Managing Risks in MMA Events – Financial Risks
Understand and Manage the Process. As in all live sports contests, the mixed martial arts promoter invests risk capital for what he hopes to be a significant return. Professional promoters recognize the need to properly manage that process by using basic business techniques.
Use a Budget. One such tool is the development and use of a budget to project expenses against potential total revenue. Be conservative. Use this step as a way to identify all expenses and determine how to properly exploit all potential sources of revenue. For example, does the venue provide all required seating without additional cost? Is this event important or interesting enough to pursue cable pay for view or other broadcast revenue? If properly used in this manner, the use of a budget can also help the promoter to determine if the projected return – uncertain as it may be – is sufficient to warrant the use of this risk capital. This may show the promoter that the market he has chosen for this event is too small in order to justify the risk necessary in order to provide a quality product to MMA fans.
Use a Breakeven Analysis. Likewise, many of the expenses the promoter professional promoters must occur (e.g., taxes based upon ticket sales) need not be paid if the show is canceled. Other expenses, such as refundable deposits for the venue and prepaid insurance premiums, may be recoverable if the event is canceled. As such, it is important to compare the aggregate non-refundable expenses the promoter must incur prior to opening the doors with the total pre-show revenue. Using this approach, the promoter may be able to limit his losses by canceling the show without digging the hole any deeper. Sometimes it is better – if viewed simply as financial investment – to cut your losses and cancel the show if ticket sales are disappointingly low and realistic prospects for sales at the event won’t reach profitability.
Online Pre-Show Ticket Sales. Since pre-show ticket sales play such an important part in determining whether to move forward with the show, the promoter must have an excellent webpage that highlights the event and provides the audience with an easy “click-through” way to purchase tickets online. To minimize losses due to the acceptance of fraudulently produced tickets at the gate, it is critical that the ticket takers can accurately, easily and quickly confirm that the tickets they are presented at the gate are legitimate. A quick search shows that several companies can set up the webpage, process online ticket sales and enable the fan to print out and present an easily verifiable “ticket” to the ticket taker at the gate. Given the ease with which these services can be combined seamlessly and efficiently, buying all of these services from one service provider is generally preferable to trying to piece together separate services from different providers.
The Old-Fashion Way to Sell Tickets. Having physical tickets that the promoter can sell to customers that don’t use the webpage is also important. While state law may require the inclusion of key points on these tickets, that requirement is generally easy to handle. Permitting only customers with valid tickets to enter the event is also critical. As with online sales, this need is generally easy to handle by selling only sequentially numbered tickets that can be electronically scanned at the gate to confirm their authenticity.
Handle the Cash. While a bit more expensive, scannable tickets enable the gate to determine that the tickets customers present are authenticated. The incremental cost is well worth it. Collecting all the pre-show cash receipts, however, can be more difficult. For example, if a fighter wants to be paid commissions for the tickets that he sells, the promoter should require the fighter to reconcile his cash receipts for those sales with the number of tickets that he was given for sale before he is paid any commission. Regardless, collecting the cash and depositing it daily in a bank account set up by the promoter for this purpose is essential. Limiting the signatories to that account is as well.
Control the Gate. By using scannable tickets as recommended above, the promoter will be able to determine their authenticity quickly and efficiently. However, it is also critical that the promoter control all aspects of the gate and entrance to the event, including using his own personnel. While online sales may be very significant, many MMA events live or die because of ticket sales at the gate. Loss of the chance to get that revenue due to lack of control of customer access to the event can make or break a show.
Identify Other Potential Sources of Revenue. The sale of T-shirts, posters and other memorabilia at an event are commonplace and can provide a significant source of additional revenue. With the explosion of online and cable distribution channels, content – such as quality MMA contests – is in heavy demand. In order to properly exploit this opportunity, the promoter must get each fighter to sign an agreement that permits the promoter to record the fight and sell those broadcast rights to others.
Do Not Overlook Ways to Increase the Value of our Business. These agreements, while potentially very profitable, are very complicated and the promoter should engage qualified legal counsel in managing risks in MMA events before signing anything with an online or cable outlet. For example, if the promoter sells the rights to use these films for eternity, it is highly doubtful that any potential purchaser of the promoter’s business will assign any significant value to this asset. If structured properly, the promoter should be able to get a sufficient payment in exchange for allowing the distribution of the film for only a limited period. As such, there is no need to abandon an asset- a growing library of films of the promoter’s events- that can be quite valuable. Such assets, especially if backed by ongoing cash flow and an excellent reputation, should yield a higher sales price for those promoters that want to build a brand, dominate a market and then sell their business.
Managing Risks in MMA Events – Reputational Risk
Offering an Excellent Product. Putting on an exciting, well-produced show is the best way to develop an excellent reputation. This begins with carefully matching fighters, making sure that they are properly registered and complying with all pre-fight medical exam requirements. Since the work of these highly trained athletes is the heart of the promoter’s product, it is impossible to overestimate the importance of this step.
Check Out the Other Participants First. Mixed martial arts, like boxing and other professional sports, has its fair share of unsavory characters. When managing risks in MMA events, promoters must investigate the backgrounds of their investors, sponsoring organizations, fighters and other “business associates” in order to make sure they are not dealing with bad actors.
Managing Risks in MMA Events – Operational Risk
Reputation is Currency. As a promoter develops a solid reputation in the industry, it is very important to maintain that reputation since name recognition is a driver behind event revenue and ultimate exit proceeds. To be sure, fighters may drop off the card, requiring the promoter to replace them at the last minute while dealing with applicable regulatory requirements. Rain delays or other weather problems may force the promoter to reschedule. Fix the problem – not the blame. Continuing to provide the MMA consumer with an excellent product is an absolute bedrock requirement for success.
A Solid Marketing Plan is a Must. Fielding an excellent product is a given, but that does no good if the promoter doesn’t have a solid marketing plan that brings fans to the arena or generates views online. Without the development and implementation of a viable marketing plan, events will be disastrous, financial losses will abound, reputations will be damaged and the pool of potential purchasers for an established MMA promotional company will evaporate.
How Should You Market Your Event? A viable marketing plan must include both online and traditional marketing activities. Online efforts must include the use of social media. Traditional efforts, such as posters and handbills, are outdated. Too many promoters fail to invest enough resources here. “If you build it, they will come” is a great tagline for a movie, but “they” won’t come unless they know about the event and the event is presented as a valuable attractive way to spend a good bit of the fan’s available leisure time and disposable income. Success in the past is not a guarantee of success in the future, so the promoter must always be aware of changes in the business, his image and the location for the next event.
Managing Risks in MMA Events – Regulatory Requirements
Each Level of Government May Require Different Things. Using any venue presents a unique set of state, county, and city requirements that need to be understood and satisfied. Conservative promoters should consider using local legal counsel to investigate these requirements. But in many instances – particularly for the promoter just starting his venture – the promoter may want to do this work himself. Since the staff at the various state MMA regulatory agencies are frequently willing to explain their state’s requirements for MMA contests, this approach may be a reasonable way for new promoters.
Be Ready for the Typical Requirements. State regulations may differ depending upon the types of fighters that will participate. These requirements must be clearly understood before the promoter finalizes his mix of professional and amateur fighters. Other requirements – such as understanding what taxes are due to whom when, how the event must be staffed and what pre-event registrations and post-event reporting are necessary – will impact both the pre-fight financial analysis as well as the actual show itself. For example, it is not uncommon for professional fights will demand to be paid for their participation and their expenses be reimbursed. Not so for amateurs. State inspectors may attend the event to oversee it and to collect, or to at least calculate the amount of, all required taxes. Most states have specific requirements for referees, medical and security personnel. In some states, the promoter must register the event online within the state-mandated timeline prior to the event. Making sure all other third parties – such as doctors and sponsoring organizations – make their required post-event filings are very common requirements as well.
Don’t Just Rely on the Venue Agreement. Sometimes the agreement with the venue includes all applicable state requirements as well. But blindly believing that to always be the case is unwise.
Comply with the Sponsoring Organization’s Requirements. Various states also require that the promoter work through a so-called “sponsoring organization,” which provides some logistical support and oversight of the event. These requirements must also be understood and satisfied. The cautious promoter will only work with sponsoring organizations that have a stellar reputation with the applicable state agency and whose state licenses are current. Once again, we’re judged by the company we keep.
Managing Risks in MMA Events – Legal Issues Common to All Live Events
Legal Fees. Lawyers are expensive so many promoters – frequently those just starting out in the business – do not want to incur the cost of having counsel review state county and city requirements. For many smaller promoters, this may be cost prohibitive. Promoters well on their way to success may have enough experience so that they can comfortably learn, understand and comply with federal, state, county and city requirements without counsel. But as outlined above, legal counsel should be engaged to assist in managing risks in MMA events and protect key assets, such as the promoter’s right to re-broadcast or sell his recording of the event.
Lots of Agreements. The same problem exists when the promoter is faced with the review of the variety of agreements that must be put in place for a successful event. These agreements will range from dealing with the venue, arranging for the delivery of the cage and other required logistical issues, selling sponsorships or advertisements, finalizing the rebroadcast of the event or tape cable television or online as well as arranging for the sale of promotional items — such as T-shirts and posters — at the event. Each provides its own set of challenges. Larger promoters do not take any of this for granted. All others may vary from this approach at their own risk.
Who is at Risk for What? One key point that must always be addressed in these agreements is to clearly determine who bears what when managing risks in MMA events. The promoter wants to be able to reserve the venue and arrange for all the logistical needs for the event (e.g., the cage) while still having the right to cancel and receive a full refund of any deposits. The owner of the facility and the people that provide logistical support feel it’s fair for them to retain those deposits since, by working with this promoter, they lost their chance to work with others instead. Some payments – such as paying state inspectors prior to opening the door event-do not involve this risk since the promoter will have long since determined whether to proceed with the event prior to making payment.
Managing Risks in MMA Events – The Risk of Physical, Mental and Emotional Harm
Participants Injured. As with other contact sports such as football, promoting MMA events involves the possibility of significant physical harm to the participants, making it another factor to consider when managing risks in MMA events. Potential of emotional and mental damage has been noted by various states as well.
Required Insurance Coverages. In order to address this concern most states and most venues that will host mixed martial arts events have specific insurance requirements. The amount and scope of these coverages should be readily available from the state regulatory agency.
Delivering the Certificates of Insurance. Many states will require that certificates of this insurance be delivered to the applicable regulatory agency prior to the event. Venues may have similar requirements. While this represents a pre-event expenditure, there is generally no way around compliance, but premiums for the underlying coverage should be reimbursable if the event is canceled.
The First Big Gap in Insurance Coverage. Unfortunately, however, there does not appear to be any insurance product that provides protection against lawsuits by the fighters against the promoter. It has been the authors’ experience that venues that require this type of protection simply do not wish to host any MMA events. Promoters can reach this conclusion with a quick review of the insurance requirements in the proposed agreement with the venue.
The Second Big Gap in Insurance Coverage. Nor will umbrella insurance coverage adequately address this risk. Since the underlying risk of participants suing the promoter is not covered by otherwise available coverage, the type of overarching coverage that umbrella policies provide in other situations are not available here.
Spend Some Money with the Lawyers. All of this presents a significant source of potential exposure to the promoter, so it seems prudent to incur some legal fees in order to provide the promoter with alternative sources of protection. Amazingly, many smaller promoters operate as individuals. In most states, however, a limited liability company may be formed for a nominal fee and provide the promoter with significant protection. Since these provisions may be different in various states, make sure that the lawyers you work with are licensed to practice law in the state(s) in which you promote, and plan to promote events.
Can the Sponsoring Organization Help? Promoters should also investigate whether they could be covered by the sponsoring organization’s insurance policy for those events in which the promoter works with that organization. Some sponsoring organizations may be reluctant to discuss the scope, type, and amounts of their insurance coverage with the promoter, but naming the promoter as an additional named insured under sponsoring organization’s coverage should always be discussed.
Sign Before the Fight. Another way to address this same risk is in the agreements the promoter requires fighters sign before the fight. Some promoters want professional fighters to sign a detailed agreement while others only require amateur fighters to sign a waiver and release. Regardless of the approach taken, it seems foolhardy to rely on these documents unless they have been prepared, or at least reviewed, by counsel licensed to practice law in the state where the event is to be held.
So, You Want Investors? Potential investors in specific events or in the promoter’s business itself will undoubtedly require careful analysis of agreements, such as these waivers, that control the investor’s potential exposure as well as other agreements – such an agreement that grants the promoter the right to use a fighter’s image in the broadcast of the event – that cover key points in generating revenue.
Meet the Industry’s Standard of Care and Professionalism. In addition to all of above, it is always important to work on the belief that the best prevention against this risk is to promote and conduct your event with the same degree of care that other promoters exercise as they comply with all of the otherwise applicable requirements.
Managing Risks in MMA Events – Conclusion
Given the financial returns available in MMA promotion, it seems likely that the ranks of promoters – some sophisticated and experienced; some not – will continue to expand. Both types must understand and properly address the financial, operational, reputational, regulatory and legal issues discussed above in order to develop and properly protect a growing and successful business. For those just starting out in this exciting industry, retaining an expert to help you navigate managing risks in MMA events and requirements should be uppermost in mind.
Managing Risks in MMA Events – About the Authors
Fred Rodriguez is an MMA promoter, matchmaker, and trainer. Currently pursuing several domestic promotional opportunities, he has promoted and aided in managing risks in MMA events in the United States, Canada, and Mexico. Mr. Rodriguez has been the matchmaker for The Danger Zone Mixed Martial Arts organization, a judge with The Michiana Fight League and a referee for over 250 MMA matches. He has trained such notable fighters as Dan “the Beast “Severn – a Triple Crown UFC Heavyweight Champion and a member of the UFC Hall of Fame. A Black Belt in the art of Jiu-Jitsu, Mr. Rodriguez has also been a professional boxer/MMA fighter. Jiu-Jitsu. He can be reached at email@example.com.
Richard A. Blunk is managing director and general counsel of Thermopylae Ventures, LLC, a Dallas-based alternative investment firm with interests in alternative litigation finance, cyber security, database interoperability, fire retardants, hotel development, inbound foreign investment, sports medical technology, sports venues, Texas real estate and vocational rehabilitation sales. He is skilled in managing risks in MMA Events and can be reached at firstname.lastname@example.org.