Dion-Vera Suit Accuses Zuffa, White, & Silva of Interference with Contract

It appeared that the management dispute between Mark Dion and Brandon Vera was resolved in an arbitration hearing in front of the CSAC earlier this year. However, MMAPayout.com has learned that Dion filed suited against Vera and his new management team in civil court in California on May 1.

The complaint closely follows the contours of the arbitration proceedings, except for the inclusion of Zuffa, White, and Silva for allegedly interfering with Dion's management contract with Vera. Specifically the complaint alleges that Zuffa and its officials encouraged Vera to breach his contract with Dion and provided him with confidential emails to use in that effort.

Viva UFC?

According to a sidebar in Forbes' recent UFC cover story, the Fertittas are planning nine new editions to their Station Casino empire, including a massive project called Viva:

The biggest, at 110 acres, will accommodate a three-casino project called Viva, which is intended to incorporate hotels, condos and perhaps an arena. The parcel is just off the Vegas Strip behind MGM Mirage's $8 billion CityCenter. Viva's cost could reach $10 billion, which would make it the most expensive casino project ever, if you don't adjust for inflation. (emphasis added)

The inclusion of an arena on the property would be an interesting development. A UFC owned arena project has been rumored dating back to the origination of the company's $325 million loan. Such a project would seem to represent the perfect synergy between the Fertittas' primary businesses. However, the site will be built over many years and the first phrase will reportedly include three casinos and hotels, but no arena.

According to the Las Vegas Sun, Viva will be the company's crowning achievement:

Originally conceived as a single casino hotel built on a few dozen acres, plans for Viva grew exponentially as Station quietly bought or obtained rights to develop the 110-acre site, currently home to squat, nondescript warehouses and retail stores.

“It started to build upon itself, like putting together pieces of a puzzle,” Lorenzo Fertitta said.

In its expanded form, Viva will establish the Fertittas as “Strip players” and cement their legacy as casino entrepreneurs beyond their success in the neighborhood casino business — a track record long admired by their counterparts on the Strip.

“In a lot of ways, it will change the face of the company,” Lorenzo Fertitta said.

Latest on HDNet v. Zuffa: Resolution by End of Summer Appears Likely

On April 9, a Federal Judge remanded HDNet Fights' declaratory judgment action against Zuffa to Texas state court. The case was officially reopened on April 15 and the proceedings to determine Couture's contractual status are progressing quickly. With HDNet's lawyers reportedly pushing the pace, a resolution of the case by the end of the summer appears more and more likely.

Court records obtained by MMAPayout.com show that Zuffa filed a motion to dismiss on April 21, while HDNet filed a motion for summary judgment on April 23. The motion to dismiss is scheduled to be heard on May 19, while the motion for summary judgment will be heard on June 2. However, details on the case will become increasingly difficult to obtain thanks to Zuffa's motion to seal the proceedings.

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.

Ultimate Cash Machine: UFC on the Cover of Forbes

Zuffa, parent company of the UFC, is the subject of the cover story of the May 5th editor of highly respected and influential Forbes magazine. The piece is now available online at Forbes.com.

The article represents yet another mainstream breakthrough for MMA in general and the UFC in particular. The feature is very flattering and well worth reading in its entirety, however, the most interesting quotes concern the potential sale of the company. MMAPayout.com reported on rumors that the company was for sale earlier this year.

According the article the Fertittas "field pleas from private equity and media firms to sell UFC," with offers they claim exceeded $1 billion. The piece notes that price would be "rich in comparison with the $1.4 billion market value for publicly traded World Wrestling Entertainment, which has almost double the revenue" (SEE: Bird of a Feather: Zuffa's Future in Light of WWE's 2007 Financial Results).

Later in the article, when asked if he wants the Fertittas to cash out while the price is high, Dana White responded, "absolutely not. I love what I do and think we are just scratching the surface with this sport." The article states that "neither brother seems inclined to sell, either," with Frank Fertitta saying, "I'm sure we could find something to do if we did, but we're having too much fun."

At first blush, the article seems to have a certain "thou doth protest too much" element to it as it pertains to rumors that the company is for sale. The piece places Zuffa's value at $1 billion plus, projects $250 million in gross sales for the company this year, and estimates that the UFC controls 90% of the MMA industry.

Other interesting items in the piece:

• UFC 81 is said to have grossed $25 million, including 500,000 pay-per-view buys.
  
• The piece says the the UFC's pay-per-view events often draw 3 million 18-49 year old males (assuming six people watch at each purchasing household).
• Mark Cuban argues that the UFC is vulnerable because it is "completely dependent on pay-per-view." Cuban believes that fans will become increasingly less inclined to pay for events with HDNet and CBS offering live events for free. White responded: "I'm flattered that Frank, Lorenzo and I have made this business look so easy. But CBS doesn't understand the fight business, and Mark Cuban doesn't know anything about the fight business, either. All he's concerned with is drawing subscribers to HDNet so he can sell out to Time Warner or Comcast."
• White believes MMA will reach $1 billion in sales as an industry within five years.
• The piece states that most of the company's 275 fighters take home at least $100,000 a year for three or four fights each. Chuck Liddell and Quinton Jackson are said to make several million dollars per year including endorsements from companies including Dell and Nike.

Shamrock v. Zuffa

Ken Shamrock filed suit against Zuffa yesterday in Nevada State Court. MMAPayout.com has not seen the complaint, however, based on the information available, it appears that the action is predicated on the company's now infamous retirement clause.

It seems that Shamrock signed a two-fight contract with Zuffa that included a third rematch with Tito Ortiz. Shamrock then announced his retirement. At that point Zuffa made an election, as is its right under the terms of its standard contract. The action alleges that Zuffa breached its contract with Shamrock when it changed that election upon Shamrock's announcement that he intended to return to fighting.

The standard retirement clause reads:

If at any time during the Term, Fighter decides to retire from mixed martial arts or other professional fighting competition, then ZUFFA may, at its election, (i) suspend the Term for the period of such retirement; (ii) declare that ZUFFA has satisfied its obligation to promote all future Bouts to be promoted by ZUFFA hereunder, without any compensation due to Fighter therefore; or (ii) elect to provide Fighter with notice of an Acceleration.

Based on the fact that Shamrock subsequently signed a contract and fought in EliteXC, it appears that Zuffa likely elected to suspend the term of the contract following Shamrock's retirement, and then elected to declare its obligation satisfied when Shamrock announced his intention to return.

More details to come.

HDNet v. Zuffa Remanded to State Court

MMAPayout.com has learned that the United States District Court for the Northern District of Texas has granted HDNet's emergency motion seeking remand of its lawsuit against Zuffa to Texas State court. Zuffa removed the declaratory judgment action concerning Randy Couture's promotional contract to Federal Court last month. The ruling represents a procedural victory for HDNet and Couture.

Senior Judge A. Joe Fish issued the ruling this afternoon. The central issue was whether or not HDNet's choice to enter into its contract with Couture through a specially established Nevada entity was proper, thus defeating the court's diversity jurisdiction, or whether it represented collusive manipulation, as claimed by Zuffa. From the order:

However, the court recognizes the danger inherent in second-guessing the motivation behind business decisions. As much as the defendant wishes this case to be an assignment case, there is no assignment here to scrutinize. The burden on the party claiming that it has been improperly denied its statutory right to removal is a heavy one (citations omitted). The timing and circumstances surrounding the formation of the HDNet Nevada entities presents circumstantial evidence of collusive manipulation, but without more the defendant has not discharged this heavy burden.

The cases that Zuffa relies on involve situations where the assignee entity could not demonstrate a legitimate raison d’etre other than for the destruction of diversity. Here, though the circumstantial evidence suggests the plaintiff might have been motivated in part by the underlying lawsuit, as with Ivanhoe Leasing, the court also finds the plaintiff “was also influenced by other factors unrelated to jurisdiction” (citation omitted). This court is confident that the issues between the plaintiff and the defendant can be adequately addressed in state court.

NOTE: A full writeup is available at Sherdog.com.

Former Pride Owners Sue Zuffa Holding Companies, Fertittas

I have a new story up at Sherdog.com detailing the latest developments in the legal dispute over the Pride asset sale. The lead:

When Zuffa purchased Pride in March 2007, the MMA world immediately began anticipating the epic battles that would follow. However, the "Super Bowl of MMA" never materialized, and Zuffa ultimately abandoned the Pride brand in October.

Now, one year later, the acquisition appears set to provide the fireworks it initially promised -- only in the court room instead of the cage.

Nobuyuki Sakakibara, Ubon, and Dream Stage Holdings sued Pride FC Worldwide, both the Nevada and Japanese corporate entities, as well as Lorenzo and Frank Fertitta individually on April 2 in U.S. District Court in Las Vegas.

FULL STORY: Former Pride Owners Sue Zuffa Holding Companies, Fertittas

Xyience Update

The Las Vegas Review-Journal featured a pair of articles by John G. Edwards in recent days on the rise and fall of Xyience as well as the company's official sale. On April 1, the Judge overseeing the company's bankruptcy proceeding approved its sale to Manchester Consolidated for $15 million (mostly in the form of assumed debt).

The action looks set to continue in a potentially nasty civil suit filed by dissident shareholders against Xyience, its former directors, and companies controlled by the Fertittas. Unsecured creditors have also sued in federal court, asking that $14.8 million in assets be set aside from the Fertittas for the benefit of Xyience creditors.

Marshall's Law (Extended Version)

Yesterday MMAPayout.com featured an exert of an interview with Zuffa's Marshall Zelaznik. Bellow the interview is reprinted in full with the permission of Fighting Spirit Magazine. Specal thanks to Editor James Denton.

MARSHALL'S LAW

The head of the UFC’s UK division, Marshall Zelaznik, discusses expanding into Europe, taking cues from WWE, moving from Bravo to Setanta, Chuck Liddell fighting in London and a whole lot more…

FSM: First of all, tell us a little bit about your role and your responsibilities within the UFC.

Marshall Zelaznik: I’m the president of the UK division of the UFC’s parent company. We’re a British company, called Zuffa UK Limited, and I’m a director of that company, having relocated my family here. Our responsibilities in this office are to continue to push forward the UFC brand, to work on putting events together in the UK, and also to work with our TV partners and media outlets here.

Another element that a lot of people don’t know about is that we’re also responsible for the international deployment of the UFC beyond the UK and US. So when it comes to Asia or the Middle East or Continental Europe, we’re the ones out there talking to media partners and meeting with venues and putting UFC programming on television in those territories.

So those are the main objectives of this office, and then day-to-day a lot of our focus is getting the ticket sales together for events such as the O2 Arena in June, working on PR and dealing with foreign television rights holders, getting them all the information on our shows… so there’s a lot of administrative stuff behind the scenes that isn’t so sexy, but there’s a lot of sexy stuff that we get involved with as well!

FSM: You mentioned relocating to the UK from the US. How long have you been over here?

MZ: I joined the company in September 2006 after spending three years with a television and pay-per-view company in the States, called InDemand, which is how I got to know Dana White and Lorenzo Fertitta. My official start date was September 12 2006 and I was on a red-eye flight on September 11, of all days, flying to the UK to start my job.

So from my first day on the job in September 2006 I was here for a few weeks at a time, then back home for a week, just trying to get the office put together so we could hit the ground running last year, and I’ve been here permanently since January 2007.

FSM: As someone who’s still relatively new to the country, how have you found the difference between how British viewers consume television product as compared to Americans?

MZ: I think if you just look at sport, over here it’s football first and then it’s everything else. When I was in college in San Francisco, the American football team there is the 49ers and at the time they were winning every Superbowl and doing very well. And you would turn on the news there and there could have been a major assassination in the world, but the first story in San Francisco was always the 49ers.

It’s sort of that way here; if there’s a big story in the world of football, the news will open up with that. So I wasn’t quite ready for that. I always knew it was big, because I used to license European football in the States, but that was the one thing that really jumped out at me, and I always try to explain to my friends back home what it’s like here in terms of sport!

The other thing I’ve noticed is that TV consumption here, while there are some programmes that appear to be ‘appointment viewing’ – which means, “I’m going to be at home at eight o’clock on Sunday to watch Top Gear” – a lot of networks here ‘strip’ their programming. So if they like something, they give it to you every day and make sure you have it available to you, and then it might disappear for a while.

So the way they programme television here is a little bit different, and the appetite for sport and the way the news covers it is a bit different, certainly as it relates to football. But I don’t think there are that many significant differences in how viewers here consume television because if they like it, they want it, they can’t get enough of it. And we can see that on our website with the consistent traffic that our UK fans generate.

FSM: Obviously in the States, the UFC model is geared towards PPV consumption, whereas here the viewer is less inclined to pay for content on an individual basis, but more agreeable to paying for subscription-based content. How have you reconciled that difference between the markets?

MZ: It’s funny that you mention that, because if you speak to television executives in America, which I was doing for three years, they’ll you that PPV is dying. They were saying that from the day I first started until the day I left. Yet every year in the States, PPV revenue keeps going up and up – be it PPV movies, video-on-demand or one-off events like UFC and WWE. But you’re right, there’s a big difference.

You don’t know what came first in this, the chicken or the egg, but the UFC in the States was a PPV product because no one else would touch it, so it had nowhere else to go. But the irony is that the programme that made the UFC the beast it is now was The Ultimate Fighter, which is on free television. So the paradigm has been completely switched here, because we have a lot of free television partners that want the UFC, which we didn’t have in the States, yet there isn’t a great outlet for PPV here in terms of consumers willing to buy.

Which in a sense leaves us to create our own future here. Like you said, we think people will have an appetite to pay monthly, because they’re going to get more product than a one-off show. They’re going to get better value for money, which is one of the reasons we went to Setanta and the subscription model, and we think we can deliver good product that way.

FSM: How sympathetic are Dana and the guys back in the States when you try to convey that difference – are they sympathetic to the change in trends or are they still, “Gotta drive the PPVs, gotta drive the PPVs”?

MZ: I’m lucky because I have some television experience, so if I have a reaction or a feeling in the TV sphere, their reaction is usually to say, “Okay, we understand.” But that doesn’t mean we don’t have some good discussions about the best things to do with the UFC brand in the UK – and I don’t subscribe yet to the fact that it isn’t a PPV product here. We’re still getting people used to the idea of paying for the UFC, because for years they’ve had it free on Bravo.

But by doing the UK events, which have a special appeal, I think over time that the UFC will become a PPV product in this market, and the revenue will be substantial. Ultimately the decisions we make here and back in the States are made by Dana and Lorenzo, but they’re more or less willing to take my recommendation on what I think is best for the product. So I’m lucky that way, but maybe not so lucky, because if the shit hits the fan, I’m the only guy there holding it! But I’m okay with that.

FSM: If you look at WWE, for the last 15 years PPV broadcasts have aired here as part of the standard subscription package. But in the last few years, pay delivery has gradually been introduced and WWE has moved shows towards that model. Initially fans were resistant but, gradually, it’s become accepted and you’ve got shows like WrestleMania and the Ricky Hatton fight doing big buyrates.

MZ: Definitely. You’ve got to develop a desire, because we’re in a generation now where people are used to paying for what they want. Think about ringtones and internet content; people are willing to pay for what they want, now. And what we’re trying to do is educate the fans so they have a better appreciation for the sport, and then when we decide that we’re going to be on PPV again, people say, “I have to have this!” They won’t be offended at having to pay for it because the culture these days is to pay for what you want, when you want it – it’s very much an on-demand culture.

FSM: Dana infamously said last year: “I don’t think there’s anything profitable about the European market right now. We’re getting our ass kicked over there… But for this sport to grow, we need to move out to Europe.” How does that relate to what you’re doing – are there strict targets or deadlines, or things that have to happen for this expansion to be considered a success, or is it more organic?

MZ: It’s really organic. If you were to read through all the emails and documents on my computer, you’d never find one that said, “Your revenue goals are X,” or “your ticket goals are Y.” This is a product that lives and breathes with every day. When we launched in the UK we had a business plan that, at the end of the year, looked nothing like what we actually did this past year, in terms of the kinds of shows we put on, how we marketed them and the fighters we expected to bring over.

We’d done some forward planning but, at the end of the day, we made decisions kind of from the hip, which ended up putting us in the situation that Dana refers to. But there’s no arguing with selling out events, breaking merchandise records, having good ratings on television, doing good numbers on PPV, having enough success that just about every significant network in the UK wanted to licence our rights.

So while the overall profits may not have met the desired goals, I think the amount of revenue we created in this office is about where we thought it would be – it’s just that we spent more money! And we did that because we could see the upside of the market pretty early, based on how UFC 70 tickets were going, so we started spending to make sure we hit it out of the park.

That was an investment that will come back in the next few years, but overall there are no targeted goals here – it’s kind of, you’ll know it when you see it. I’m so optimistic for this year in terms of the measurable things like ticket sales, merchandise sales, total revenue and profits for this office. So for me we’re ahead of targets, when you look at the five-year plan when I sat down with Dana and Frank and Lorenzo Fertitta, back when we were flirting about me taking this job.

We’re ahead of the game right now and I’m very happy with the progress, and overall I think Dana and Frank and Lorenzo Fertitta are as well – otherwise we’d be all packing up and going home. Which isn’t going to happen, because my kid’s in school and I’m not taking him out!

FSM: Aside from the usual business barometers, how else do you measure the success of the UFC in this country, both as a brand and a young sport?

MZ: There’s really a lot of little pieces that make up the pie. The media acceptance is one of the more difficult ways to judge it – getting more stories in the periodicals and the daily news, and getting the news to cover us as an ‘official sport’. Once those things happen, that’s one of the best indicators of success – if we can start showing that we’re being accepted as a proper sport, that’s really what our goal is at the end of the day.

We’re lucky enough that we’re building a new sport here. It sounds kind of egotistical, but it really is; this is a new sport that’s being exposed to the world through the efforts of the UFC. In ten or twenty years, when this thing is bigger than it is now, I think all of us involved with it – who either reported on it early or were putting the shows together – will look back and say, “That was a big success, because look where it is now. It’s in every country – there’s a circuit of these shows going on, everyone wants to participate in it and no one can get enough.”

That’s the grand way to look at success, but for us I think it’s making sure that we’re perceived as a proper sport and that people will continue to buy tickets over time. We’re going to be in London again in June – are we going to be as successful as last time? All indications are that we will, but you never know. So it’s going to take a couple of years of having the success we’ve had, to know that we’ve been a success.

FSM: Getting acceptance from the press is an ongoing battle both here and in the US. How have you found the general reaction thus far from the mainstream media in the UK – does the “human cockfighting” mentality still pervade?

MZ: Well, anyone in the press or anywhere else that’s willing to close their mouth and open their eyes and ears can’t really argue with the statistics. But I do think the human cockfighting hangover still exists here, because every time you see a story written by a new journalist in a daily, inevitably that comment gets put in there – even though it was made in 1993.

I get it – it’s sensational. But I think the acceptance of the sport here is far behind where it is in the States. And we’re far from mainstream in the US, even though we have great success there. And while we have what I feel is great success here, we have more work to do and there’s a lot more education we can do. And that’s why we put our events throughout the region here, so that everybody in the media can get a chance to look at it, and our fans can see it up close and personal.

If you come to a show and you’re not a fan of it, that’s okay. It’s not for everybody – it’s just a matter of opinion and taste. But if you’re not a fan for the wrong reasons, then shame on you. Don’t dislike us because of some misconception, especially a comment that was made 15 years ago!

FSM: While it isn’t quite mainstream, the UFC has had extraordinary growth here. A big part of that has been the partnership with Bravo, which is an edgy, laddish, adult-focused channel. In July UFC programming moves to Setanta, which is a dedicated pure sports network. That’s a big step towards the legitimisation of the UFC.

MZ: It is, definitely. You asked about success, and part of our feeling about that deal was that it’s not just about money; it’s having people perceive us as a true sport. In the States we’re on Spike TV, which is very similar to what Bravo is; if we got a deal with a sports network in the US, it might do something to take us to the next level there. You never know, and we’re very happy with our relationship with Spike.

But here, we had Sky and we had Setanta and we had a couple of terrestrials all bidding for us. And it was flattering but, for me and for the group back home, the ability to be perceived with Setanta – which we felt was a hard-charging, young upstart – was a good fit for us, and it helps give us that sports legitimacy we’re looking for.

FSM: Okay, how big is it for the UK division to get Chuck Liddell fighting at UFC 85, on 7 June at the O2 Arena?

MZ: For us it’s massive and, for me, I’ve just got a huge smile on my face. I have a six-year-old son and he’s always wanted a chance to meet “The Iceman”, but because we’re here now and not in the States, it’s harder for me to get him the opportunity. So when I told him a few weeks ago that, “Hey, The Iceman is coming!” he was just so jakked! But for me as a fan, and as someone who’s pushing and shepherding the UFC brand, to be able to have arguably the biggest MMA star come and help us in our endeavour – I just couldn’t ask for anything more.

FSM: There was huge interest in the rumour that Brock Lesnar would be on that card, though his next fight is against Mark Coleman in August. But that interest and the WWE parallels we discussed earlier are representative of the crossover between pro wrestling and mixed martial arts. There seems to be a natural progression with many wrestling fans transitioning into MMA fans – what’s your take on that cross-pollination?

MS: I’m a believer in that, as I think all of us in the UFC are. I think there comes a point when a majority of WWE fans, as they get older, while they may continue to be WWE fans, they want something maybe a little more real. And they’ll ‘graduate’, which is one of the terms we use, to the UFC from WWE.

For us it’s great. Those fans are loyal – the WWE fan is a loyal, hardcore fan. And they know all the ins and outs of the wrestlers they like – what they’re doing, what their background story is, and they love the nuance of the sport and the entertainment factor. And so those are the kinds of fans that, for all the same reasons, are the core fans of the UFC – they can follow their fighters, they can see how they’re progressing as they get older, and they see how good they really are.

The other thing that’s good is that WWE fans are consumers in the biggest sense of the word – they’ll reach into their pocket to get their product, be it pay-per-view, merchandise or whatever. So for us, because we’re driven by a similar model, they’ve graduated to us and that means they’re used to paying for it on television, they’re used to looking online for information, they’re used to buying a t-shirt, so there isn’t a whole lot of re-education that has to happen.

So I do believe that there’s something to the WWE fan graduating to the UFC. But we’re lucky because we know that we’ll not only get some of the matriculating WWE fans, we have the ability to draw other sports fans – certainly combat sports fans and likely boxing fans.

FSM: Another parallel would be WWE’s long relationship with the international market – Europe and the UK in particular. Not only have overseas territories become as valuable, day-to-day, as the US market, when business is down domestically WWE has relied on its international business to compensate.

MZ: And it’s not just in sport and sports entertainment – it’s just about every product. Whether it’s Coca Cola or Kleenex, they all rely on these different markets, sort of a diversification of their US stock portfolio. Dana, Lorenzo and Frank are smart guys – they know that in order to be secure, they need to be pulling from every possible market, because inevitably you’ll have a downturn somewhere.

You’re right, WWE has mastered this, and we’d be crazy if we weren’t looking at that company’s success. And having worked with WWE when I was in PPV, they’re trailblazers in this field. Obviously our product is a little different, and we can pull from a wider demo, but Europe and the success WWE has had here is definitely on our mind, and we’d love to obtain that kind of success.

FSM: What other territories are you looking at in the near future?

MZ: Germany is high on the list, as is Italy, and of course France with its recent legalisation of MMA – those are the big three. Holland would make great sense for us with its great K-1 history, and then we’re looking at moving into Eastern Europe is part of our strategy, as well as the Middle East. But in the short term it’s Germany, Italy and France that are our top three targets.

FSM: A big part of your UK success has been Michael Bisping. If he hadn’t done so well on The Ultimate Fighter or in his first fight at UFC 66, would this expansion have been possible without him?

MZ: While he was ultimately a big part of it, I know from having been in the discussions that no one ever said, “Let’s go into the UK because we have Michael Bisping. And I think our instincts were right, because when we held UFC 62 in Belfast, the applause that Forrest Griffin got and the way he was received really confirmed that our fans here want to see the UFC fighters.

This is what’s unique, and Dana always says it: in boxing you’ll have such nationalism for a fighter that comes from your country, but the UFC – and again, it’s similar to WWE – they want to see the big stars and the best fighters. So not having Bisping probably wouldn’t have affected our rollout here – his success certainly made it a lot easier, but it was by no means the reason we came here. Of course, we’re lucky that he is the fighter he is and we’re glad we can rely on him!

FSM: Finally, There was talk last year of doing a season of TUF in the UK or possibly having some sort of UK-based TV magazine show. Has there been any movement in that direction, and where do you see the UFC here in a year or two’s time?

MZ: A TV product isn’t on the front burner right now, but it’s definitely something that we expect to do. It won’t happen this year, but my suspicion is that sometime in 2009, something like that will happen. Whether it’s a TUF or a UK Fight Night series, something is going to break so that we have what would truly be perceived as a UK product, as opposed to a product made in the US that can be exported to the UK.

In a couple of years? My belief is that we’ll be running four to six shows in the UK. We’ll be out in Europe running a couple or more shows a year. And, most importantly, that we’ll become an accepted part of the landscape of the UK sports scene.

Zuffa Executive Speaks Out on International Expansion and Pro Wrestling Crossover

Fighting Spirit Magazine has a very candid interview with Marshall Zelaznik, President of Zuffa's United Kingdom division, Zuffa UK Limited. In addition to overseeing the company's UK expansion, Zelaznik is also responsible for extending the UFC brand internationally. The interview is one of the most revealing and candid ever given by a Zuffa executive. The interview is now available in its entirety on MMAPayout.com.

FULL INTERVIEW: Marshall's Law (Extended Version)

Couture Litigation Grows More Complex

The legal war between Randy Couture, Zuffa and HDNet Fights continues to heat up with the parties engaged in an increasingly complex set of litigation that includes two separate lawsuits, in Nevada and Texas respectively, and now an arbitration proceeding in Nevada.

On March 7, Zuffa filed for arbitration on Couture's promotional contract, pursuant to the terms of the agreement, in Nevada district court. The action marks the first time that Zuffa has formally made the promotional contract the issue of legal proceedings.

According to Zuffa, the proceeding will "necessarily require resolution of disputes between Zuffa and Couture over key terms of the promotional agreement," including those at issue in the HDNet Fights declaratory judgment action in Texas state court.

The action also continues in Texas. On March 13, Zuffa filed a notice of removal to federal district court in HDNet's declaratory judgment action brought against the company in Texas district court last month. [FULL STORY at SHERDOG.COM]

Upcoming UFC Advances & Secondary Marketplace Strategy

Dave Meltzer reported in this week's Wrestling Observer Newsletter that the advance for UFC 83 in Montreal is over $4.5 million. The event is officially a sellout, but in a somewhat controversial move, company is auctioning off some additional seats. The company also frequently auctions off fighter memorabilia from its events for-profit.

The secondary ticket market is an emerging force in sports business, however, it is usually seller to seller with the sports entity as the go between, keeping the transaction fee. In the game worn industry, when items are auctioned by the entity it is usually for charity with most for-profit deals done through licensing companies such as Steiner Sports. That allows companies to reap the benefit without attracting potential negative publicity.

Zuffa's decision to handle these transactions itself appear to be consistent with the company's standard operating procedures which seek to maximize profits by keeping things in house whenever possible. The practices are not illegal and would be considered by many to be sound business, cutting out the middle man and thus maximizing profits. However, you have to wonder if the potential damage to the company's image/reputation is worth the extra financial reward.

Meltzer also reported that the advance for the company's 5/24 show in Las Vegas is off to a strong start at $2.3 million. With two months to go, that figure is only 8% off the total gate ($2.5 million) UFC 81 drew in February. The event features a strong card that includes the last fight on Tito Ortiz's contract. Ortiz has to be happy with the fast start as a strong gate and pay-per-view number, to go with a victory, would solidify his status as a top draw heading into the open market.

The company's 6/7 return to London is also off to a good start with an over $2 million advance. Ticket prices for the event are up $50 across the board from the first show with the cheapest seats going for $90. There is a lot of attention being paid to the gate by industry observers as the company has historically had a tougher time the second time into markets other than Las Vegas.

UFC Owners Defendants in Xyience Lawsuit

I have a piece up on Sherdog.com this afternoon detailing the latest developments in a civil lawsuit brought by Xyience shareholders against the company and its directors. The lead:

Xyience's bankruptcy proceeding is set to come to a close April 1 with a public auction, but the dispute between dissident shareholders and the company's directors appears to be far from over. Publish Post

Last December shareholders, led by Ronald Soloman, who controls 35 percent of Xyience's outstanding shares by proxy, filed suit against Xyience and its directors for breach of fiduciary duty to the company's shareholders.

On March 13 the plaintiff shareholders amended their complaint to include Fertitta Enterprises and Zyen, private companies owned by UFC co-owners Frank and Lorenzo Fertitta, as defendants. The complaint alleges that Zyen and Fertitta Enterprises aided and abetted Xyience's corporate directors in breaching their fiduciary duty to shareholders as well as engaged in a conspiracy to defraud shareholders.

FULL STORY: UFC Owners Defendants in Xyience Lawsuit

MMA Facts: Full Court Press for UFC in NY

New York is the last great conquest in Zuffa's push to sanction MMA across the United States. According to The New York Times, in November the company hired the Albany-based lobbying firm of Brown, McMahon & Weinraub at $10,000 a month as well as a political consulting firm, the Global Strategy Group, used by now former Governor Spitzer. The company also made a $25,000 donation to the state Democratic Party in mid-January.

This week Zuffa launched MMAFacts.com as part of its lobbying efforts in New York. The site is very well done, although I doubt it got much traction in NY this week given the resignation of Spitzer. Much of the information is old hat to the informed follower of MMA, however, there are some interesting new facts:

• The company's pay-per-view buys have had annual growth of 47%, 189%, and 352% in 2004, 2005, and 2006 respectively. Gross revenues from pay-per-view events have increased 47%, 232%, and 424% respectively during the same time span.
• Televised MMA content has grown 390% in terms of hours of monthly programming over the past four years.
  
• The average ticket price for an UFC event in 2006 was $273.68 (10 events), up from $81.45 (5 events) in 2001. In 2005 the average was $178.01.
• UFC 68 produced $11 million in external economic activity for the Columbus, Ohio with approximately 40% of attendees from outside of the state.
• UFC 67 in Las Vegas drew 72% of its attendees from outside of Nevada.

Fertittas Join Cuban As Certified Billionaires in MMA Industry

Frank Fertitta III and Lorenzo Fertitta, owners of Zuffa, parent company of the UFC, cracked Forbes' List of the World's Billionaires for the first time this year. The brothers each check in at #897 (of 1062) with an estimated net worth of $1.3 billion each.

The brothers are listed as self made billionaires from casinos and the UFC. The bio:

Father, Frank Fertitta Jr., got start as a dealer for Stardust Casino in Las Vegas. Saw need for casinos aimed at Sin City locals; opened 5,000-square-foot, 100-slot facility away from Strip simply dubbed The Casino 1976. Expanded to include sports book, restaurant, buffet, bingo hall, more gaming; renamed Bingo Palace. Public 1993. With brother [Frank/Lorenzo] and Colony Capital's Tom Barrack, took company private for $9 billion in cash and assumed debt last year. Purchased professional mixed martial arts league Ultimate Fighting Championship 2001; spent $40 million to improve operations, image. Mass appeal came in 2004 with reality TV show The Ultimate Fighter. Stages monthly pay-per-view events; each averages $30 million in revenue.

Mark Cuban, owner of HDNet Fights, checks in at#446 with an estimated net worth of $2.6 billion. Cuban is also listed as a self made billionaire from the technology industry. His bio:

Former bartender launched early Internet audio and video portal Broadcast.com with Indiana University buddy Todd Wagner. Sold to Yahoo in 1999 for $5.7 billion. Used proceeds to buy pro basketball's Dallas Mavericks from Ross Perot in 2000 for $285 million; team has been to playoffs every season since. Famous for courtside antics; has accumulated $1.5 million in fines for mouthing off to NBA referees. Vying to buy pro baseball's Chicago Cubs from Tribune Co. Building media empire: owns film production, distribution, theater firms. Spends spare time writing blog. Recently competed on ABC's Dancing with the Stars.

Zuffa, Couture Have Different Takes on Preliminary Injunction

I have a new piece up at Sherdog.com this afternoon with further insight and analysis into last week's action in Zuffa v. Couture. Included is a breakdown of each party's press release, new insight into last week's hearing, a preview of this Thursday's preliminary discovering hearing, and details of a dispute between the IFL and Xtreme Couture. The lead:

Judge Jennifer Togliatti handed down the first ruling last Thursday in the contentious Zuffa v. Randy Couture proceeding, issuing a preliminary injunction barring Couture's participation in the IFL's event the following day. However, the impact of the ruling is open to interpretation and neither party has been shy about offering its own version.

FULL STORY: Zuffa, Couture Have Different Takes on Preliminary Injunction

New Era?: UFC Debuts on Yahoo! Pay-per-view

UFC 82 may ultimately be remembered as a milestone in the MMA industry, the first pay-per-view event distributed online by Yahoo! Sports. As part of a clever promotional campaign, and convenient beta testing program, Yahoo! made the online feed available for free to members of the online media. The results, at least based on my personal experience, were sterling.

I consider myself somewhere in the middle of the great technology divide that separates the tech savvy from the technophobe. Two simple cable connections, one quick scan of a randomly Googled (my apologies to Yahoo!) how to guide, and ten minutes later my television was broadcasting the Yahoo! internet feed in picture perfect quality.

At the risk of sounding like a cheap shill whose opinion was bought and sold for $44.95, the quality of the feed was impeccable and the experience was surprisingly painless. Outside of the fact that I was unable to take advantage of my full television screen, which I presume was the result of own ineptitude and/or personal technological limitations, there was no discernible difference between the standard pay-per-view experience and the Yahoo! pay-per-view experience.

That said, there is also no discernible benefit to buying the online version, at least for now. Yahoo! touted that the replay is available for 24 hours following its conclusion and it can be viewed by fight/chapter, but noticeably missing is the greatest promise of internet pay-per-view, a lower price tag.

Assuming that the basic assumptions about internet pay-per-view are true, then theoretically Zuffa has every incentive to drive business online by offering a lower price point. In theory the move would be more than compensated by a more favorable revenue split (with Yahoo! as compared to cable distributors, although as Zuffa's stature has increased, so has its leverage with distributors) and increased buys as a result of a lower price point.

But that will not happen anytime soon because Zuffa (or WWE or HBO Boxing) simply cannot risk raising the ire of the traditional television pay-per-view industry by aggressively driving consumers online with more attractive price points and a value added product. While the balance of power is shifting, the online revolution is simply not mature enough to sustain the company.

The traditional pay-per-view industry would retaliate against any move that threatened to cannibalize it. The UFC product could be deemphasized by cable and satellite distributors with dire results for Zuffa's bottom line. Put simply, the current dominant pay-per-view distributors could literally run Zuffa out of business by cutting the marketing, specifically direct targeted marketing, and placement of UFC events before Zuffa could successfully convert its audience online.

As an example, assume that Zuffa began offering UFC events on Yahoo! for $23, roughly half the price of what traditional cable or satellite providers currently charge. It is likely that those providers have most favored nation status when it comes to UFC pay-per-view, meaning they have first right of refusal on price point. They would likely balk at a significantly lower exclusive online price point.

Zuffa has already experienced a mild rebuke from the traditional distributors after it experienced early success with online streaming, thanks at least in part to a heavy promotional push for UFC.com and UFC on Demand during its pay-per-view broadcasts. As a result of pressure from the distributors, Zuffa stopped marketing its online pay-per-view steam in 2006, but maintained the product on its own website.

So if prices cannot be reduced, at least in the near term, what can Yahoo! offer that traditional pay-per-view cannot or will not? That is the (multi) million dollar question and one that the online world is waiting for the answer to.

One likely value added feature is exclusive content in the form of extra fights that cannot be shown on cable/satellite because of maximum time commitments. Yahoo!’s greatest advantage as a distributor might be its unlimited platform, in terms of time, allowing it to provide virtually endless extra content. It remains to be seen what other tricks Yahoo! may have up its sleeve in the pending pay-per-view arms race.

A new era may be dawning in the MMA industry in the form of online pay-per-view streaming, but its zenith is years away. Until then Yahoo! will spend its time refining the logistics of the new platform and quietly exposing consumers to its possibilities. The future is coming, but its not here yet.

Rovell on UFC-Budweiser Deal

MMAPayout.com reader and CNBC personality Darren Rovell is one the preeminent analysts in sports business. In the past he has been critical of the UFC for its failure to land blue chip sponsors, but now with Anheuser-Busch on board, on the heels of Harley Davidson, Rovell is ready to proclaim the UFC as the next boxing:

The bottom line is UFC fans are, at the very least, prospective Harley Davidson riders and Bud drinkers. And the reality is that the UFC provides more annual buzz than boxing does. So it's fitting that Bud Light will first appear in the Octagon in Las Vegas, where boxing has made its name. Mark this date down: May 24. Because of this deal, the UFC finally becomes the next boxing on that date.

Friday morning, Squawk Box on CNBC featured Tony Ponturo, Vice President of Global Media and Sports Marketing for Anheuser-Busch, discussing the deal. Video of the interview is available here.

Zuffa Wins Preliminary Injunction

I have a piece covering yesterday's preliminary injunction hearing in Zuffa v. Couture up at Sherdog.com. Zuffa's motion was granted, but it essentially ended up being moot:

The victory, however, was a shallow one, as the court noted that many of the issues regarding Couture's involvement in the event had become moot. As Sherdog.com reported Thursday night, prior to the ruling the IFL agreed remove "Xtreme Couture" from the event, including any references on its Web site, as a professional courtesy to Couture. In an amended affidavit filed yesterday with the court, Couture further stated that he had no intention of attending the event.

FULL STORY: Zuffa Wins Preliminary Injunction