S&P Cuts Zuffa’s Credit Rating, Issues Negative Outlook

Standard & Poor's, a leading financial services company, cut Zuffa's credit rating in a report issued Tuesday.

The downgrade from "BB" to "BB-" was the result of the company's weaker than expected performance in the third quarter of 2007. This marked "the second consecutive quarter of operating performance that was meaningfully below [S&P's] expectations."

LINK

This analysis is poor. Zuffa is doing just fine. I am not going to get into why the reasoning for downgrade is poor, but it is. I will only make this point. The fighter bonuses and purses are going up. That wouldn't happen if they weren't making more money. I am not just saying this as a fight fan, but if you read the reasoning it is just bad. If Zuffa is a private company, otherwise I would buy now.

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Posted by szucconi

This analysis is poor. Zuffa is doing just fine. I am not going to get into why the reasoning for downgrade is poor, but it is. I will only make this point. The fighter bonuses and purses are going up. That wouldn't happen if they weren't making more money. I am not just saying this as a fight fan, but if you read the reasoning it is just bad. If Zuffa is a private company, otherwise I would buy now.

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we saw something like that a couple of month ago, they are reinvesting there profits in developpement of UFC in europe, so no big deal here.

agreed. The 3rd quarter performance was probably weaker than expected, but the business model is solid, the upcomming cards are looking great, and with the writers strike suggesting multiple impending tv deals things are looking good. I suspect that the dec29th card is gonna set off the new year where ufc is gonna do things properly. Theres still gonna be bumps along the way, but the growing pains such as the steroid issues (sherk's interm title), contract issues (couture), big signing let downs (fedor), and cards in other countries (belfast) are likely gonna be a thing of the past.

The ppvs are the biggest income for the ufc, and in 2008, there'll most likely be a title on every card, as well as one or two big name fights.. and with all the young talent under contract.. we're now dying to see the undercard fights. The quality of the product is steadily increasing, and as the popularity of the sport continues to increase so will its market.

If zuffa was public i'd be all over that shit

I think I will expand on my previous comment.

Its not about the cards or the top level talent that the UFC added this year. Its about over all revenue. Its way up. In the old days they would have one show per quarter. They would get a good number of buys, but you can only get so meny buys from one event. Then they started to hold more events. Buys went up after TUF and they could hold even more events. Buys likely peeked out for the new years show last year (UFC 66). They broke records and everything was great. Now there buy rate is going down. The analysis are downgrading without looking at why. the simple answer it more events. There are more events and people are more selective about which ones they buy. I know some people who may have skipped 78 because of the weak card, but they might not have done that if it were the only event for three months on each side of the calendar. Buy rates have a ceiling, but number of events doesn't. They are lowering there per event revenue to maximize total revenue by flooding the market with events. This makes the live gate numbers more important then they would have been. It makes expanding to areas other then Cali and Vegas critical. The business model is not really in question here. Its more of a revenue vs. profit. If before the UFC puts 100K into a show and makes 200K back then they made 100% on that show. Now if they put that 100K into a show they make 150K. Less profit, right? wrong. They are putting on 20 shows rather then 4. thats 400K vs 1 million. They numbers are just examples, but it shows what I am getting at.
More shows = less money per show, but more money over all. With the added bonus of spreading out the risks of putting all yous eggs in one show like the smaller orgs do.

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Posted by szucconi

I think I will expand on my previous comment.

Its not about the cards or the top level talent that the UFC added this year. Its about over all revenue. Its way up. In the old days they would have one show per quarter. They would get a good number of buys, but you can only get so meny buys from one event. Then they started to hold more events. Buys went up after TUF and they could hold even more events. Buys likely peeked out for the new years show last year (UFC 66). They broke records and everything was great. Now there buy rate is going down. The analysis are downgrading without looking at why. the simple answer it more events. There are more events and people are more selective about which ones they buy. I know some people who may have skipped 78 because of the weak card, but they might not have done that if it were the only event for three months on each side of the calendar. Buy rates have a ceiling, but number of events doesn't. They are lowering there per event revenue to maximize total revenue by flooding the market with events. This makes the live gate numbers more important then they would have been. It makes expanding to areas other then Cali and Vegas critical. The business model is not really in question here. Its more of a revenue vs. profit. If before the UFC puts 100K into a show and makes 200K back then they made 100% on that show. Now if they put that 100K into a show they make 150K. Less profit, right? wrong. They are putting on 20 shows rather then 4. thats 400K vs 1 million. They numbers are just examples, but it shows what I am getting at.
More shows = less money per show, but more money over all. With the added bonus of spreading out the risks of putting all yous eggs in one show like the smaller orgs do.

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hey noticed kevin beekin in your avatar, did they ever make a season 2 to that show?

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Posted by Cobbs666

hey noticed kevin beekin in your avatar, did they ever make a season 2 to that show?

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no, that show wasn't that good. UCB was great. and if you know what I mean by UBC then you are also great.

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Posted by szucconi

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Posted by Cobbs666

hey noticed kevin beekin in your avatar, did they ever make a season 2 to that show?

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no, that show wasn't that good. UCB was great. and if you know what I mean by UBC then you are also great.

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UCB was the SHIT!

+1 for your analysis, great job.

And if the UFC ends up getting the CBS slot I'm sure they'll be a spike in PPV buys then too...

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Posted by szucconi
If before the UFC puts 100K into a show and makes 200K back then they made 100% on that show. Now if they put that 100K into a show they make 150K. Less profit, right? wrong. They are putting on 20 shows rather then 4. thats 400K vs 1 million. They numbers are just examples, but it shows what I am getting at.
More shows = less money per show, but more money over all. With the added bonus of spreading out the risks of putting all yous eggs in one show like the smaller orgs do.

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I think the problem that the report implies--and one that I personally see--is a saturation of the market. People only want to watch so much of any type of entertainment and they are only willing to spend so much on it.

I think your example of putting on more shows with less profit per show is right on-->that's what they've done. But each additional show means more dilution in the cards and a loss of some fans who have seen or spent enough. I'll expand on your example in a way that I don't think is unrealistic:

They do 10 shows one year making $150,000 in profit per show for a total of $1,500,000
realizing they can only make so much per show they do 20 shows the next year making $100,000 in profit per show for $2,000,000 overall

the problem is that there are only so many good PPV dates, desirable venues, top-level fighters and fan interest so they try the same strategy the next year and put on 30 shows earning $25,000 each and end up with only $750,000.

The next year, if they didn't learn their lesson, they might put on enough to lose money (on average) for each one.

I think the UFC is at least moving into the third year of that scenario and maybe the fourth.

The UFC is still looking pretty good compared to the IFL, though.


IFL financials released:

http://biz.yahoo.com/e/071128/ifli.ob10-k_a.html

9 million dollar loss on 1 million in revenue:

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Posted by fullerene

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Posted by szucconi
If before the UFC puts 100K into a show and makes 200K back then they made 100% on that show. Now if they put that 100K into a show they make 150K. Less profit, right? wrong. They are putting on 20 shows rather then 4. thats 400K vs 1 million. They numbers are just examples, but it shows what I am getting at.
More shows = less money per show, but more money over all. With the added bonus of spreading out the risks of putting all yous eggs in one show like the smaller orgs do.

---

I think the problem that the report implies--and one that I personally see--is a saturation of the market. People only want to watch so much of any type of entertainment and they are only willing to spend so much on it.

I think your example of putting on more shows with less profit per show is right on-->that's what they've done. But each additional show means more dilution in the cards and a loss of some fans who have seen or spent enough. I'll expand on your example in a way that I don't think is unrealistic:

They do 10 shows one year making $150,000 in profit per show for a total of $1,500,000
realizing they can only make so much per show they do 20 shows the next year making $100,000 in profit per show for $2,000,000 overall

the problem is that there are only so many good PPV dates, desirable venues, top-level fighters and fan interest so they try the same strategy the next year and put on 30 shows earning $25,000 each and end up with only $750,000.

The next year, if they didn't learn their lesson, they might put on enough to lose money (on average) for each one.

I think the UFC is at least moving into the third year of that scenario and maybe the fourth.

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I think your right on about the risk of over expantion, but they are not doing so blindly. It a pattern of reaching PPV buy capacity (UFC 66) and then adding more shows. That way your sure there is market for your product before making more product.

I wrote a response to an article on bloody elbow and they put it on the front page. Check it out

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Posted by szucconi

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Posted by fullerene

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Posted by szucconi
If before the UFC puts 100K into a show and makes 200K back then they made 100% on that show. Now if they put that 100K into a show they make 150K. Less profit, right? wrong. They are putting on 20 shows rather then 4. thats 400K vs 1 million. They numbers are just examples, but it shows what I am getting at.
More shows = less money per show, but more money over all. With the added bonus of spreading out the risks of putting all yous eggs in one show like the smaller orgs do.

---

I think the problem that the report implies--and one that I personally see--is a saturation of the market. People only want to watch so much of any type of entertainment and they are only willing to spend so much on it.

I think your example of putting on more shows with less profit per show is right on-->that's what they've done. But each additional show means more dilution in the cards and a loss of some fans who have seen or spent enough. I'll expand on your example in a way that I don't think is unrealistic:

They do 10 shows one year making $150,000 in profit per show for a total of $1,500,000
realizing they can only make so much per show they do 20 shows the next year making $100,000 in profit per show for $2,000,000 overall

the problem is that there are only so many good PPV dates, desirable venues, top-level fighters and fan interest so they try the same strategy the next year and put on 30 shows earning $25,000 each and end up with only $750,000.

The next year, if they didn't learn their lesson, they might put on enough to lose money (on average) for each one.

I think the UFC is at least moving into the third year of that scenario and maybe the fourth.

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I think your right on about the risk of over expantion, but they are not doing so blindly. It a pattern of reaching PPV buy capacity (UFC 66) and then adding more shows. That way your sure there is market for your product before making more product.

I wrote a response to an article on bloody elbow and they put it on the front page. Check it out

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very well wriiten IMo. Thanks and props. Also heres my favorite UCB quote

" Hey! You're not real! I'm getting raped from behind right now! "

" Good morning! "

" No! That is not a good morning! "