UFC vs disruption

A winning investment in the world's oldest sport provides a valuable lesson in disruption.

The largest sale of a sports organisation in business history was completed last month. Ultimate Fighting Championship (UFC), once a derided and mostly illegal mixed martial arts tournament, was sold to a consortium of private equity firms for an astonishing US$4bn.

For the former owners, Casino owners Lorenzo and Frank Fertitta, it completes a stunning investment, arguably one of the best of the century.

The brothers bought the UFC title in 2001 for a paltry US$2m. At the time, it was an underground phenomenon that was unregulated, illegal and certainly wasn’t available on cable sports. A US Senator memorably called the sport ‘human cockfighitng’.

Only 15 years later, everything has changed. This is a legitimate sports powerhouse.

UFC claims to be in over 1 billion households in over 150 countries around the world. It is, in fact, the largest pay per view event provider on earth, generating lucrative pay per view revenue as well as contracted cash from cable television. Fox alone has signed a US$100m a year deal with the league. It has also launched an independent digital streaming platform; for a mere US$10 a month, you can see every fight in all its brutality.

So how did it UFC go from being an embarrassment to a spectacle?

The disruption of traditional television as well as the spread of social media are key reasons for the success of the sport.

Live sports, from football to esports, are all commanding higher prices as traditional television struggles to maintain viewers. UFC is only one of many sports that are worth much more today than 15 years ago.

Yet it is unique in its social media appeal, with brutal moments widely shared and viewed, generating publicity and eyeballs. Pay to its fighters is now based partly on their success in generating social media buzz.

UFC has also been fast to adapt to new technology, offering cheap and easy to access digital service that increases potential viewers enormously without leaking fees to partners and affiliates. Older sports such as football or cricket, tied by existing contracts and relationships, can’t generate the scale available to a global digital platform. It helps that fighting is more universal than, say, swinging a golf club or throwing a pigskin ball.

We tend to focus on the losers of disruption. Too often we listen to tales of loss and hear about the fall of empires without considering the other side of the battle; every fight lost is also won by someone. As investors, we should also focus on the winners from disruption. UFC is one; there are many others waiting to be found. 

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