New Details of EXC-CBS Deal

One week ago Pro Elite announced a deal with CBS to make EliteXC the first MMA brand to be broadcast on a major broadcast television network. More details on the deal have emerged since that time, but many questions remain to be answered.

MMAPayout.com reported that early speculation within the industry suggested that the deal was more akin to a time buy than a rights fee arrangement. CBS and Pro Elite were quick to shoot those suggestions down with a representative of CBS telling Sherdog.com that the agreement was "absolutely not a time buy," and Pro Elite CEO Doug Deluca telling Sam Caplan that the agreement is "a typical TV license-fee deal."

Pro Elite's initial SEC filing on the agreement provides some preliminary details of the deal. The filing states that CBS will pay Pro Elite a rights fee, but the economic terms of the deal appear to be far more complicated than a typical license-fee deal.

According to the filing, CBS has the right to order up to four two-hour events during the first year of the agreement. Under the terms of the agreement, CBS was also granted four consecutive annual renewal options. CBS also has the rights to order derivative programs based on the events, in a possible nod to the long rumored Mark Burnett produced EXC reality series featuring Hershel Walker and Jose Canseco.

In connection with the agreement, Pro Elite and Showtime (a CBS subsidiary) entered into an agreement which issued two warrants to Showtime, each for the purchase of 2 million shares of stock at $2 per share. The first warrant vests immediately and expires in 2013. The second warrant provides for four equal 500,000 share blocks that vest each time an event is broadcast on CBS pursuant to the agreement.

Under terms of the agreement, Showtime could acquire 4 million shares of Pro Elite stock which amounts to an additional ownership interest in the company of roughly 8.6% (based on the fact that the company has 46.42 million shares currently outstanding). At $2 per share, based on the current share value of $7.50, that would amount to a $22 million discount on the stock purchase.

Additionally, coinciding with the CBS deal, Showtime exercised part of the warrants it was issued in Jaunuary 2007. Showtime acquired 2 million shares at $2 per share resulting in $4 million in proceeds to Pro Elite.

Speculation in the industry is that this $4 million transaction may represent all or at least part of what is being described as a rights fee under the agreement. If true, it is open to interpretation whether this arrangement more closely resembles a time buy or a traditional rights fee agreement. The Hollywood Reporter reported that the companies would jointly sell the commercial inventory, however, a representative of ProElite told MMAPayout.com that the company would not be liable for any unsold inventory.

At this point there are more questions and speculation than answers, however, multiple sources within the industry familiar with what CBS was offering have told MMAPayout.com that the network was offering a pay to play opportunity.

Regardless of the financial details, the agreement is still a major score for EliteXC in its struggle to break through the UFC's current stranglehold on the market and a major step forward for the entire MMA industry.