UFC may drop in-house production

New owners WME-IMG may hand over production of UFC television programming to their network TV partner upon completion of a new deal.

The UFC’s current TV broadcasting deal with Fox Sports ends in 2018. The new ownership team, headed up by Ari Emmanuel of William Morris Endeavor, is already sending signals about what they’re looking for in a new deal.

Sports Business Journal has a major feature detailing some of the things WME-IMG is believed to be looking for from its next deal. The article reveals that WME is seeking an increase from its current average of $115 miilion per year to $450 million.

According to SBJ, the package will include the four annual broadcast shows FOX now airs, six annual cable events, the weekly programming now carried by FS1 and Fight Pass but will not include the UFC’s pay-per-view shows.

Most interesting, SBJ reports that “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.”

Matt Yoder at Awful Announcing points out that the “mind-blowing 291% increase” WME is seeking is “much, much greater than any of the other leagues have received in their new rights deals in recent years.”

SBJ runs through some possible competitors that WME will likely seek to draw into a bidding war against Fox, but points out that Fox will have an exclusive window to negotiate a new deal before WME can hear competing bids starting in late 2017. ESPN is the obvious alternative to Fox.

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.

Zach Arnold at Fight Opinion points out that UFC programming is the only thing on FS1 that consistently draws over 100,000 viewers. “Which means UFC is *the* cornerstone for Fox Sports 1 and will remain the cornerstone. Fox needs UFC for its survival to remain on cable & satellite packages if it wants any shot of getting carriage fees. Deals are coming up soon for both Fox and UFC. They need each other badly right now,” Arnold concludes.

He also points out that ESPN is in a financial death spiral.

“According to Nielsen, ESPN lost over 450,000 TV households in the last month. ESPN still is in 89 million US TV households but the trajectory of their household numbers is declining. Losing 450,000 households in a month is not simply a decline — it’s a five-alarm fire. …

“ESPN’s financial model is based entirely on rights fees from cable subscribers regardless of how good or bad their ratings are. They make at least $6 a month from each cable subscriber. $72 a year. Losing a million households in a year equals a loss of more than $70 million USD. If ESPN loses more than a million households in a year, the long-term financial prospects are brutal. If ESPN lost three million households a year, the losses would be over $210 million USD yearly. There is no amount of production cutting that Bristol could do to save costs. They’ve already done their blood letting. They’ve created a preposterous imbalance of paying “talent” like Stephen A. Smith $3 million a year while paying interns on the cheap. At some point, something has to give.”

SBJ runs through several other possible contenders:

“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.”

Note that Bloody Elbow is one of those MMA properties owned by Vox Media.

All of this takes place in the context of the recent purchase of the UFC by WME-IMG which puts significant pressure on the new ownership team to dramatically increase revenue while cutting costs to the bone.