Just for a second, let’s step away from the highly-subjective world of fandom and gaze upon our favorite MMA promotion with objective, logic-and-reason-filled eyes. Okay. Ready for some harsh reality? This is from a Bloomberg article that was posted yesterday:
Zuffa LLC, which owns the Ultimate Fighting Championship mixed martial arts league, may suffer a 40 percent drop in profit this year because of injuries and canceled bouts.
Standard & Poor’s Ratings Services issued the revised profit outlook and said it may lower Zuffa’s BB-minus corporate debt rating. S&P previously anticipated Zuffa’s earnings before interest, taxes, depreciation and amortization would fall 30 percent this year.
“A negative rating action could occur if we are not confident that Zuffa’s operations are recovering meaningfully by the first quarter of 2015,” S&P said today in a statement. Zuffa’s $535 million senior secured credit facility is rated BB.
It doesn’t take an MBA to know that a 40% drop in profit is huge, and dangerous for any company out there. There are, however, some things necessarily left unsaid in the Moody’s report and Bloomberg article.
First, since Zuffa LLC isn’t a publicly-traded company, their financials are more or less private. But since they have a debt instrument out there, they’re subject to a credit rating report – and credit rating reports are just snapshots (and small, quick ones at that). What we’re not seeing is how much the UFC is divesting itself from the pay-per-view model and turning towards TV licensing (i.e., the FOX deal), international expansion, and subscription-based service fees (i.e., the money gleaned from Fight Pass).
Are things dire for the UFC right now? That’s doubtful. But the pendulum is swinging the other way now on the pay-per-view model that has made them rich, and that mode of making money is biting them in the ass. Only time will tell if their other methods of raking in the dough can sustain them.
(Hint: Those methods will.)
Your thoughts on this?