ProElite Inks DVD Distribution Deal

ProElite has reached a multi-year deal with Image Entertainment to distribute four EliteXC titles and eight ShowXC titles annually. EliteXC Destiny (featuring Shamrock-Gracie) and Renegade (featuring the debut of Kimbo Slice) will be released on May 13. On July 22 the company will release Huntington Beach Bad Ass featuring Tank Abbot.

Second Opinion: Englebrecht on IFL & ProElite 10-Ks

Roy Englebrecht is the owner of Roy Englebrecht Promotions, California’s third largest boxing promotions company. Oscar De La Hoya purchased the company in December of 2001 and Golden Boy Promotions was formed, with Roy serving as COO for the first three years. At the end of 2004 Roy Englebrecht Promotions was again reestablished, with Oscar De La Hoya now as a minority partner. Roy offered MMAPayout.com the following Second Opinion on the IFL and ProElite's recent 10-K filings.

I have been reading the stories about the awful 10-K annual reports for IFL and ProElite, and I just have to comment.

I want you to know I pray for humility every day, and I don't want to sound like I am tooting my own horn, but what are these guys doing in the fight business in the first place if they don't know how to be profitable!

According to Jay Larkin of the IFL, and I thought Jay's leadership and creativity at Showtime boxing was as good as anyone in the sport, but he says 20 MMA groups are all struggling. Well, I'll promote eight to 10 pro mma clubs shows in 2008, and I won't lose money on any of them!

In 2007, my fight business did $1.1 million in gross revenue, and I read that the IFL only did $5.7 million in gross revenue and ProElite did only $5.3 million in gross revenue.....you mean that my company, which is all of two people, me and my matchmaker Arnold Berber, did over a million in revenue and we turned a profit, and the IFL and ProElite with their vast staffs and network partners did just awful!! With their staffs and resources they should have made $35 million, not lost $35 million!!

While I respect Dana White for the way he has grown the UFC, and though I don't agree with some of his statements in the past, I give him my top kudos for his statement in the Forbes UFC article, where he was quoted in regards to some comments about competitors like ProElite on CBS and HDNet Fights, that "CBS doesn't know the fight business, and Mark Cuban doesn't know anything about the fight business, either."

He hit the nail on the head.....these so called "fight promotions companies" don't know the fight business. Their executives can negotiate nice fighter agreements, and secure great site fees with venues and casinos, but they have never "promoted a show" never rented a venue, created the marketing, had to sell all the tickets, hire an event staff, made sure towels, water and ice were in the dressing rooms, and had to stay within a show budget. These companies aren't fight promoters, they are syndicators.

My MMA Fist Series will promote four hotel ballroom shows and fill them with 1,250 young fans. We'll do two SummerFist Fair shows in Fresno and Orange County, free to fair goers, and I will do one SummerFist show at a minor league baseball stadium, and every one will turn a profit!

I have lived by a credo that I came up with 20 years ago....I give my fans great entertainment, at the right price, in a clean environment, and say thank you and mean it! Because I am anal about doing all four points all the time, my fans come back!

I'm afraid some of those "struggling mma groups" are missing one or two of the points that I preach!

Sports Business Journal Offers MMA Industry Reality Check

The following article was originally published in the April 21 edition of Street & Smith's Sports Business Journal and is republished here with permission. Thanks to Dan Kaplan and Richard Weiss.

Filings Show 2 MMA Groups Financially Bloodied

By Daniel Kaplan

Two key players in the mixed martial arts industry may soon go down for the count, underscoring the significant financial volatility in the sport despite its tremendous hype.

International Fight League and ProElite Inc., the latter of which made waves in February by signing the first MMA broadcast contract, warned in securities filings last week that they may run out of money later this year. Both also cautioned they could have accounting irregularities that resulted in inaccurate financial reports.

“You have got maybe some 20 MMA groups around the world, and every single one of them is struggling,” said Jay Larkin, IFL’s chief executive. “In the last three or four months, 10 have either reorganized, folded, changed names or completely gone out of business. That is a very heavy casualty rate for a sport that is supposed to be the greatest thing since the NBA.”

IFL is looking to align with a media concern or another MMA outfit, Larkin said, though the three-year-old company also is confident of raising additional equity. The MMA industry must consolidate to survive, Larkin said.

MMA combines boxing, judo and other hand-to-hand combat disciplines.

The dominant company in the conversation is Ultimate Fighting Championship, the Zuffa Corp.-owned outfit that dominates MMA but does not release financial results. UFC, which has previously dismissed rumors in the MMA world that it is looking for a buyer, declined to comment for this story.

Standard & Poor’s in November downgraded Zuffa’s $350 million of debt, citing weak pay-per-view buys and poor results in England.

IFL, which has lost $31 million since its inception in 2005, said in its annual 10-K filing last week that it “will likely have a cash shortage which would disrupt our operations, have a material adverse effect on our financial condition or business prospects and could result in us being unable to continue our operations.”

ProElite, which lost $27 million in 2007 on $5.3 million in revenue, similarly disclosed in its 10-K filing that “our auditors have expressed substantial doubt about our ability to continue as a going concern.”

A ProElite spokesman, in an e-mail, said “The company is optimistic about its financial position improving.”

Later in its report, IFL stated, “Our auditors have identified a material weakness in our disclosure controls and procedures … due to insufficient resources in the accounting and finance departments.

“There is more than a remote likelihood that a material misstatement of the consolidated financial statements would not have been prevented or detected.”

ProElite also reported it has identified internal accounting control problems.

In 2007, IFL reported revenue of $5.7 million and a loss of $21.3 million. The company is cutting the number of events it stages from 13 last year to six or seven this year. Commissioner Kurt Otto, who earned $250,000 in 2007, was let go on March 31 and instead will be paid $10,000 per event as a consultant.

UFC is broadcast on Spike, while IFL has deals with Fox Sports Net and MyNetwork. ProElite, which recently signed renowned fighter Kimbo Slice, announced in February a broadcast package with CBS.

Pro Elite 10-K Notes

ProElite released its 10-K annual report last week. The company has lost a total of $31.3 million through the end of 2007, including $27.1 million last year alone. As with the IFL, the company's auditors have also expressed "substantial doubt" about ProElite's ability to continue as a going concern. However, the company's practical reality is much brighter thanks to the continued financial support of CBS/Showtime, whereas the IFL must find a financial patron.

The company generated $5.3 million in revenue in 2007 including $4.6 million in live event revenue, $447,679 in television and pay-per-view revenue, and $184,192 in merchandise, DVDs, and licensing fees. Live event expenses total $9.6 million including $2.9 million in production costs paid to Showtime. The company ran 18 events which would bring the cost per event to around $533,000, nearly one-third of the $1.2 million per event spent by the IFL. The difference would seem to be a step discount in production costs provided by Showtime, however, that's really just speculation, especially in comparing across companies and accounting practices.

In 2007 the company received no license fee from Showtime and bore all the production costs. This year the company will be receiving a licensing fee, reported by Dave Meltzer to be between $50,000 (for ShowXC events) up to $500,000 (for major events), to be split between ProElite and Showtime and the network will bear the cost of production. As part of the deal Showtime received a number of stock warrants and the right to appoint one member of the ProElite board of directors.

ProElite.com was the most eye catching item line on the company's balance sheet, costing $3.3 million in 2007 while generating only $68,782 in revenue. That is a mind boggling amount of money to spend on a website. The website is an integral part of the company's business plan:

Our business plan is to capitalize on the popularity and growth of mixed martial arts in building an “elite” fight brand, EliteXC, while also taking advantage of the Internet to capture fans, fighters and organizations in combat sports with its ProElite.com social networking web site. We plan on reaching MMA fans and participants through normal marketing channels (print, television, radio) and harnessing the efficient networking available over the Internet. We are in the process of acquiring multiple on- and off-line brands to increase our entertainment properties, content libraries and tool set offerings for fighters, fans and organizations in and around MMA. EliteXC, our fight brand, produces and promotes live events featuring the top fighters in MMA while ProElite.com has created an MMA grassroots online social network. We cross-promote our Internet and live properties so that each can strengthen the other.

The filing also recognized what many outside the company have identified as a major flaw in the company's management, absentee executives:

The Company’s executives, directors and shareholders have business relationships requiring them to advise, manage and/or provide services to other businesses. The Company has engaged in transactions with some of these businesses. Due to the wide-ranging network of contacts and business relationships of our executives, directors and shareholders, the Company was not always able to devote sufficient resources to identify, monitor and report all transactions with such businesses in a timely manner.

These executives appear to have been well paid based on the salaries of CEO David DeLuca ($200,000), President of EliteXC Gary Shaw ($435,724), and President of ProElite.com Kelly Perdew ($475,224). The company recently went through a management restructuring with DeLuca being promoted to Chairman of the Board and replaced by Charles Champion as CEO. The move was made shortly after the CBS deal was announced and is believed to represent CBS's increasing influence on the company.

Effect of ProElite-CBS Deal on Fighter Sponsorships

Preliminary analysis of the ProElite-CBS deal has focused on the more abstract benefits to the sport at large or the company in specific. However, it is not just MMA in general and ProElite in particular that stand to benefit from the exposure of CBS, but also the fighters themselves who will be faced with an array of new opportunities.

One of the top agents in the industry told MMAPayout.com that he expects fighters’ sponsorship revenue to increase significantly. He estimated that the value of premium placement opportunities, namely butt and front top center of fight shorts, will go from $3,000-$10,000 on non-main card fights to $7,500-15,000 for CBS events. Top fighters with an established record, reputation, and positive persona could see their sponsorship asking price reach over $50,000.

This will unquestionably give ProElite an advantage it didn’t possess before and make it a more attractive option for free agent fighters.

With the UFC reportedly moving away from pay-per-view and signing bonuses in favor of discretionary bonuses according to Dave Meltzer, there is room for ProElite to enhance its recruitment efforts in order to attract and retain more top flight talent.

Ready for Prime Time?: EliteXC on CBS

ProElite has what UFC President Dana White so desperately wanted and has publicly stated is the next important step for the MMA industry: network television. But the old adage goes, be careful what you wish for because you just might get it. Has ProElite, and with it the entire MMA industry, bitten off more than it can chew? Is MMA in general and EliteXC in particular ready for prime time?

The answer to that question will shape the future of the industry. EliteXC on CBS will either prove to be a ratings hit and other promotions will see their opportunities expanded or MMA will be branded a mainstream failure, a niche audience with no place on major network television. That’s why as much as White despises his competition even he has to hope his rival does at least good enough numbers to keep the door open for the UFC.

“The CBS deal didn’t work for us,” White said recently. “At the end of the day, listen, when you are talking about a show like ProElite or any of these other shows, they will give up their right (expletive) to get on television. They will give away everything to be on TV.”

This statement, along with statements by Top Rank’s Bob Arum, seem to confirm what MMAPayout.com has reported before, that the ProElite-CBS deal more closely resembles a quote-unquote “time buy” than either side is anxious to admit. There is no shame in that fact, while the UFC as the questioned industry leader is in position to hold out for creative control and a fairer financial deal, ProElite, as the challenger who had been largely treading water at best, had nothing to lose and everything to gain by making a deal with CBS by any means necessary.

The UFC on the other hand has already established itself as the only viable company in the sport and the unquestioned giant of the industry. In the eyes of the mainstream media and corporate world, the UFC is MMA. With its position secure, the UFC has little incentive to risk its reputation and position on a deal that doesn’t give it whatever it believes it needs to be successful on network television.

However, by ceding leadership of the industry to ProElite on major network television, White has now effectively put Doug DeLuca and Gary Shaw in charge of securing a favorable outcome for the entire industry, the UFC included. EliteXC’s numbers on CBS will hang around the neck of every promoter in the industry during negotiations with television partners for years to come. If successful, a major new revenue stream in the form of lucrative rights fees may be opened up to the industry as a whole. If ProElite fails, MMA risks losing its mystique as the fastest growing sport in the country and all the financial opportunities and exposure that goes with it.

Such an important task would almost certainly be better left to White and the UFC. Granted there are criticisms to be made of White, but the fact remains that he is the only promoter who has proven he can make this product work. As much as others in the industry may dislike him and his company’s aggressive trade practices, it the UFC’s growth, under White’s distinctive leadership, that has opened the door for everyone else in the industry. As White is all too fond of saying, MMA is not hot, the UFC is.

There seems to be a fairly strong sentiment within the industry that EliteXC is facing an uphill battle to draw the kind of numbers that would equal success on a major broadcast network. The UFC's biggest overall rating is a 3.1 (average of 4.7 million viewers) for UFC 75. That event featured Quinton Jackson v. Dan Henderson in the most watched fight in the history of MMA with 5.9 million viewers.

To put those numbers in perspective, CBS through February of this year is reportedly averaging almost 11 million prime time viewers.

In searching for benchmarks for MMA on network TV, a frequent comparison is made to World Wrestling Entertainment. From 1985 through 1992 WWE's Saturday Night Main Event was a major draw on network TV, averaging a 9.3 rating during that span. The recent reincarnation has been a flop, averaging a 2.55.

What changed? A major factor, outside of increased competition from cable television, seems to be the product’s increased exposure. With four hours of original first run programming each week, some would say that today’s WWE is overexposed despite the fact that on average the programs draw 4.2-5.7 million viewers per week. During the company’s glory run on NBC and FOX major weekly television shows were not part of the equation, making network television specials must see TV.

Overexposure has been a hot topic of debate in MMA this year, particularly with the UFC’s ever expanding pay-per-view schedule. However, without the presence of a glut of original weekly programming, or the temperance of a $44.95 price tag, it is hard to believe MMA will suffer the same fate as the WWE recently has on network television.

One of the biggest overlooked factors in the ultimate success of the entire venture is how much promotional money CBS will put behind the events? Will the network fully embrace the sport with a major integrated rollout or simply shove EliteXC into the television wasteland of Saturday night to sink or swim on its own?

Early indications from inside the network and CBS’s financial investment in the company suggest that if EliteXC fails it won’t be for lack of network support. However, the structure of the deal reveals a strong, but fluid relationship between the two companies. CBS is invested in ProElite, but not truly committed. Look at your breakfast plate for the difference. The chicken is invested, but the pig is committed.

Clarification on the ProElite-CBS Deal

Earlier this week MMAPayout.com referenced a report from The Hollywood Reporter that stated "CBS and ProElite will jointly sell advertising," under the terms of this agreement. Based on this report, and speculation inside the industry, MMAPayout.com concluded that ProElite would be "on the hook for selling half the commercial inventory of its CBS events."

Today a representative of ProElite told MMAPayout.com that while the companies will be selling the advertising jointly, ProElite is not responsible for any unsold inventory.

SEE: New Details on EXC-CBS Deal

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.