SBJ/Nov. 28-Dec. 4, 2016/Media

UFC tells networks: Go big

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When the UFC was for sale earlier this summer, the company told potential buyers that it expected to see a nearly fourfold increase in its media rights revenue.

Its magic number is $450 million a year, a potentially staggering increase from the $115 million annual average that Fox Sports now pays, according to several media and UFC sources.

Although formal negotiations aren’t expected to start until next year, network executives have learned that the UFC plans to seek at least a 10-year deal under those terms, sources said.

Fox Sports signed its current media deal with UFC in 2011 and shows events on broadcast and cable.
Photo by: FOX SPORTS
The UFC’s current media deal with Fox Sports, seen as a watershed moment for the series when it was signed in 2011, ends in 2018. Fox Sports has an exclusive window to negotiate a renewal starting in late 2017.

WME-IMG co-CEO Ari Emanuel helped negotiate the UFC’s Fox deal as a consultant in 2011 and is expected to be a big part of these negotiations. Fox Sports President Eric Shanks will lead negotiations for the network. Shanks was part of the negotiating team that first brought the UFC over to Fox Sports in 2011.

The package the UFC will take to market will include the rights to four annual broadcast windows that Fox now holds, six annual cable events and weekly programming on Fox Sports 1, plus the UFC’s over-the-top Fight Pass service. It is not expected to include the UFC’s lucrative pay-per-view business, which will likely be retained by WME-IMG. But some media executives believe any winning bidder will have more of a say in what matches will be part of the UFC’s pay-per-view events. Whether a network will share in some of the PPV revenue is a deal point that will be negotiated, sources said.

The new package also could include the significant change of having the networks produce the events, sources said. The UFC now pays all production costs, so that change would increase costs for the media partner.

The negotiations mark the first significant deal under the UFC’s new owners, WME-IMG, who paid $4 billion for the company in July. Much of the company’s aggressive bid was based on leveraging the UFC’s media rights around the world, especially domestically. This will test its bullish attitude about the marketplace.

The UFC’s timing is noteworthy. On the plus side, it comes when most major sports rights are tied up well into the next decade, making the UFC appealing to media companies looking to grow their audience with the UFC’s fans, who are coveted by all networks because of their youth and passion.

The UFC also is seeing some momentum after its successful debut in New York City earlier this month.

The actual ratings performance of the UFC is a mixed bag. Like many other sports, Fox’s UFC coverage is down this year. Its Aug. 27 card averaged just 1.983 million viewers, the broadcast network’s only UFC fight to fall below 2 million viewers since its 2011 debut. In 2015, all four of Fox’s UFC telecasts averaged more than 2.7 million viewers.

The negotiations also come at a time when the pay-TV business is contracting and some of the industry’s biggest players, like Fox Sports and ESPN, have been cutting costs.

While networks pay more for exclusivity, the UFC also is considering splitting the package among two or more TV networks.

Fox Sports is considered a front-runner to renew the deal because UFC programming is a big part of FS1’s schedule and generally draws the channel’s biggest ratings. FS1’s program schedule would have a big hole to fill if the UFC went to another network.

But sources say that executives inside the network already have started balking over the proposed $450 million-a-year price tag. Fox tried to buy the UFC over the summer, but it refused to increase its $3.6 billion bid, in part, because its executives felt the UFC overvalued its media rights.

ESPN is a logical alternative for the UFC, and sources said network executives will sit down with the company if it allows Fox’s exclusive window to lapse.

But ESPN executives believe a big rights deal for the UFC will have little, if any, effect on its affiliate deals with pay-TV distributors — deals that account for most of ESPN’s revenue. Most of ESPN’s affiliate deals run for several years. Plus, ESPN’s parent company, Disney, could be squeamish about the sport’s violent nature.

Turner Sports is an intriguing option for the UFC, especially given that AT&T is buying Turner owner Time Warner, and the UFC could be leveraged across all the assets. Turner executives like the idea of putting UFC on truTV, which skews younger than Turner’s other channels; operating the UFC’s over-the-top service; and having the AT&T-owned DirecTV closely involved with the UFC’s pay-per-view business.

The timing, though, is tricky, and nobody knows whether AT&T’s purchase will win federal approval.

NBC Sports Group also is likely to kick the tires. Through its investment in SB Nation parent Vox Media, NBC Sports has seen the power of MMA as a media property, because the sport is the subject of some of SB Nation’s most popular sites.

Sports rights holders still are holding out hope that a digital media company will make a big investment in live sports. Amazon, Facebook, Google and Twitter continue talking with leagues about sports rights packages, and the UFC’s younger demos closely match their audiences. So far, those companies have invested in niche sports or smaller streaming packages. It’s still too early to know whether any of those companies will make a serious run at the UFC rights.

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