Re-Post: Looking Back at UFC 1 to 200

With UFC 250 just around the corner, I decided to pull this post out of the vault. Other than whisky and video games there isn't really any of my interests that have hung around me as long as the UFC has. So part opinion, part analysis - this post is my recap of what happened in between the early days of the UFC and the lead up to one of their biggest Pay-Per-View events, UFC 200.

Ultimate Fighting Championship (UFC) started out a small, obscure sports brand promoting events of 1-on-1 cage fights between fighters and opened in the US as a new, seemingly more brutal, bloodsport pitched to a small number of extreme fights fans, and outlier sports enthusiasts. For years, the UFC struggled to pick a name for themselves as new audiences would argue “Is it boxing and wrestling?” or “This is just kick-boxing in a cage, right?” Because of the variety of styles of its fighters, watching any one contest could leave you with a different impression of what the sport is.

In the struggle for adoption and acceptance the UFC has made, and continues to make choices to differentiate themselves, as well as some choices to show people a familiarity that they see in other sports:

Differentiation Choices:

Fighters compete in an 8-sided “ring” with chicken wire type fences that enclose it.

Octagon Picture.png

Fights of 3 or 5 (Five Minute) Rounds

Acceptance Choices:

UFC Adopted a 10-Point-Must scoring system similar to that in Professional Boxing
Fighters ended up using Boxing style gloves, with finger sections cut out
Fights consisting of rounds at all, many Mixed Martial Arts sports are just one open period of contest. No rounds.

These early decisions may or may not have directly contributed to their growth in size and prominence as the leading Mixed Martial Arts fight network. But indirectly, you can say that all of them contributed their share to making the UFC what it is.

What is more interesting now, is to look at the recent choices the UFC has made, and dissect what they mean for future of the sports company. First let’s look at their business model, and pick out where their greatest assets are.

The UFC’s main source of revenue comes from TV viewers that purchase it’s monthly live Pay-Per-View events. Even though UFC has branched out into online events, and even events on Fox Sports channels, you could argue that these are all still a way to drive viewers to it’s main revenue source. Minor revenue sources are also their apparel and gear lines, Reebok sponsorship, and advertising revenue.

While they have tangible assets such as cash in the bank, UFC fitness locations (gyms), vehicles to transport their event gear such as lights, cameras, the ring & cage, Their assets are largely intangible, which proves to be part of the threat to them as competitors flock to the scene.

TV Rights: Come and go over the years. In just over a decade, the UFC has already been shown on Spike, Star Sports, FX, Fox and many many others.

Personalities: The UFC gets much of its popularity not from the actual competitions between fighters, but from the personalities that attract fans to follow those fighters. Fighters actions inside and outside the ring both have effects on their persona and following from fans.

Brand: The UFC is unquestionably the large player in Mixed Martial Arts sector. Now attracting well over 80% of the MMA audiences, but at one point their market share was well over 90%. Here is a good article on Forbes suggesting the current brand alone is worth about $440 Million.

Apparel Lines: While the output of shirts, gloves, hats, etc are tangible goods, the name and prestige of that attracts customers to wear UFC gear comes and goes with the UFC’s popularity, and the style they inject into the sport are intangible.

So how do they avoid the pitfalls of becoming a lumbering giant of a corporation, unable to adapt to changes, and even more threatening, unable to constantly predict “What is the business we should be in?” and move into the space effectively before other competitors do? Let’s look at these in the context of the decisions that the UFC has recently made, or is currently making.

Pitfall #1 – Falling into “We’re The Best” type thinking

The UFC in its early days had a decided advantage on other sports brands because it was small and nimble. They could make decisions to run PPV’s or promote particular fights that fans were demanding in order to directly increase PPV buys. They are so large now, with so many events yearly, hundreds of fighters and millions of fans, that they now have to plan events long in advance, and decide fights between competitors that they think fans want to watch 6 months down the road. But the idea is that they are the premiere brand in the sport, so a certain amount of people will watch anything they put on.

Looking up at themselves on a pedestal, it would be easy for them to think that they are the monopoly in the space, and therefore invincible. But small, upstart sports brands, or competitors do not go unnoticed by the UFC. They have mirrored some of Facebook’s CEO Mark Zuckerberg’s moves to buy out and envelope small competitors as they arise. Taking notice of any name or company that has the ability to out-compete them one day. These purchases include other organizations such as Pride, Strikeforce, Glory, K1, EBI and many more.

Pitfall #2 – Forced Release Cycles

How does a company maintain its edge, and radically innovate if they are also forced into needing to maintain regular release dates of products or improvements to keep their customer base happy?

Events are coming so regularly now (2-3 a month between Fox, FX, Fightpass and PPV) , that the UFC is struggling to display differentiation between their own events that can attract viewers to one over the other. Their early model for events was to jam-pack their fight card with as many superstar names as possible. Giving fans a reason to watch every single PPV. Now with the number of events they put on, they have no choice but to water down each card, and spread their big name fighters over more of them. Attracting potentially more viewers over the total number of cards, but also potentially having an impact on their image as the brand that puts on the most jaw-dropping, star-packed fight events in the industry.

But as they move towards their 200th PPV event (UFC 200), they show some signs of going back to their old ways of promoting all their biggest names on one card (as in UFC 100). But will this be a single-event, or a continued trend?

Long UFC 200 Pic.png

Pitfall #3 – Misaligned Incentives for Decision Makers

Who calls the shots? And how in sync are the top executives with the reasons that guide those decisions?

The UFC has 3 main decision makers. They are, in descending order of clout; Lorenzo Fertitta, part owner and controller of the parent company, Dana White – President of the UFC, and Joe Silva, Vice President for Talent Relations.

Frank and Lorenzo Fertitta purchased the UFC for a rock-bottom 2 million dollars. While they have both been involved in the major decisions since the UFC’s rise in popularity, they defer a lot of the main decisions to the person who embodies the company’s vision, President Dana White. A recent deal the UFC has made with Reebok to financially sponsor all their fighters, in return for exclusive advertising rights on fighter gear and apparel, shows a place where the people who guide decisions to secure the financial stability and advertising presence of the company, clash with the ability of the people who manage the talent to do their job effectively and protect the interests of the fighters.

Fighters used to be able to go seek and negotiate their own sponsorship deals, pocketing whatever they could earn from various sponsors looking to get advertising space in the fight game. The new structure under Reebok makes it so that fighters get paid a set amount according to a number of fights they’ve had in the UFC. Further details here.

This has created turmoil inside the MMA community and complaints from fighters all both ends of the popularity scale claiming that their earnings per fight have been drastically reduced. Even causing fighters to leave the UFC in search of organizations that will allow them to source their own sponsorship revenue. While the deal seems to be have many upsides for the UFC itself, fighters (who attract the viewers to the sport, not clothing companies) seem to see mostly downsides. The question could be posed that a deal such as this if it is critical to the continued success of the UFC, is also be default then good for the fighters who require the brand in order to compete in front of big audiences. Perhaps the fighters themselves are too close to the impact of the decision, and are thinking of only the short-term consequences. But it could also be the other way around that the UFC is looking for immediate sponsorship and taking an opportunity to snap up a bigger audience, rather than making choices that protect the interests of their fighters.

Pitfall #4 – Protecting Your Current Revenue Stream

This is of course a natural activity to be engaged in. Don’t bite the hand that feeds you. So if you are required to ensure that you keep making money, how much of your revenue to do you divert into research and development, or into exploring new ways of doing business? Another way to phrase it might be; how much do you risk, to ensure returns later?

There is a perfect case to study this idea as it relates to the UFC. There is currently one superstar in the UFC that outshines everyone in the history of the sport in terms of fan-base, marketability and earning potential.Conor McGregor is an Irish Mixed Martial Arts fighter that achieved meteoric rise primarily attributed to his brash, cocky personality, headline worthy trash-talking of opponents and the backing of an entire nation of rabid fight fans (Ireland) who flock to purchase his event tickets, and PPV’s. Conor’s traditional media coverage, and social media presences far surpasses any fighter that the UFC has seen. With the ability to create headlines and sell-out events with 1 Tweet, Conor is unmistakably the UFC’s biggest draw right now.

Connor Tweet.png

But recent decisions by Conor to pull out of media obligations required of all fighters signed up for an upcoming fight-card have caused the UFC to force his hand and demand that he shows up, taking time off from training. Conor pushed back with an outburst on Twitter announcing his retirement, and siting an inability to prepare for a fight properly amongst the UFC’s high volume of press obligations. The question is does the UFC allow a fighter, even if he is their largest draw, to pick and choose which fighter obligations they obey, or do they cut Conor from his scheduled fight, and set a precedent that all fighters, no matter how big, must follow the rules of attending press events in order to properly promote a fight. The UFC seems to have chosen the integrity of their institution over the immediate revenue gain of having Conor on one more fight card by announcing his replacement on the card by another fighter. But this public battle has had both sides flip-flopping as they each pursue what is best for themselves at this time.

Conclusion

At this point it is pretty difficult, even for a fan such as me, deep into the world of UFC wether they are making choices that will end up keeping them ahead of their competition, or if they have fallen into the rigidity of the thinking patterns corporations experience that are trying to achieve horizontal growth. They appear to be making some very smart moves, and others that make you wonder where priorities are.

As a long term solutions for any company or individual, I propose that the only way an institution can retain it’s flexibility and ability to move is by internalizing a process from top to bottom that allows them to bust out of the boundaries of their current comfort zone, and search for new ways of doing their own business. Such a process could look like this:

Worldview Cycle Pic.png

Starting with a worldview outside your own (perhaps that of your competition), and predict what advantages that person or company has over you. What business do they think they should be in? This begins the process of a company becoming radically adaptable. Next looking at what those predictions mean for your company; what are the changes in the industry that you can preempt, what are the headlines of tomorrow? There must be a solid foundation of research into these “predictions” to discover which ones are credible threats, and which ones are just fearful thinking. Incorporating the meanings of these predictions into actual business practice is the most critical part. Communicating at all levels of your organization as to what your newly adjusted goals are, and what are the carrots of tomorrow that you are chasing after. Communication does nothing without consistent action behind it. Setting department and team goals as of how to divert resources into these new sectors, but still maintain a healthy core of operational practices, while incorporating new and exploratory tactics into company operations. The cycle begins anew by identifying what is the next radical perspective that you are not considering right now. There is no one person that can think of these by themselves, so this means listening to executives, managers, front-line staff, interviewees, customers and press in order to pick out an isolate as many perspectives as you can.

Find where you’re uncomfortable. Stay there until you’ve figured out what makes you comfortable being there. Then move again.

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