How will market handle influx of boxing PPVs?
As the stream of pay-per-view boxing events slowed to a steady drip in the last five years, the executive who has worked on that business since HBO Sports launched it 23 years ago noticed an unanticipated result.
HBO was bringing in nearly as much money airing four or five pay-per-view fights a year as it did when it put on eight or 10.
|Canelo Alvarez (left), who was the B-side in a fight with Floyd Mayweather Jr. in September that sold 2.2 million pay-per-views, is slated to make his debut as a PPV headliner in March.
In six of the last eight years, HBO’s pay-per-view revenue has ranged from $180 million to $240 million, even though its output in those years ranged from four fights to 10. Buys in those years were 3.2 million to 4 million. Last year, when HBO and Showtime each did two PPVs, the four fights combined for about 3,975,000 buys and $252 million. In 2012, when HBO did four PPVs, they generated a nearly identical 4,015,000 buys and $238 million.
The lesson: Though less isn’t always more, it’s about as much.
It will be interesting to see how that history applies to this year, which is shaping up to deliver the busiest pay-per-view calendar in boxing since 2008, and perhaps the highest-grossing ever, since it could be the first time lead dogs Floyd Mayweather and Manny Pacquiao each headline two PPVs in the same year.
Rising star Canelo Alvarez, fresh off a date with Mayweather in the most lucrative fight in history, at $150 million from 2.2 million buys, is slated to make his debut as a pay-per-view headliner on March 8. Pacquiao is expected to follow in April, with Mayweather going in May, and Miguel Cotto and Sergio Martinez negotiating to fight in June. Assuming one more PPV each for Mayweather and Pacquiao, plus two more penciled in for Alvarez in July and November, puts the count at eight dates in 10 months.
That would be as many as aired in 2012 and 2013 combined, and the most in a single calendar year since 2008, when HBO put on nine events and scheduled 10, one for each month except April and August.
That nine-fight year generated $192 million from 3.8 million buys. The following year, HBO cut back to three PPV fights and still did 3.2 million buys and $167 million. Six fewer fights led to only 600,000 fewer buys and $25 million less in revenue.
“The dynamic changed,” Taffet said, “and less became more.”
This year, it has changed again, driven by the return of Showtime to the pay-per-view landscape, as well as the impending emergence of the next wave of pay-per-view hopefuls — most notably Alvarez — even as the current class of Mayweather, Pacquiao and Cotto fight on.
The lessons of the last eight years would seem to indicate that it’s best to reserve pay-per-view for only the top-shelf fights; that the realities of a finite market will make winners of four or five of the fights and losers of the rest.
And yet nobody involved — not the leading promoters, the networks or the major cable pay-per-view provider — is bemoaning what lies ahead.
“We believe the smart strategy is putting [only] marquee events on pay-per-view,” said Mark Boccardi, senior vice president of programming at pay-per-view provider In Demand, a joint venture between cable operators Time Warner, Comcast and Cox. “Still, overall, we’re pleased with having more fights in the mix. Sure, something is going to give. You’re not going to have the Mayweather-Canelo-type buy levels on a regular basis. … But what we have seen over the years is that there is a substantial hard-core boxing fan base and those fans continually buy pay-per-view events.”
The concern stemming from more events isn’t limited to how much consumers are willing or able to spend in a year. There’s also the matter of how much marketing support the promoters can expect from cable and satellite providers.
Networks and television distributors combined to deliver more than $80 million worth of promotional spots plugging Mayweather-Alvarez in September. It’s unclear how those providers will respond to twice as many pay-per-view events, but many assume that it means some fights will get less support than they might like.
“The assumption has to be that a crowded calendar will definitely impact the amount of promotional support — the cross-channel spots we get from distributors as well as the co-op [advertising] dollars that are available,” said Stephen Espinoza, executive vice president of Showtime Sports. “We are competing for a finite number of spots and dollars. … That is without a doubt a consideration as we move through the year and finalize each bout.”
Boccardi and Taffet said they aren’t so sure there will be a big impact. The networks and distributors set their marketing budgets based on projections, so if a fight projects to sell well it still should get solid backing, they said.
“You can’t just think of it as a bucket of money to spend on pay-per-view for the year and it is what it is,” Boccardi said. “All the operators realize how valuable these pay-per-view programs are to the bottom line. They’ll justify getting even more dollars to go against the right pay-per-view programs.”
Much as the networks would prefer that promoters reserve pay-per-view only for the blockbusters, the economics of the fight game can complicate those decisions.
Alvarez has been pining to headline a pay-per-view for more than a year. Promoter Golden Boy planned to give him his first shot late in 2012, but rival promoter Top Rank bumped him with a bigger fight on the same date. Alvarez fought on Showtime, then did so again in April at a sold-out Alamodome, setting him up for a breakthrough fight as the B-side against Mayweather.
Now, Alvarez’s camp wants to see what sort of numbers he’ll do as a headliner. Golden Boy and Showtime have agreed to take the shot, in part because there is not a reasonable alternative. Golden Boy CEO Richard Schaefer penciled the decision out this way:
The bottom of the projection for an Alvarez pay-per-view is about 200,000 buys. At 200,000 buys, after deducting the 50 percent cut taken by cable and satellite operators and the 7.5 percent paid to providers HBO or Showtime, the promotion would be left with about $5 million. Undercard fights typically cost about $1 million. Rights fees from the delayed broadcast and foreign and closed-circuit sales typically cover the cost of marketing the pay-per-view. The promoters make their money from ticket sales and sponsorships. That means 200,000 buys can provide about $4 million as an upside for the fighters.
“And I don’t know any network which today is paying $4 million for a live fight,” Schaefer said, pegging the current ceiling at HBO and Showtime at about $3 million. “So is 200,000 homes a success? Define success. Are we talking about a financial success, or a success for the sport?
“I believe at 200,000 homes you’re a little better off financially than if you would go live. And with 200,000 homes, and an average of five people, that’s 1 million viewers. What kind of viewership do HBO and Showtime do for boxing? About the same as that. So at 200,000 buys a pay-per-view is not a flop. It sounds like a flop because you have Mayweather doing 1.5 million and now 2 million. But 200,000 or 300,000 buys can be a success.”
While not ready to buy into the idea that all three of Alvarez’s fights this year land on pay-per-view, the head of Showtime Sports points to his last outing as evidence he may be ready to carry his own event.
“Generally, [Mayweather] is between 1 million and 1.5 million, but he has broken out with two opponents,” Espinoza said. “One was Oscar De La Hoya and the other was Canelo Alvarez. That’s a pretty good indicator that Canelo may be ready to go out on his own. And it’s about expectations.
“We need to maintain a little perspective and realize not everyone comes out of the box as Floyd Mayweather. It’s a slow process. At some point you just have to take the plunge and begin that process.”
When boxing last did 5 million buys in a year, in 2007, it was driven by De La Hoya and Mayweather. But Pacquiao and Cotto each fought twice on pay-per-view that year, as did Marco Antonio Barrera. Juan Manuel Marquez and Ricky Hatton were on as opponents. Eric Morales, Bernard Hopkins and Fernando Vargas each headlined once.
“If the product is compelling, I think a slate of eight or nine will be fine,” said Todd DuBoef, president of Top Rank. “Of late, pay-per-view has been almost exclusively about Pacquiao and Mayweather events. When people talk about this next tranche of guys, maybe there’s more depth on the periphery than there once looked to be. In our business, we don’t know until we see it play out.”