't continue with the show if it falls through, and given the injury rate in training with fighters, you have to go in with the idea every match is in potential jeopardy. And the company also has to figure in an even higher chance of jeopardy if they have a main event fighter with such a myopic viewpoint of their own career and business that they make such an incredibly foolish decision for their own economic and business interest when the chips are down.
So just based on figures that we know, advertising expenses that led to nothing, lost ticket sale revenue, and lost PPV revenue, and we're already at $12 million for UFC without figuring in any kind of sponsorships and other monies involved with producing the show. If we throw in losses to the Las Vegas economy and those of the cable and satellite industry, and when all is said and done, you are probably talking closer to $40 million in losses, and that's not taking into account any bad will when it comes to UFC fans and for the Jon Jones brand going forward.