“UFC pay-per-view buys and the value of the celebrity fighter”

In 2016, the Ultimate Fighting Championship was sold for a reported price of $4 billion, the highest price ever paid for a sports franchise. This was a remarkable turn-around for a promotion that 15 years earlier was saved from bankruptcy by a $2 million buyout. This turnaround was driven by the UFC’s ability to mainstream the promotion and the sport while establishing reliable revenue streams through television contracts and massive pay-per-view events. In this paper, the authors review the pay-per-view record of the UFC and analyze the extent to which it is driven by high profile celebrity fighters with broad crossover appeal. Using statistical analysis, the authors identify the top crossover celebrities and assess the economic value they generate for the UFC. They compare this to the impact generated from the promotion ’ s highest ranked pound-for-pound fighter and find that celebrity has far more economic value than fighting skill.


Introduction ©
On September 10, 2016 at UFC 203, professional wrestler CM Punk stepped into the world famous Octagon to make his UFC and mixed martial arts (MMA) debut. The UFC is generally considered the most elite MMA organization, and competition is usually limited to the highest level mixed martial artists in the world. Most fighters train and compete in smaller organizations for years before earning a UFC contract. Many experienced professionals are forced to compete in a challenging multi-round tournament on The Ultimate Fighter reality show to earn a UFC contract. Yet Mr. Punk was given a fight on the main card of a UFC pay-per-view event despite having never competed in MMA as a professional or as an amateur. In fact, he had never competed in an actual combat sport event at any level. The results from a competitive perspective were not good for Mr. Punk. He was dominated in the contest and quickly defeated, taping out at 2:13 of the first round, having never landed a single strike on his relatively inexperienced opponent. But what was a competitive disaster may have been a tremendous financial victory for Mr. Punk and for the UFC. Punk received a disclosed appearance fee of $500,000 in addition to undisclosed incentive bonuses. His opponent, Mickey Gaul, on the other hand, was paid $30,000 including a $15,000-win bonus. The UFC reportedly generated 425,000 to 475,000 pay-perview buys for the event, with industry observers estimating that this fight card without Punk would have generated 250,000 to 300,000 buys. In other words Punk's appearance generated incremental revenue estimated somewhere between $3.75 million and $6.75 million (Meltzer, 2016).
The CM Punk appearance is just the latest, and perhaps most blatant example of the UFC's desire to create high profile celebrity fighters. In this paper, we examine the history of UFC and analyze payper-view buys over the past 12 years. We build a causal model to explain the rate of PPV buys and estimate the incremental value of several highprofile cross-over stars: Brock Lesner, Ronda Rousey and Conor McGregor. We also analyze the impact generated by Demetrius "Mighty Mouse" Johnson, the promotion's long reigning flyweight champion. Long considered the best pound for pound fighter in the UFC, we find that Mr. Johnson's ability to generate pay-per-view is substantially less than that of celebrity fighters concluding that fighting ability is a necessary but not sufficient requirement to drive PPV revenue for the promotion and income for the fighter.
1. Related literature 1.1. The history of mixed martial arts. The history of mixed martial arts in general and the UFC in particular is chronicled in multiple sources. A detailed account of the first UFC is provided in the memoir of Art Davie, a key founder (Davie, 2014). A biography of Pat Militech, one of the promotion's early fighters and coaches (Wertheim, 2010), provides a fighter's level perspective on the birth of the UFC.
Two scholarly papers from the anthropology literature also are chronicles of the evolution of UFC from its roots in Brazil (Downey, 2006(Downey, , 2007. These papers highlight the historical evolution of the sport, focusing on the effect the sport had on the culture of martial arts and the mass culture in general. Rather than a barbaric spectacle, Downey argues that MMA rapidly developed into a technically sophisticated event. The sport's evolution along with the evolution of the media which delivered it, from pay-per-view and video cassette to cable and broadcast television, provided a distance learning environment that radically shifted perceptions in the traditional martial arts community. He argues that "mixed martial arts fighting is a science of suffering: an experimental, cumulative, communal undertaking to produce knowledgein this case, about how to inflict and resist pain in the human body" (Downey, 2007, p. 220).
Several case studies are also chronicles of the early development of the UFC. Serafeim Reams and Shapiro (2016) present a model with an intent similar to ours, they focus on the star power of the main fighters. However, they do not model individual fighters, instead they use proxies for star-power such as fighter ranking, finishing rate, media mentions, and Twitter followers. In this model, popularity proxies were not statistically significant, but fight performance variables, such as finishing rates, were analyzed. Their analysis focuses on a relatively small sample of events from UFC 72 to UFC 183.

The Ultimate Fighting Championship. 2.2.1.
History. The UFC was founded in 1992 and held its first event, UFC 1, on November 1, 1993. The UFC was initially conceived as a contest between different fighting styles and sought to determine which discipline of martial arts gave the defender the most advantage in a real fight. The contest was promoted as a no rules event conducted in an 8 sided cage known as the Octagon. UFC 1 was distributed exclusively via cable pay-per-view. Based on the relative popularity of the first event the original owners, Semaphore Entertainment Group (SEG), held additional events.
The early UFC events were considered inhumane spectacles by many and were banned in many locations. Senator John McCain famously referred to the UFC as human-cockfighting (Downey, 2007). By 2000 the UFC was on the verge of bankruptcy. The company was bought out by Frank and Lorenzo Fertitta who formed the company Zuffa LLC under the leadership of President Dana White. Zuffa originally paid $2 million for the UFC (Ceranic, 2011). Over the next several years Zuffa successfully sought to legitimize the sport and the promotion (Ceranic, 2011). They eventually converted the sport into a recognized and legally sanctioned sporting event in all 50 states 1 . Political opposition was eliminated, and distribution shifted from 100% PPV to a mix of PPV and broadcast television. A successful reality show, The Ultimate Fighter (TUF), was launched in 2009 and thorough 2016 has produced 24 seasons. TUF includes a behind the scenes reality show view into a group of fighters, but also includes a tournament that results in the winner being awarded a multi-fight contract in the UFC. TUF's first season brought the promotion to cable television and ushered in the modern era of the UFC.
Along the way Zuffa acquired and absorbed multiple rival promotions; including Pride Fighting Championship, Strikeforce, and World Extreme Cagefighting (WEC). Many of the fighters were added to the UFC roster and in some cases additional weight-classes were created. The acquisition of Strikeforce brought female fighters into the promotion and in 2013 the UFC created the female bantamweight division naming Strikeforce champion Ronda Rousey as its inaugural champion. Rousey fought for the first time under the UFC banner at UFC 157 in February 2013. The UFC has also expanded globally regularly holding events in North and South America, Europe, Australia, and Asia. As of September 2016, the UFC has held 372 events across 22 countries. In 2016, after months of rumors Zuffa announced the sale of the UFC promotion to WME-IMG for a reported $4 billion, 200 times their initial investment. This transaction was the highest valued sports franchise sale in history (Boren, 2016).

Economic model.
The UFC is a mixed martial arts promotion. It earns its profit by facilitating, and distributing mixed martial arts contests. While it has over 640 fighters under contract, those fighters are not paid a salary. Instead they are paid on a per fight basis.
Fighters are typically paid an appearance fee to fight. Fight winners typically receive a win bonus, often equal to their initial appearance fee 2 1. The fees paid to fighters varies widely, a fact that creates considerable conflict among fighters (Bell, 2016). According to UFC President Dana White, pay is based on the fighters ability to draw fans -"the guys that bring in the majority of the revenue, make the majority of the revenue" (BJPenn.com, 2016) (Taylor, 2017a) In addition to show and win money, bonus payments of $50,000 are also typically awarded to 4 2 These payments are reported to Athletic commissions. fighters at each event; the two fighters who participated in the fight of the night, and two fighters selected for a performance of the night. Fighters are also given a sponsorship payment from the UFC's contract with Reebok, that varies depending on the experience level of the fighter (Okamoto, 2015); fighters earn between $2,500 for fighters with five or fewer UFC appearances, to $40,000 for a division champion.
Additional compensation is available to premier fighters who may individually negotiate a pay-per-view percentage, a compensation mechanism that is not publically disclosed and generally available only to the promotion's top stars.      Fig. 3 shows PPV Buys in the modern era, after the debut of The Ultimate Fighter and the initial mainstreaming of the sport. Included in this graph are a linear trend line and a 10-period moving average. The trend line illustrates a slight upward movement in the buy rate over the 12-year period, while the 10-period moving average demonstrates the variability. The trend line slope is 29.2, the R 2 value 1.2% and the p-value for a simple trend line regression is .24 so any positive trend is small and of low statistical significance. The 10-period moving average shows considerable variation in the average PPV rate. Table 1 shows the total number of events and aggregate PPV buys during the modern era while Fig. 4 shows a histogram of PPV buys over the same period.

Fig. 4. Histogram of PPV buys
These figures demonstrate the high level of variability in PPV buys and therefore PPV revenue. Since PPV revenue is the single largest source of revenue for the UFC, this creates a highly variable revenue stream.
In an attempt to better explain the variability of PPV buys, we evaluated several regression based forecasting models. The data does not appear to present any meaningful seasonality. A simple trend line is not statistically significant (p=.24). Models that use the presence or number of title fights as predictors have very low predictive power, with R 2 less than 10%.
In order to develop a better model, we next consider the fighters on the card, specifically the fighters on the main and co-main events. We identified all the fighters who fought a main event or co-main event fight for the events from UFC 52 to UFC 207, for a total of 204 fighters. We limited our list by excluding fighters who have appeared in fewer than 4 headline events resulting in a list of 57 fighters.
We created binary dummy variables for each of these fighters based on their participation in a main or co-main event and added them to our regression model pool. Other potential inputs included an indicator for a title fight on the card, and an indicator for multiple title fights. Using PPV buys as the output variable we ran a forward selection algorithm. The algorithm searches sequentially for the individual variable that adds the most predictive capability to the model.  (Connolly, 2016). McGregor is also an extremely accomplished competitor winning the championship in two different weight classes.
While Brock Lesnar may lack broad-based massmarket appeal, he does have a major appeal to a key demographic outside the core UFC fan base. Before entering the UFC, he was a major star in professional wrestling's World Wrestling Entertainment (WWE) promotion. Lesnar's appeal to professional wrestling fans helped drive PPV buys, as did his success in winning the UFC Heavyweight title. Ronda Rousey played a key role in the creation of a women's division within the UFC. Her spectacular success in the octagon made her a mass media sensation. After being awarded the inaugural women's bantamweight title she defended her title six times. Six of those fights were stopped in the first round, with the longest of those fights lasting one minute and six seconds. Rousey received so much attention she became the most popular female athlete in the world based on social media statistics (Keegan, 2015).  (Fowlkes, 2015). Griffen went on to win the championship belt at light-heavyweight. They are clearly some of the most popular and most accomplished fighters in the history of the UFC, but the incremental PPV buys associated with their appearances is substantially less than the top tier celebrity fighters. We believe these fighters appeal primarily to the existing UFC fan, and lack the crossover appeal to bring in new fans. They are able to attract the less committed fans, but do not bring in massive numbers of new fans.
The last fighter on the list is Demetrious Johnson. Johnson is the only fighter with a negative incremental buy-rate, in other words his appearance on average lowers PPV numbers below their average value. This is somewhat surprising as Johnson is the only champion there has ever been in the UFC flyweight division. He won his title in September 2012. As of the end of 2016, he has defended his title a record nine straight times. He is also currently ranked as the number one pound for pound fighter in the world, in other words the best fighter regardless of weight class. In spite of his accolades as a fighter Johnson remains a poor draw both for PPV buys and ticket sales (Alexander, 2015;Taylor, 2017). Johnson has a relatively lowkey personality and is not known as trash-talker or someone who can hype a fight.

The impact of celebrity fighters.
Our analysis reveals that while PPV rate for UFC have shown significant variability over the past 11 years, a significant portion of that variability can be explained by the presence of only 8 fighters in the headline fights of each event. Furthermore, the most significant impact on PPVs has been made by only 3 fighters, fighters we identify as celebrity fighters for their mass market appeal. Table 3 lists the 12 highest buy rate PPVs in UFC history. One of the 3 celebrity fighters appeared in the top 11 of these 12 events, each earning more than one million PPV buys; Lesnar fought in the co-main event of UFC 200. Fig. 5 shows the histogram of PPV buys with separating out events with celebrity fighters. This histogram further illustrates the influence this small number of fighters have on the overall economics of the promotion. While the UFC has profited significantly from these three fighters, the future is uncertain. Brock Lesnar has retired from MMA and returned to the WWE. Because of an anti-doping suspension, he is unlikely to return. Ronda Rousey's winning streak ended when shew was knocked out at UFC 193. After a long layoff she made a return at UFC 207 only to be knocked out again. While her official status is unclear, her return to MMA seems unlikely and is reportedly considering a switch to WWE (Golightly, 2017). The future of the UFC's biggest star, Connor McGregor, also remains uncertain. Although his winning streak ended at UFC 196 when he lost to Nate Diaz, he won a rematch at UFC 202. These two fights were the highest PPV purchased events in UFC history.
Since winning his last fight, and the lightweight title at UFC 205, McGregor has received significant media attention for a fight outside the UFC. On August 28, 2017 McGregor faced undefeated boxer Floyd Mayweather in a boxing match, widely believed to be one of the biggest fights in combat sports history. Estimates are that each fighter will have total earnings in excess of $100 million dollars for the fight (Polacek, 2017), far more than can be earned in a UFC contest. While McGregor lost the fight, he significantly increased his name recognition and arguably his brand appeal. The fight is estimated to have set the all-time record for PPV buys with estimates in excess of 5 million buys (Pugmire, 2017). While the fight was outside the UFC, the UFC enthusiastically promoted the fight across its platforms. The UFC's strategy appears to be based on the premise that a McGregor fight in the UFC will bring in the new fans he has won through the boxing arena is likely to set a new record for UFC PPV buys. On the other hand, having earned a record payout, McGregor's willingness to return to the UFC is uncertain. While some fighters feel the exposure created by the media attention for the fight will benefit the UFC, others are skeptical believing the fight challenges the legitimacy the UFC has sought for many years (Ess, 2017).
Without these high-profile fighters to drive massive pay-per-view events the short-term future of the UFC seems unclear. New celebrities will need to emerge if the UFC is going to produce million-buy events in the foreseeable future. The UFC is working hard to market fighters such as Stipe Miocic, the current heavyweight champion, and Jonna Jedrzejczyx, the women's strawweight champion, but so far big PPV numbers have not materialized (Markazi, 2017).
Another open inquiry is the long-term impact these celebrity fighters have on the UFC. While they clearly bring new fans to their fights, it is unclear if these fans are committed. In other words, do these new viewers continue to watch the events after the fighter is no longer competing? With the apparent retirement of Lesnar and Rousey and the uncertainty surrounding McGregor, we may be able to analyze this question empirically after more post-celebrity events have been held. While official numbers are not fully available for 2017, PPV buys appear to be down considerably (Harkness, 2017). It appears that the UFC's new owners will need to develop new celebrities and/or convince recently retired fighters such as CM Punk to come back in order to return the PPV buy rate back to its more lucrative levels (Golightly, 2017).