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The Bottom Line: Calculated Gamble


Editor’s note: The views and opinions expressed below are those of the author and do not necessarily reflect the views of Sherdog.com, its affiliates and sponsors or its parent company, Evolve Media.

Sign up for ESPN+ right here, and you can then stream the UFC, PFL, Dana White’s Contender Series and “The Ultimate Fighter” live on your smart TV, computer, phone, tablet or streaming device via the ESPN app.

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Since ESPN and the Ultimate Fighting Championship announced on March 18, 2019 that the network would be the exclusive pay-per-view provider for UFC events as part of a guaranteed nine-figure annual deal, there has been no hesitation in passing on price increases to the customer. The most recent increase in pay-per-view pricing marks the fifth price increase in less than three years, with individual pay-per-views moving from $59.99 to $64.99 to $69.99 to $74.99 and the annual ESPN+ service that is required to order pay-per-views going from $49.99 to $59.99 to $69.99.

Discussions about price increases invariably turn to two topics: what it says for fans and what it says for fighters. For fans, there’s inherent discontent about prices rising quickly when they were already quite high and during a pandemic when many have struggled. There is also general understanding on the flipside that businesses are going to tend to raise prices when they think they can get away with it, whether we like it or not.

Raising prices also naturally leads to the question of fighter pay, coming off of a year when the UFC reported record pay-per-view buys and massive corporate profits. It was also a year when the UFC played hardball publicly with a number of fighters looking to get paid more. It’s not difficult to look at MMA and view it as a sport where fans are gouged and fighters are squeezed while corporate shareholders rake in bigger and bigger profits. Of course, fighters and fans have options. There are a number of ways fighters can improve their negotiating leverage, and fans can elect to skip events if they do not feel they are worth the price.

Both of these are fair topics for conversation, but let’s put them aside and turn to a less commonly asked question: Is it in the UFC’s best interest to continue to double and triple down on pay-per-view as central to its financial model?

When the UFC started out and when Zuffa purchased the company in 2001, there was no reasonable alternative to pay-per-view. No television entity was willing to put on the UFC in the early 1990s and no television entity was willing to pay for it in the early 2000s. Now, the landscape is completely different. Sports television rights fees have exploded as television companies compete feverishly for viewership. What’s more, pay-per-view remains a dubious long-term bet.

In a landscape where there are many streaming services offering massive amounts of content for a fraction of the price of one three-hour event, pay-per-view is a tough sell. Piracy on the Internet also becomes more widespread by the year. As a result, traditional pay-per-view powers are betting against the medium. World Wrestling Entertainment, at one point the biggest entity on pay-per-view, gave it up for its own distribution service years ago. HBO PPV was the top brand in boxing, and it got out of the business, as well. Showtime Boxing was No. 2, and it has greatly downscaled its efforts. DAZN is attempting to change the model, and while boxing still runs plenty of pay-per-views, few of them draw much in the way of viewership.

To this point, the UFC’s bet on the continuing relevance of pay-per-view has unquestionably paid off. However, pay-per-view remains a dubious bet in the long term, and it becomes riskier as it gets more expensive. The greater the barriers to entry, the more niche the audience for anything becomes. Boxing is the classic example of this, as decades of the biggest fights being relegated to pay-per-view made it harder to create new stars and the viewing audience got older and older.

Sign up for ESPN+ right here, and you can then stream the UFC, PFL, Dana White’s Contender Series and “The Ultimate Fighter” live on your smart TV, computer, phone, tablet or streaming device via the ESPN app.

Casual sports fans are less likely to try out sports where the best athletes are not easily available to watch, and those casual fans are more valuable than ever because distribution outlets will pay enormous rights fees for popular sports. The UFC and ESPN right now are milking the existing MMA audience as much as they can but have not spent nearly the same effort on cultivating future generations of fans. Setting up the biggest fights behind a two-layered expensive paywall is prioritizing short-term profits over the long-term health of the sport.

It’s no accident that the prices have increased so steadily since ESPN gained control of UFC pay-per-views. The UFC and ESPN have proven to be strong partners, but they don’t have identical interests. The UFC has a long-term interest in keeping its brand strong. It wants a large fan base so that the next time it negotiates for rights fees it can get the best deal possible. Perhaps a partner eventually comes along that will pay a premium price to put more of the top UFC content on its platform, betting viewership will spike as it has in the past for free PPV-level fights like Tito Ortiz-Ken Shamrock and Cain Velasquez-Junior dos Santos. That would be the ultimate win-win, pairing increased revenue in the short term with increased ability to draw more fans in the long term.

ESPN, on the other hand, only has the rights to UFC pay-per-views for a finite period of time. It is in ESPN’s interest to maximize revenue during that period. If by the end of that period interest in UFC is down but ESPN has made more money than it would have because the remaining fans paid enough to make up for the fans who dropped off, that’s fine for ESPN. It has plenty of other sports properties to monetize. When the UFC got its healthy guarantees, that reality was part of the deal. It has been a great deal for UFC overall, but this is the downside.

It’s unlikely that in the short term much will come out of these price increases. ESPN and the UFC will roll on, and profits will continue to be sky-high. Long term is a different question. From the volume of shows to the price of major events, the UFC has continually emphasized The Now over sustainability. Sustainability isn’t sexy, and financial models that prioritize long-term growth over short-term dividends tend not to be selected. The other nice thing about prioritizing the short term is if you’re making a mistake, it may end up being someone else’s problem down the road anyway. Advertisement
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