Billion-dollar baby nearly all grown up

By Alexander Speirs

Mixed martial arts, spearheaded by UFC, has moved out of the background to become a money-making machine.

A nervous silence emanates across the arena as the lights cut. It's a stark contrast to what is about to come. Moments later, the sound of bagpipes ring out, cutting through the silence, as hues of green, orange and white illuminate the arena.

Close to 15,000 spectators from around the globe have piled into the MGM Grand Garden Arena in Las Vegas. They've shelled out close to US$1000 a head - and for some, many multiples more - for the privilege.

Tonight, they're here for one man, and one man only.

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Conor McGregor has become a global sensation seemingly overnight. Blessed with both a silver tongue and the athletic prowess to back up his big mouth, McGregor has talked the talk and walked the walk, rising from relative obscurity to become a world champion barely two years after making his Ultimate Fighting Championship (UFC) debut.

But this month in Las Vegas, the "any man, any time, any place" fighter took on too much too soon.

McGregor was originally slated to fight for the lightweight title - a bid to become the first fighter to hold titles in two weight classes concurrently - but an injury to his opponent a week out from their UFC 196 bout forced a major change.

Agreeing to take on contender Nate Diaz at welterweight, 11kg above his usual fighting weight, McGregor boasted: "I don't care about weight. It makes no difference to me. Wherever it's at, give me an opponent, and a date, and that's it."

But after dominating the fight through the first round and a half, a noticeably tired McGregor was caught with a hard left cross, initiating a sequence which saw the Irishman forced to tap out - ending a perfect record inside the UFC and throwing the promotion's plans for 2016 into disarray.

"I came up short. I took a chance, it didn't pay off, I'll be back," McGregor said following the fight.

It's a tough pill to swallow. We can either run from adversity or we can face our adversity head on and conquer it, and that is what I plan to do. I will take it on the chin and I will carry on. I will learn from it.

Although still the reigning featherweight champion, what impact this will have on his drawing power - and subsequently his revenue generating potential for the UFC, is still to be determined.

With a history making bout originally on the cards for the promotion's landmark UFC 200 event, where their biggest star goes from here will now require a rethink.

"I still feel like UFC 200 is there for me. I will go back and sit. I'm not cut, I'm simply heartbroken and that's it. I'll pick myself up and we'll figure it out in the morning," he said.

"It's a tough pill to swallow. We can either run from adversity or we can face our adversity head on and conquer it, and that is what I plan to do. I will take it on the chin and I will carry on. I will learn from it."

It was a far cry from just days earlier, where McGregor had told the Herald of his plans to be the UFC's billion-dollar-man.

Fighting is big money

Mixed martial arts, spearheaded by the UFC, has become a force among combat and professional sports.

Initially contrived as a competition to determine which style of martial arts was most effective in a real fight, the sport has evolved into a hybrid combining striking and grappling.

In 2015, the UFC earned in excess of US$600 million in revenue, setting a new high-water mark for the company, while smashing qualitative and quantitative records around the world.

"It's a record number and a metric which shows our sport has never been stronger before," explains Lorenzo Fertitta, chief executive and majority owner of the UFC.

"When we look at the metrics, whether it be overall revenue, social media, television ratings across our global markets, we're continuing to grow and get stronger."

Revenues have been growing rapidly for the UFC over the past decade, improving from a reported US$250 million in 2008 to last year's US$600 million.

"It feels that with all of the momentum we have, the conversation and the popularity around the world, it feels like our revenue really hasn't caught up to what our true potential really is," Fertitta says. "While it's been an incredible journey over the last few years, we really feel like we're in the beginning stages of building the sport and building the brand," he says.

"Some of those more established sports leagues we're catching up to have been around for literally decades, where the fact is that the modern era of the UFC really only started 15 years ago when my brother and I bought the company in 2001."

Buying the brand

When Lorenzo Fertitta and brother Frank Fertitta III acquired the company 15 years ago, the UFC was in a dire state. Labelled "human cockfighting" by Senator John McCain in 1996, the political machine had worked to effectively shut down revenue streams for the UFC, with a number of states implementing bans on any form of mixed martial arts competition, while broadcast arrangements quickly succumbed to public pressure.

"There were a number of people who'd looked over the UFC and had passed, they weren't willing to take that chance and take that risk to invest the capital," Fertitta says.

"When I looked at the opportunity with the UFC, what I found was, boxing had been around for literally 100 years in the form that it's in today.

It had generated billions of dollars in revenue, yet it was the only sport ... that had no brand association with it.

"Where I saw the opportunity, I was seeing historically that other sports had been successfully branded and organised and managed - with reference to the likes of the NBA, NFL, MLB, NHL.

"We felt like there was a huge void in combat sports. There was an opportunity for us to take a brand, even though it was incredibly sullied - it was one of the worst thought of brands in the world, and move it forward by embracing regulation."

That regulation involved moving away from the original "anything goes" approach that mixed martial arts is rooted in and crafting a set of rules that helped transform it from a spectacle to a sport.

The rule set, now known and accepted as the Unified Rules of Mixed Martial Arts, listed a large number of technique restrictions and fouls - as well as mandating a set number of rounds for all contests and criteria for scoring bouts which didn't end in a finish.

Fertitta was able to leverage his previous experience as the head of the Nevada State Athletic Commission (NSAC) to help evaluate the business in its contemporary state and develop a blueprint for remedying its besmirched reputation.

"In my role there, I actually presided over and arbitrated various cases with some pretty high profile fighters and promoters. Understanding the contractual issues between fighters and promoters, fighters and managers, and how those parts fit together was invaluable," Fertitta says.

"I spent a lot of time working with the medical staff and the lead doctors with the NSAC. Understanding what the injury rates were, the preparation involved for the competitors, everything that goes into combat sports.

"Really getting an understanding of the health and safety side, as well as the overall business aspects of the sport was hugely beneficial in trying to put together the structure of the business, the infrastructure necessary and just the overall way we operate the business and brand here."

Corporate powerhouse

"When we purchased the company in 2001, we started as a true entrepreneurial organisation," recalls Fertitta. His first move was to install businessman Dana White as president to lead a skeleton staff totalling five.

"I was coming over to the office every morning - was involved with staff meetings, strategy, talking to Dana [White] as many times per day as you could possible talk to somebody - so I was very hands on and involved with the details of the company," he says.

"But at the same time I was the president of a publicly traded company [Station Casino's] with the New York Stock Exchange, so the UFC was more of an active investment for me at the time."

The turning point for Fertitta, when the UFC moved from an "active investment" to a primary position, was truly gaining a foothold and following on mainstream television. That breakthrough came through the introduction of The Ultimate Fighter reality TV series.

"As the UFC started to expand and we got on to television here in the United States through our deal with Spike TV and we started to see the opportunities opening up - particularly on the international front," Fertitta says.

"We realised that there was massive opportunity to build a global brand and a global sport. At that time it made sense for my brother and I, who are equal partners in every business we've ever had, to split up and divide our time."

The focus moved firmly to internationalisation as Fertitta came into the fold full-time, with an office opened in London headed by Marshall Zelaznik - now chief content officer for the UFC.

"From London was where we first started the international side of the business," Zelaznik says.

"We had lofty international growth objectives for the company and were really gaining traction quickly. From our London office, we managed all of the international media rights, doing deals in Canada through Latin America, through to Brazil and into Asia and Australia," he says.

"When I joined the company in 2006, we had deals with around 25 or 30 countries that were showing the UFC content and that was primarily The Ultimate Fighter TV series with some live fights here and there. Now that number is closer to 180 countries that are showing UFC content - it's truly been amazing growth."

Fertitta attributes the ability of the UFC to grow quickly, yet still maintain high standards, to their company mantra of continual investment.

"One of the biggest things which has allowed us to be successful here at the UFC is that we've continued to invest in infrastructure and human resources, bringing top-tier talent into the organisation from around the world."

Towards $1 billion

While the UFC continues to gain ground on the four major North American sports leagues, Fertitta sets lofty goals for the organisation's growth trajectory.

For the UFC's biggest star, McGregor, the goal is simple - to break the billion-dollar barrier - and he's confident that he'll be the one to help the promotion ascend to such lofty heights.

"You're damn right I'll hit that billion-dollar mark. I said I will do it and I will do it," McGregor told the Herald.

"100 per cent I am the man to do it. I am the man. If you look at the numbers, they continue to rise. All the channels, all of the numbers continue to rise."

While certainly not as brash as McGregor, Fertitta was equally confident that the UFC would develop into a billion-dollar annual business - but reiterated that his own focus was on the short term.

"We're very excited about 2016 for a number of reasons - one of which is the continued growth of our digital platform, Fight Pass. We're continuing to invest in original content which has so far been performing exceptionally," Fertitta says.

"One of the things which differentiates our business significantly from other sports is that we actually do all of our production in-house. So last year in 2016 we created more than 6,000 assets, taped assets making up 1,100 hours of content as well as 1,000 hours of live content," he says.

"Content truly is king. We've got the content that people want, now it's about continuing to be reactive and making sure that we're delivering this content however people want to consume it.

"As we continue to increase the amount of content that we produce, it allows us then to explore new avenues for monetising that around the world - whether that be in traditional licensing fees or over the top in the digital space.

"Continuing to figure out different channels and ways to monetise our content is what will get us there," he says.

Looking out to the rest of 2016, Fertitta pointed to two factors which he saw as having the potential to seriously impact the business in a positive way.

"All points in the business are currently focused on UFC 200. We think it's going to be a seminal moment for the brand and the company."

- NZ Herald

Alexander Speirs is a NZ business journalist working in London who has a keen interest in North American sports. His reports feature on 2on4sports.com. He is also a frequent commentator on Radio Sport.

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