Adam Swift, who runs MMAPayout.com and quickly landed a spot writing on Sherdog.com, has a new article this morning discussing the Standard & Poors evaluation of the UFC’s credit rating.
What is Standard & Poors? According to their own definition, “Standard & Poors is the world’s foremost provider of independent credit ratings, indices, risk evaluation, investment research, data, and valuations.” If you’ve ever heard of the S&P 500 on your evening news, well, these are the guys who put that together.
So the S&P takes a look at the UFC and has downgraded their credit rating from “BB” to “BB-”, according to Swift’s article. Factors influencing the decision included:
- a “meaningful decline in [pay-per-view] buys”
- “vulnerability to changing consumer tastes”
- “revenue and cash flow volatility given its primarily event-driven business model”
- “relatively short operating history”
Swift alludes to an article written recently by veteran writer Dave Meltzer which states that the UFC has cut office staff this year to keep down costs.
Lest we think that the situation is solely a UFC issue, it should be noted that 2007 hasn’t been kind to many mixed martial arts promoters. As stated in the recent IFL conference call, the IFL has decreased staff and is expected to leave their expensive downtown New York City headquarters for more modest office space. Their stock price has taken a beating over the course of 2007.
ProElite’s stock price started at $12, reached $14, and now stands at $8. ProElite has spent its way to its current position in our collective MMA fan consciousness and I would be surprised if the company has turned a profit on its investment yet.
What is the true health of the MMA industry? That’s what we really care about right? What we want to know is whether the sport we care about will be around. (Steroid scandals, contract disputes, and the rest of the drama don’t matter to the casual fan until their ability to watch MMA is threatened.)
I think there’s a decent chance that what we’ve experienced so far in MMA is something akin to the dot com bubble phenomenon, which saw frenzied over-exuberance in telecommunications technologies from investors. The excitement of the possibilities wowed the public, just as we have become enamored of the relatively spectacular growth that MMA has seen in the last three years.
A bald accountant guy looking at the books. If you squint really hard, it looks like the UFC’s Dana White.
How many articles have been written on whether MMA has gone mainstream yet? (Yes I am guilty too, your honor). As we watched the fanbase grow with Spike TV’s The Ultimate Fighter, it was easy to get excited and declare that the cherished object of our fascination was being appreciated by the rest of the world, even if the introduction was via a reality television show.
The techies among you out there are familiar with the Gartner Hype Cycle. Gartner is like Standard & Poors and shapes opinion and developed the Hype Cycle to “characterize the over-enthusiasm or ‘hype’ and subsequent disappointment that typically happens with the introduction of new technologies”, according to Wikipedia.
If we were to apply the Hype Cycle to mixed martial arts, we’re likely entering into the phase called the “trough of disillusionment”, which follows the “peak of inflated expectations”. This is the wake-up call where fans and the market as a whole decide where MMA truly belongs in the constellation of sports, and by extension pop culture.
It is also the part in the maturation of the business of MMA where companies who do not have a strong foundation and are built on hope and good intentions alone struggle and fail. Those with lots of cash in the bank and who are conservative with spending can continue to compete with one another.
To be fair, it’s an easy prediction I am making, with no timelines, and that could be applied to any business environment. However, amidst the recent calls from analysts saying the US may be on its way to an economic downturn, we might see less discretionary spending on things like, oh, I don’t know, pay-per-views?
Do not fear. Your sport is not going anywhere. And I know I sound alarmist. I am not. But it is likely that we may all need to take a step back and re-calibrate just how big MMA is and will be in the big picture of things.
- Caleb 
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