UFC beating down rivals

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It’s common knowledge that mixed martial arts is one of the fastest-growing sports in America. But the sport essentially is dominated by one entity - the Ultimate Fighting Championship - as rival leagues fight to gain a foothold and, in some cases, struggle even to stay in business.

The challenge for UFC’s rivals was underscored last week when the International Fight League (IFL) canceled an August event, citing a lack of cash. The public company that once saw its stock price reach as high as $17 watched shares close yesterday at just 2 cents.

“I wouldn’t even call it a dichotomy as much as a Grand Canyon,” IFL CEO Jay Larkin said of the gap between UFC and every other mixed martial arts (MMA) organization. “UFC has done a tremendous job of creating a brand in an environment that doesn’t want to accept it. Most fans equate UFC with MMA, and UFC and MMA are synonymous for most fans.”

IFL’s biggest problem has been low attendance, and other promoters are also reporting disappointing crowds at events. Adrenaline, a new MMA promoter, reported just more than 2,000 fans outside of Chicago for its first show last weekend.

MMA is a tough business to begin with, making it even harder for competing organizations to find success. Wary of the sport’s violent nature, many states won’t allow it to take place inside their borders. Most mainstream television networks won’t touch it. And fans of MMA can be some of the most critical in all of sports. But UFC has spent more than a decade building a brand that now appears to have staying power in an increasingly competitive sports world.

As a private company, UFC does not report revenues, but Forbes Magazine last month estimated the company will pull in $250 million in revenue this year, adding more when licensing fees are factored in. Many of UFC’s sponsors are large, recognizable companies like Harley-Davidson and Budweiser. In all, about 90 percent of all MMA revenues go to UFC or organizations owned by its parent company, Zuffa LLC.

“I think it’s pretty clear that it’s UFC versus everybody else,” said Ben Zeidler, founder of the Web site mmamadness.com.

There are a handful of clear reasons for UFC’s success: It has been around for longer than nearly every promoter, it implemented rule changes that emphasized safety and gave the sport greater legitimacy and it has shown an ability to simply acquire its most prominent rivals, buying the well-regarded World Extreme Cagefighting (WEC) and PRIDE leagues over the last two years.

UFC also was able to grow quickly by spending millions of dollars to produce “Ultimate Fighter,” a reality show on the cable network Spike. The show has scored some of the highest ratings among sporting events shown on cable, with strong viewership in the desired 15-to-35 male demographic.

Smaller fight leagues said that to stay in business, it’s important to take a slow growth approach and not to worry about competing with UFC.

“You can’t try to compare yourself to UFC. You can’t try to be UFC,” said Marcello Foran, president of the Ultimate Warrior Challenge, an MMA promotion that has held successful events in the D.C. area. “A lot of people are like, ‘Hey, we like the sport. Let’s do an event.’ It’s a matter of taking things long term, sitting back and looking at it as a business.”

Foran said his company has not yet profited on any of the three events it has held but that it is growing in value and is losing far less money that many other MMA startups that have come and gone.

“We’re building the infrastructure, building the platform and letting the business of MMA evolve,” Foran said. “It’s not just confidence and hubris and ego.”

That’s not to say that rival MMA promotions can’t make a high-profile splash. EliteXC, a promotion created by Los Angeles-based Pro Elite Inc., gained headlines last month when it became the first MMA event to air on network television in prime time. The show, featuring Internet sensation Kimbo Slice, drew an average of nearly 5 million viewers, making it the most-watched MMA event in history. EliteXC plans at least three more broadcasts on CBS.

But the buzz over the live events has masked Pro Elite’s recent financial struggles. The company reported a net loss of more than $5.6 million during the financial quarter ending March 31. In that same financial report filed May 20, Pro Elite said operating losses and cash flow problems raised “substantial doubt” about the company’s ability to remain in business without new financing from an outside source. Shares of the company closed yesterday at $3.50, down from a 52-week high of $15.

UFC, however, is not invincible. Several of its top fighters have defected to other MMA leagues after disputes over pay with UFC president Dana White. And some UFC observers said that while White deserves most of the credit for the league’s dominance, his confrontational management style could limit UFC’s growth.

What’s more, some rival MMA groups are getting a big financial boost from billionaire Mark Cuban, the Dallas Mavericks owner and founder of cable network HDNet. The all high-definition network shows fights from six different MMA organizations including DREAM, Strikeforce and Adrenaline.

Asked whether he believed HDNet could offer successful MMA programming without UFC, HDNet Fights CEO Andrew Simon responded, “Yes and we have been.” He argued that the upcoming fights from DREAM and Strikeforce will offer a better card than the latest UFC pay-per-view event.

That’s up for debate, but industry observers said HDNet Fights shows promise because of the strong financial backing and the diverse array of promotions that offer the network protection.

“I like Mark Cuban’s approach,” said Adam Swift, editor of MMApayout.com, a Web site devoted to the business of MMA. “It’s very incremental and ‘Let’s go slow and steady.’”

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