Ultimate Fighting makes money hand over fist

Image: Dana White
"I'm not the smartest guy you're ever going to meet," UFC president Dana White says. "Not even close to it. But I know fighting."Kevin Winter / Getty Images for Spike TV file
/ Source: CNBC

The sport of mixed martial arts and its premiere brand, Ultimate Fighting Championship, were once thought too hot to handle — playing to meager crowds, deemed illegal in some states and unacceptable in polite society.

"I think that everybody has been gun shy, from the day we bought this thing," UFC President Dana White said. "First it was venues. Venues didn't even want to talk to us. Then, you know, it's television, pay-per-view, athletic commissions, sponsors. You know, it's taken time."

Now, according to White, those days are gone.

"The first eight years of this thing were the hardest to get over the stigma that was attached to this thing at the beginning," he said. "And the next eight years are going to be a lot easier."

The privately-held UFC says its revenues for 2008 were $275 million, up 37 percent from two years earlier. And the league signed its first Fortune 500 sponsors. In 2008, Bud Light became the official beer of the brand and Harley Davidson rides the league's exploding popularity.

It says a lot about the growth of a brand that was once near extinction, a sport White himself has helped raise to new heights with a shrewd business sense and unique, self-assured style.

"I'm not the smartest guy you're ever going to meet," he said. "Not even close to it. But I know fighting. And I know for a fact there's nobody in mixed martial arts that knows more about the business than I do."

A college dropout from South Boston, White's rise to the top of the UFC was anything but certain, and hardly the typical corporate career path.

He held jobs as a hotel bellman, aerobic kickboxing instructor, and had run a couple of gyms, before he convinced childhood friends, Las Vegas casino owners Lorenzo and Frank Fertitta, to buy the near bankrupt league in 2001.

"We bought this thing when it was — as low as it could possibly get," White said. "The first organization in the world, the UFC was going out of business, okay? And there was — there was no hope and sight."

But the Fertittas rolled the dice: they bought the UFC for $2 million, invested $44 million more, and put an untested White in charge.

"People at the time said, 'Well, Dana has never run a big business or done this or done that.'" I said, "Didn't matter. He's got street smarts. He's got passion. And he's gonna make it work," said Lorenzo Fertitta.

"If this business was run by some Harvard MBA, it probably wouldn't work, 'cause so many things are unconventional"

Unconventional is probably one of the more polite things the Ultimate Fighting Championship has been called since it came on the scene in 1993, as a mix of wrestling, boxing, Brazilian ji-jitsu and other martial arts.

The UFC was quickly targeted by politicians for its brutality. It was even banned from television, and financially, it stood on the brink of bankruptcy. That's when White, more fan than financier, convinced the deep-pocketed Fertittas to step in.

But a full four years after White took over, the UFC was still suffering financially, hemorrhaging money just to finance the events and pay the fighters, sometimes out of the Fertitta's own pockets.

"It was difficult — losing the kind of money that we did," Lorenzo Fertitta said. "Here we're successful in our casino business. And you're taking good money that you're making and maybe putting it after a bad investment."

But Fertitta says his passion for the sport kept him from throwing in the towel. And White knew the key to making the league a success was getting it sanctioned by state athletic commissions and back on television. Neither was easy considering its controversial past.

"We went around to all the networks and pitched them every show we could think of and everybody was terrified of it," White said. "This was something that wasn't allowed on pay-per-view, you know, a couple of years before."

"Porn is on pay-per-view, okay?" he said. "You can watch porn on pay-per-view. The UFC wasn't allowed on pay-per-view. That's how bad it was."

So bad, in fact, that the Fertittas and White ended up producing and paying for a television series themselves.

In 2005, they debuted "The Ultimate Fighter" — a reality show pitting up-and-coming mixed martial artists against each other for ultimate supremacy. It caught the attention of Spike, a new cable network targeting young men.

"Spike's strategy has always been to look at fringe sports and see if there's a way to make them mainstream and the UFC seemed like a sport, you know, that was on the rise," said Kevin Kay, Spike's President, who signed the show.

"The Trojan horse was The Ultimate Fighter reality show," White said. "Reality was hot and this would be the way to get it on TV. You're watching mixed martial arts without realizing you're watching mixed martial arts."

The first season featured UFC superstar Randy Couture.

"I think the first season of The Ultimate Fighter gave people a behind-the-scenes look at what goes into making a guy who fights in a cage for a living," Couture said. "They saw that we weren't a bunch of thugs, we weren't a bunch of knuckleheads that just like to beat people up. We're real guys from real walks of life that this is our outlet."

"The Ultimate Fighter" was a hit, and Spike signed on for more. The two have since extended their partnership through 2011.

But if the Spike series helped put the UFC on the map, pay per view, where the real money is, has taken the league to the next level. In 2008, pay per view events generated more than five million buys, beating the demand for boxing and wrestling.

That windfall has brought huge paydays for UFC's top fighters. Big stars like Randy Couture and Chuck Liddell — who famously faced off at UFC 57 — each earned $250,000 for that bout alone. But an unheralded fighter can make as little as $3,000 for 15 minutes of punishment.

Events typically sell out and remain a hot commodity. Seats to the marquee UFC 100, in July 2009, went in a matter of minutes and ranged from $500 to $40,000 apiece in the secondary market. Evidence to Lorenzo Fertitta that the UFC is weathering the economic downturn pretty well.

"We are up year over year in every category. Revenue, profit, pay per view, live gate, international TV sales, sponsorships, everywhere," Fertitta said. "The question is without our recession, where would our business be?"