IFL Puts the Hex on MMA; Looking for New Partners

Last week the IFL announced its plans to debut a new fighting surface later this year. The six-sided ring will be called the Hex. The ring verses the cage is a hotly debated topic in the MMA community as far as each surface's affect on competition and safety, however, the IFL's move is clearly about branding.

Traditional over-sized boxing rings say boxing, kick boxing, maybe even professional wrestling, but definitely not MMA. The cage says MMA, but maybe more specifically the UFC. The Hex seems to be a compromise designed to solve both branding problems, a surface clearly distinguishable from boxing and the rest of MMA and entirely unique to the IFL.

I still think MMA happens in a cage and other things that aren't seen as MMA happen in a ring, despite how many sides it has. The cage produces a visceral reaction that is a negative for IFL CEO Jay Larkin, but is a positive for the 18-34 male demographic that watches the sport. The only convincing argument against the cage and in favor of the ring was the idea that mainstream partners, television and otherwise, were uneasy being associated with the violence imagery of a cage. With CBS and Budweiser in the cage, that argument appears to be losing steam pending a major setback.

The biggest "news" of the press conference was Larkin's public declaration that the company is actively shopping the embattled company. "Are we actively looking for a partner or a sale? The answer is, yes," Larkin stated on the call according to MMAWeekly.com. "We entertain phone calls and questions almost on a daily basis from potential investors, potential buyers, people who want to get in the MMA business, people who are already in the MMA business."

Larkin also continued to push his bleaker, some would say more realistic, view of the current state of the MMA industry:

This harkens back to something I’ve been saying consistently, is that I do believe the MMA world is a fractured world, and the way to make it a healthier, stronger, and a mainstream sport and industry, is through consolidation and roll-up. There’s just too many little groups out there who are fighting over the same meatless bone.

Background Checks at Center of Multi-Million Dollar Pride Lawsuit

I have a full breakdown of the complaint filed by Pride FC Worldwide Holdings (a Zuffa controlled company) against the former owners of Pride regarding last year's imfamous asset purchase. The lead:

One week ago Pride FC Worldwide Holdings LLC and its related subsidiaries, which were created when Frank and Lorenzo Fertitta acquired the UFC's top competitor, filed suit against the company's former owners: Dream Stage Entertainment, Nobuyuki Sakakibara, Ubon, Dream Stage Holdings and unidentified defendants to be named at a later date. The crux of the lawsuit, which alleges 14 claims for relief, stems from the purported failure of Pride's former ownership to cooperate with background checks and drug tests as required by the agreements.

FULL STORY: Background Checks at Center of Multi-Million Dollar Pride Lawsuit

UPDATE: Pride FC Worldwide v. Dream Stage Entertainment

A friend of MMAPayout.com sends the following description from the complaint:

Plaintiff purchased certain assets of defendant's business under the Pride, Pride Fight ing Championship and Bushido brand names. Because plaintiffs are involved in the gaming industry, defendants were required to cooperate with and submit to background checks and drug tests to ensure compliance with the regulatory requirements of plaintiff's gaming license. Defendants failed to cooperate with, submit to or pass such background checks, defrauding plaintiffs into entering the agreement for "millions upon millions of dollars."

Additionally, Sherdog.com reports:

A source close to DSE told Sherdog.com on Tuesday that Sakakibara was preparing his own suit against the Fertittas for breach of contract stemming from the decision to shut Pride down last October.

More to come.

Ghosts of M&As Past, Present, and Future

Mergers and Acquisitions past, present, and future are the talk of the MMA industry today:

• PAST: Dave Meltzer reports that Pride FC Worldwide Holdings (a Zuffa controlled holding company) filed suit today against Dream State Entertainment, Dream Stage Holdings, and Nobuyuki Sakakibara. The suit claims that Zuffa was defrauded millions of dollars in the purchase of Pride.
• PRESENT: Strong rumors within the industry suggest that sports giant IMG is poised to enter MMA. Sources tell MMAPayout.com that IMG is set to replace Showtime as the majority owner of Pro Elite (EliteXC) in a deal that is believed to be imminent.
  
• FUTURE: The potential sale of the UFC remains the talk of the industry (SEE: Zuffa Sale Rumor Goes Public).
  

Zuffa Sale Rumor Goes Public

This weekend rumors that Zuffa and the UFC are for sale went public in a radio interview between Steve Cofield and Dana White. Sam Caplan has a transcript of the relevant exchange at FiveOuncesofPain.com. When asked if the company was for sale, White essentially said that everything has a price and that there have been unsolicited bids, but that the company was not actively shopping for buyers.

MMAPayout.com first heard that the company was for sale back in December. At that time, the rumored asking price was in the neighborhood of $220 million with the profile of the prospective buyer being described as a media company, preferably international. Including the company's $350 million debt, that asking price would put Zuffa's value at more than half a billion dollars. Since then sources have told MMAPayout.com that the rumored asking price is significantly higher.

Many in the industry believe that the company's major, some would say quixotic, international expansion effort is related to its rumored sale (SEE: Tough Sledding: UFC Finding International Expansion Isn't Easy).

Details on the Latest EliteXC Purchase

Dave Meltzer recently reported that EXC's purchase of Hawaii's Icon Sports was finalized for $1.95 million in cash and stock. The owners received $350,000 in cash and 200,000 shares of Pro Elite stock. One of the owners, T. Jay Thompson, also got a five year contract to promote the Hawaii shows and received a percentage of the profits. The first event will be on 4/26 in Honolulu.

The Untold Story of Zuffa's Purchase of the UFC

One of the most dramatic moments of the recent CNBC special, From Bloodsport to Big Time, was the scene in which Bob Meyrowitz claimed that Lorenzo Fertitta, a member of the Nevada State Athletic Commission at the time, blocked regulation of the UFC, essentially forcing Meyrowitz to sell the company to the Fertittas and Dana White. Lawyers for Zuffa immediately contacted CNBC and got the segment pulled from subsequent airings.

In The Wrestling Observer Newsletter, Dave Meltzer recently offered what he believes to be the accurate version of the story, partly based on his first hand knowledge, as well as the story of the early history of Zuffa. The highlights according to Meltzer:

A hearing concerning sanctioning the UFC was scheduled before the NSAC on April 23, 1999. Meyrowitz had been told that NSAC sanctioning was a prerequisite to returning pay-per-view. As the hearing approached, Meyrowitz believed that he had the votes (3-2) for sanctioning, but the night before the hearing he was informed that one of the commissioners had switched his vote. Meyrowitz withdrew his request for sanctioning because he was told that he could only ask for one vote and a negative result would doom the company's future on pay-per-view.

"I don't know which commissioner it was, but the commissioner who had the 11th hour change of mind that caused Meyrowitz to pull out was not Feritta," Meltzer wrote. It is interesting to note that one of the other commissioners during this period was Gina Carano's father, Glenn.

More than one year later the New Jersey State Athletic Commission under Larry Hazzard did sanction the Meyrowitz-owned UFC. At that point Dana White contacted Meyrowitz about purchasing the company with the Fertittas, including Lorenzo who had subsequently left the NSAC, as his backer. Meyrowitz was interested in retaining an interest in the company, however, the Fertittas were only willing to buy outright. Meyrowitz decided to sell for $2 million because he was under the impression that sanctioning from the NSAC was unlikely, which meant no pay-per-view.

Meltzer noted that while in the CNBC piece Meyrowitz claimed no regrets about the way things worked out that in reality he has always thought he was treated unfairly and has been working to return to MMA for several years. Shortly after the special aired Meyrowitz did announce a new MMA project in association with Live Nation, a subsidiary of Clear Channel and the leading promoter of live events in North America.

NSAC sanctioning and pay-per-view didn't turn out to be the immediate saviors as expected. The first Zuffa promoted show on pay-per-view did 75,000 buys behind a strong marketing campaign, however, following that "horrible show," according to Meltzer, subsequent events settled in the 30,000-50,000 buy range until Ortiz-Shamrock I did 150,000. Following that pay-per-view numbers returned to the former range.

To make matters worse, in order to get back on pay-per-view the company signed an unfavorable distribution deal which guaranteed the cable companies a certain amount of money. The early buys weren't even close to what they needed to meet the guarantees and they lost a lot of money as a result.

The other revelation from the CNBC piece was that at one point the Fertittas were ready to get out and had White shop the company. One of the people White approached was Shane McMahon, believing that all the UFC needed was a television partner and the WWE could get it on Spike TV with RAW as a lead in. Ultimately, White got a $7 million offer and the Fertittas declined because they'd lost over $30 million at that point.

The rest as they say is history. White reached his own deal with Spike (only after agreeing to pay all production costs), The Ultimate Fighter was born, and the UFC exploded. However, none of that could have happened if Vince McMahon and the WWE hadn't signed off on the deal, a decision which McMahon may or may not regret today.

Inside the Collapse of Pride

Sam Caplan of FiveOuncesOfPain.com has a great interview at CBS Sportsline with former Pride executive Turi Altavilla. The picture of the Pride that emerges from the interview is that of a dysfunctional organization.

In light of some renewed gnashing of teeth about Zuffa's acquisition of Pride this week at BloodyElbow.com, it may be worth revisiting The Final Word (?) on Zuffa's Acquisition of Pride. Sam Caplan also has new details on the acquisition.

More Details on Recent IFL & EXC Deals; Shamrock v. Shamrock

• Jay Larkin, recently hired IFL President and COO, received 250,000 shares of IFL stock (worth $150,000 as of yesterday's close at 60 cents per share) as part of his compensation package. In addition he will earn $5,288 per week for his first six months on the job followed by an annual salary of $325,000 after that. The deal also includes various stock options. You can see the SEC filing containing the complete details in the form of an offer letter here.
• In addition to the details previously reported on EliteXC's purchase of King of the Cage, the owners of King of the Cage also received 178,571 shares of EXC stock (valued as of yesterdays close at $2,589,279.50). The total cost of the purchase could run as high as roughly $10.85 million.
• Terms of EXC's purchase of Cage Rage were the assumption of $2.8 million in debt, $2.2 million in cash to the owners as well as 500,000 shares of stock (valued at $7.25 million) for a total purchase price of roughly $12.25 million.
• Frank Shamrock is looking at brother Ken Shamrock, Renzo Gracie, and Cung Le as future opponents. The time is ticking on Shamrock v. Shamrock, with Ken turning 44 in February, but it is the only non-UFC fight that has a chance of doing anything significant on pay-per-view.

Source: Dave Meltzer

EliteXC Financial Update

From Dave Meltzer:

• The company secured another $22.5 million in funding on 9/25 by issuing stock to four different institutional investors at $7 per share. The institutional investors also have the right to purchase $11.25 million more in stock at $7 per share over the next five years.


• EXC paid $1 million for a 30% stake in the South Korean promotion SpiritMC.


• The company paid $3.25 million down to Terry Trebilcock in the purchase of King of the Cage. Another $500,000 is due in January, with as much as $5 million more due over the next five years depending on how financially successful the company becomes. Trebilcock will continue as president of the promotion with a $150,000 per year contract and a percentage of the profits above an agreed upon level.

M & A, MMA Style

Consolidation has been the name of the game this year in MMA. The UFC has acquired the WFA, WEC, and Pride, while EliteXC recently purchased Icon, Rumble on the Rock, Cage Rage, and King of the Cage. Each company has its own separate agenda for the acquisitions it has made.

The UFC's motives were/are a little more obvious and concrete:

• WFA - bought in a fire sale for the fighter contracts, namely Quinton Jackson. At the time with Forrest Griffin's loss they were without a contender to face Chuck Liddell in May. Enter Jackson, Liddell's only unavenged loss and one of the most charismatic fighters in the sport, who defeated the Iceman in a fight that brought the company unprecedented mainstream media coverage and drew over one million pay-per-view buys.


• WEC - bought in order to block a rival promotion from securing a television deal with the Verses network. This move was necessitated by the company's exclusive contract with Spike TV which prohibits UFC programming on another channel.


• Pride - it's incredibly hard to intelligently discuss this deal because so much is still unknown. In the end the Pride tape library is about the only tangible thing the UFC got out of the deal. Most of the fighter contracts ended up being nonassignable, but buying the company did essentially make those guys free agents, ultimately allowing the UFC to sign them. The deal also provided the chance to break into the Japanese market with the established Pride brand, but that idea ultimately was nothing more than hubris as the company found it difficult to run a business in Japan as an outsider.

EliteXC's acquisitions are a little more difficult to understand. It's tempting to write these off as bad deals because they netted no valuable TV contracts and no major talent, but in the short term these deals provide easy content for Showtime shows as EXC can use the local fighters with EXC's guys on top. In the long term this move apparently has a lot to do with internet pay-per-view. The EXC website currently features live fight cards, losing lots of money in the process. In the long term they, along with the IFL, are building to the day when internet PPV content can be fed into HD TVs. Therefore it looks like the thinking is, show a lot of free events on the website in order to begin conditioning people to the idea of watching content on their computers.

No one thus far has been able to make internet PPV work, but as the old adage goes every idea goes through three stages: first it is ridiculed, then it is violently opposed, and finally it is accepted as self-evident. At this point I think we're still in stage one with no immediate time table for progression to stage three. It's also an open question how long EXC can bury money into this new model before the well runs dry. They do have the benefit of Showtime's financial support which will probably last as long as the channel thinks EXC moves subscriptions regardless of the financial results.

For details of the most recent EXC transactions and discussion of these issues, visit FightOpinion.

Final Word (?) on Zuffa's Acquisition of Pride

As a privately held company, we may never know the full details of Zuffa's complex acquisition of Pride. We do know that because of the structure of the deal and the way things played out, the company ended up with little more than a tape library. However, the price tag apparently wasn't anywhere close to the reported $65 million when all was said and done, thanks to the structure of the deal including the use of a third party holding company. Whatever the price and result, Zuffa admits no regrets. Dana White recently told Dave Meltzer:

The worst deal ever done in the history of business... [Pride] was totally bankrupt. They were out of money and had nothing. We wanted the company so we went in and bought it. It didn't matter how fucked it was, how crazy the deal was, we got what we wanted.