What investor documents tell us about the UFC's past – and its future

In a 58-page document recently obtained by MMAjunkie, the UFC and its new owners, WME-IMG, make a robust and revealing case to potential investors. Contained therein are multiple charts and graphs, even a map, detailing how the MMA industry leader’s business was built, and why it’s a sound investment now.

The document also provides hints of a broader strategy moving forward, which could reshape the UFC and with it a large chunk of the MMA landscape.

It’s revealing information in part because of how closely the UFC has guarded financial data in the past. The company has long refused even to release pay-per-view sales figures, much less provide a detailed breakdown of its various revenue streams. Here, in making a pitch to potential investors, it does all that and more.

The picture that emerges is of a fight promotion on the rise. Maybe that’s not surprising considering that the company’s owners assembled that portrait for the purposes of convincing investors that the UFC is a good bet, but the numbers are telling nonetheless.

According to its own figures, the UFC posted its best financial year by a wide margin in 2015, bringing revenue to an all-time high of $609 million. Prior to that, the company’s high-water mark came in 2013, when it posted revenues of $516 million before dipping to $450 million in 2014.

Even that downturn is explained in detail in the document, along with the steps the UFC took to ensure it doesn’t happen again.

Fight fans might remember 2014 as the year of the injury withdrawal. Of the 13 planned PPV events, seven saw significant changes to the original main event while one, UFC 176, was canceled altogether.

Since PPV still accounts for the single biggest chunk of UFC revenue – nearly 39 percent of the total $609 million, down from the historic high of 55 percent in both 2010 and 2011 – hits like that drastically affected the bottom line.

But according to the UFC’s own analysis, the incidence of injuries and other forced changes to PPV main events didn’t veer much from that relatively down year to the booming year that followed.

In 2015, seven of 13 PPV events, or 53 percent, saw a change to the headliner. Combine that with the first half of 2016, which had five of six main events change, and the rate goes up to 63 percent – one percent higher than the incidence of main-event changes in 2014.

Still, the average PPV in that period more than doubled the average sales in 2014. The UFC attributes that improvement to changes in strategy, such as “double stacking” PPV cards in anticipation of injuries to headliners, as well as keeping certain fighters “on retainer” and ready to step in for key bouts.

A major reason for improvement, however, was star power. UFC featherweight champion Conor McGregor accounted for slightly more than two million PPV buys in just two outings in 2015. Former UFC women’s bantamweight champion Ronda Rousey added 2.6 million buys in three events. Together, they accounted for a little more than 60 percent of the UFC’s PPV buys in 2015.

But relying so heavily on two star fighters is tricky. Rousey has been notably less active as her film career has ramped up, and McGregor has hinted at the possibility that he may take an extended vacation after his next fight. Since hundreds of millions of dollars worth of “earn-outs” depend on the UFC improving its most recent EBITDA (earning before tax, and depreciation) number by 61 percent, even a temporary loss of either fighter could be extremely expensive.

Even if Rousey and McGregor both remain in play, improving so significantly on such record high earnings numbers won’t be easy. So how does the UFC plan to pull it off?

That’s where we get a glimpse of the WME-IMG strategy. First, there are layoffs, many of which have already happened. The document files these under “expected synergies” and “actionable cost savings.” Employee compensation accounts for the biggest chunk of expected savings under the 2015 “addressable cost base,” according to the document, with an expected savings of $27 million.

The company also expects to save money through “more rigorous corporate discipline,” especially in areas such as “compensation practices” and “long-lived consultants.”

Then there’s marketing and event production, two things with which WME-IMG has plenty of experience. Why spend millions trying to raise awareness of the UFC brand when the new owners are a sports and entertainment powerhouse that can “leverage” its own network for “more efficient awareness” of the UFC?

In other words, WME-IMG expects to streamline what it describes as a somewhat undisciplined “family business” built by UFC President Dana White and former CEO Lorenzo Fertitta. It expects to trim the fat and reduce redundancies, producing a leaner, more profitable fight promotion.

It also expects to capitalize on some convenient timing. New York sanctioning provides an opportunity to court new sponsors that have “previously held back in key open categories,” according to the document. It’s also a chance to benefit from historically higher ticket pricing in the New York City sports scene.

Then there are the broadcast rights, with the UFC’s FOX deal set to expire in 2018, during a dearth of major sports broadcasting rights availability.

There are also other scheduled increases in current contracted revenue. Reebok, for instance, is set to pay a $4 million “exposure fee” in 2016, which increases to $8 million in 2020. Also in 2020, the UFC’s “minimum revenue guarantee” from Reebok increases from its current level of $1.5 million to $4 million. The UFC expects similar increases in minimum revenue guarantees from EA Sports.

Taken altogether, we see a portrait of a fight promotion company that is set to enjoy a financial future significantly brighter than its past.

Whether or not that future will also be better for fans and fighters is, somewhat understandably, not addressed in the document aimed at potential investors.

There’s ample reason to think that WME-IMG can live up to its promise to shine a bigger light on the UFC and its athletes. That’s the business the company has excelled at, in many ways, and its “network” includes movie stars, talkshow hosts, and celebrities of every stripe. WME-IMG also has a history of successful cost-cutting following previous mergers and acquisitions, as outlined in the document.

But it’s hard to think that an entity so focused on trimming expenses and maximizing revenue will move voluntarily to address issues such as the persistent complaints over fighter pay. There’s also the matter of potential challenges that may lie ahead for the UFC on the legal and regulatory fronts, none of which are addressed in the document.

One possible upside is that, with the pressure on to maximize revenues in the coming months, and with PPV still the biggest single financial driver, there’s reason to think that the UFC will be highly motivated to keep putting together blockbuster events like UFC 205.

Whether or not the new owners can pull it off, that’s the $4 billion question.

For more on the business strategy laid out by the UFC in the wake of its $4 billion sale, check out the previous stories on MMAjunkie:

For more on the UFC’s upcoming schedule, check out the UFC Rumors section of the site.