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Georges St.-Pierre in a story about UFC for Report on Business Magazine - April 2011 cover
Georges St.-Pierre in a story about UFC for Report on Business Magazine - April 2011 cover

ROB Magazine

How the UFC plans to K.O. boxing Add to ...

Deep in the recesses of the Mandalay Bay Resort and Casino in Las Vegas, down a long cinder-block corridor, a 33-year-old jiu-jitsu expert from Rio de Janeiro, Vitor Belfort, is gnashing his teeth like a wild dog as he gets ready to make his way to the Octagon. Beyond a set of blue curtains, 11,000 obstreperous fans have paid an average of $373 a ticket to watch tonight's instalment of the Ultimate Fighting Championship (UFC), the mixed martial arts circuit that's evolved from money-losing sideshow to billion-dollar sports juggernaut in less than a decade.

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At six feet and 185 pounds, the man they call the Phenom is an intimidating sight. He won his first match as a teenager, knocking his opponent senseless in just 11 seconds. Since then, Belfort has won 19 of his 28 bouts, including 13 by knockout.

Belfort says nothing as he waits for fight wrangler Burt Watson-a heavy-set 62-year-old who once worked in Joe Frazier's camp, back when boxing still mattered-to give him the signal. Listening intently to the squelch of a walkie-talkie pressed to his ear, Watson looks up and delivers his standard battle cry: "All night long, baby! This is what we do, this is why we do it! All night long..." It's showtime.

Belfort pops his mouthguard into place, nods in Watson's general direction and, with entourage in tow, begins the slow march out to the Octagon-a canvas mat surrounded by black chain-link fence. He's accompanied by a booming Portuguese hip-hop beat.

The man who arranged this fight, 41-year-old UFC president and promotional mastermind Dana White, cuts through the crowd like a shark. Packed into a Tom Ford suit, he is constantly on the move, shaking hands, greeting fans, talking to the athletes, shaking more hands. Bald-headed and barrel-chested, White looks as though his shoulders have swallowed his neck. If he didn't have a personal net worth estimated at more than $100 million, he could just as easily be bouncing at the door.

But to fans of mixed martial arts (MMA)-a ruthless mashup of Brazilian jiu-jitsu, karate, Muay Thai kickboxing, Greco-Roman wrestling and more-White is as much a celebrity as his fighters. And tonight he has promised his legions (including 1.3 million followers on Twitter) something special. The matchup between Belfort and fellow Brazilian Anderson Silva is part of a plan to stage the biggest fight in UFC history. If all goes well-that is, if Silva pummels Belfort into the mat-it could set up an epic showdown between the middleweight champion and Georges St-Pierre (a.k.a. GSP), the welterweight champ from Saint-Isidore, Quebec, to decide the world's best MMA fighter.

Diehards can't agree on who is more lethal: GSP or "The Spider" Silva. But White knows he can pack the biggest stadium in the world, and make tens of millions of dollars from pay-per-view and ticket sales, trying to find the answer.

First, though, he needs Silva to beat Belfort. White settles in to his seat, not far from Jaime Pressly, Steven Seagal and a few other celebrities who dot the front rows. The ref asks each fighter if he's ready to go and, with a nod from both, they're off. For the next two minutes, though, neither of the headliners attacks. Silva and Belfort dance around, each man throwing fake jabs and fake kicks, waiting for the other to make a mistake. White is losing his mind; after weeks of talking up this fight, he's helpless. This looks like a boxing match-a boring boxing match. The crowd starts to boo.

Things look up momentarily when the two men tangle, but they quickly separate and resume their defensive postures. More booing. Then, suddenly, Silva launches forward with his left leg and catches Belfort squarely in the jaw. No one saw the kick coming, least of all Belfort. From three rows back, you can hear the smack of foot on skull. The Phenom's legs turn to jelly. The referee steps in just as Belfort's eyes are rolling back into his head.

The fans leave happy, but no one is more relieved than White. "Ohhhh shit," he cackles. "I've only seen that in a video game." It was a good night for the UFC, he confirms: The gate pulled in $3.6 million. Another 700,000 people around the world paid about $50 each to watch it on pay-per-view, with an undisclosed-but presumably very healthy-cut of the $35-million action going to the UFC.

Those are big dollars, but White and his team know it's only a fraction of what they could be making. The UFC has far grander aspirations than the puny confines of the Mandalay. And that's where Toronto comes in.

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Three days later, "the Kick" has become a YouTube sensation. And White has flown from sunny Las Vegas to the deep-freeze that is Toronto in February to promote Georges St-Pierre's April 30 bout at the Rogers Centre, where the Canadian will square off against Californian Jake Shields.

If St-Pierre wins-and he is widely expected to-he will take on Silva in White's megafight. After all, GSP is the UFC's biggest brand and, White has said, the most famous athlete Canada has ever produced (a statement that enraged Gretzky fans nationwide). From Brazil to Japan, the 29-year-old St-Pierre is practically a household name, and the UFC has made millions off the GSP action figure (part of the league's extensive line of merchandise). He has done Fashion Week in New York and partied with DiCaprio in Paris. "This guy is a monster superstar all over the world," says White.

For the thousands of fans who started lining up outside the Rogers Centre early this morning, the chance to see him in the flesh is worth the hours of waiting in sub-zero temperatures. When GSP and White arrive, they are swarmed by mostly young men waving UFC hats, sweatshirts and action figures, begging for autographs and pictures. "I love this fucking place, man," White tells them. F-bombs are his calling card, and the crowd loves it.

The day ends with a Q&A session. St-Pierre, the main attraction, takes a seat on a stool on the Rogers Centre field, neatly adorned in a blue pinstripe suit and red tie. White wears a black sweatshirt and jeans. The first timid question comes from a kid named Domenic, who asks GSP to sign his plastic replica UFC belt. Before St-Pierre can answer, the boy's mom leans into the microphone: "We were also wondering if GSP could sign Domenic a note to explain why he wasn't at school today." St-Pierre-a man who once shattered his opponent's orbital bones-grins bashfully and drops his head.

For reasons White and his partners can't explain, Canada is home to the UFC's most fervent supporters. Huge numbers of Canadian fans regularly pack UFC events, particularly in the United States. And the five matches held on home soil since 2008-four in Montreal and one in Vancouver-have all been box-office bonanzas, drawing north of 17,000 spectators apiece (compared to the average Vegas fight, which seats about 11,000). UFC 124 in Montreal last year stuffed 23,152 people into the Bell Centre, with a $4.6-million gate.

White always knew that staging an event in Toronto-a city he has called UFC's mecca-would blow that record away. Enter Tom Wright, former commissioner of the Canadian Football League. Two years ago, he was working as a consultant in the Canadian sports world (he advised Jim Balsillie on his failed bid to relocate the Phoenix Coyotes to Ontario) when the phone rang. On the line was a former colleague who'd gone to work for the UFC in Las Vegas. An

upcoming event in Montreal was going off the rails due to a sudden change of heart by the organization that oversees combat sports in Quebec, and White needed a fast fix. Wright-who says he was a "fringe fan" of MMA-agreed to help. He dialled up Montreal Canadiens president Pierre Boivin, whom he'd met through his role as chairman of Special Olympics Canada. Wright asked Boivin to make a few calls, and within days the event was back on track.

Then came another call, last year: White had been trying for years to persuade Ontario Premier Dalton McGuinty to join other provinces in sanctioning the sport, but McGuinty wouldn't budge amid fears of glorifying senseless violence. Did Wright have any advice on how to sway Ontario? "You know what? If you really want to be successful here, my advice is that you need to open up an office," Wright told them. "You need to demonstrate that you're not these carpetbagging Americans flying into a city and stealing all the money and getting out of Dodge." His words made an impact. A few days later, the UFC phoned back and asked him to run its new Canadian office, based out of the Rogers Centre. "My mandate was pretty simple: First and foremost, it was to help facilitate getting the sport sanctioned in Ontario," he says.

Wright found a friend in Consumer Services Minister Sophia Aggelonitis, who worked hard to persuade her government that the UFC was not a bloody free-for-all but a highly regulated sport along the lines of boxing. "We've never had a serious injury or death in more than 2,000 fights," Wright says. "Competitive cheerleading can't say that."

When asked about concerns over the long-term effects of concussions that are dogging football and hockey (Sidney Crosby being the latest example), Wright says UFC athletes are tested often to make sure they're fit to compete. He offers to produce medical studies to back him up. "Our athletes are medically tested, they are drug-tested, so we know confidently that there's two very healthy, finely tuned athletes about to compete," Wright says. "If you are knocked out, you can be put on medical suspension, and you aren't even allowed to train." That said, MMA has never claimed to be safe; fighters face the same threat of concussion as boxers.

In Ontario, though, it all came down to money: A study commissioned by the UFC pegged the spinoff benefits of a single event in Toronto at $40 million, including hotels, food, parking and so on. The ticket tax alone would pour $1.5 million directly into government coffers. McGuinty had a choice: cave to the UFC or continue watching all those dollars flow into Quebec and British Columbia. In times of fiscal austerity, cash is cash.

On a Saturday in August, 2010, Aggelonitis announced that MMA was in. An ecstatic White turned immediately to Twitter, imploring UFC fans to show "some love" for McGuinty and the rookie cabinet minister.

Toronto represents a key piece of the UFC's longer-term strategy. The April 30 event is more than just a payday for White and his partners in UFC parent company Zuffa LLC, Las Vegas casino owners Lorenzo and Frank Fertitta. The event is a proving ground for the UFC-the young league's first stadium event. Until now, it has only ever staged fights in arenas built for boxing or hockey. If this works, it will pave the way for even bigger fights at venues like Cowboys Stadium, the 80,000-seat Dallas monstrosity that recently hosted the Super Bowl.

But if fans in Toronto leave unhappy-due to bad sightlines, lacklustre fights or a mismanaged show-White and Co. could end up eating their words for a long time to come. "I always talk about how big Canada is for us, and how crazy Canadians are for the UFC," White says. "Every time we go up to the Bell Centre [in Montreal] we sell that thing out. We got 23,000 there, but the question is, how many more people were really looking for tickets?"

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Standing in the luxury-box level of the Rogers Centre, Wright is methodically breaking down the seating strategy for UFC 129 in Toronto. With greying hair, the bespectacled 57-year-old is the polar opposite of his boss-the straight man to White's blue-collar hustle.

In theory, Wright says, this venue could hold nearly 70,000 people. In 2002, WrestleMania packed in more than 67,000. In 1995, the Billy Graham Mission drew 72,500, mostly because the field level was opened up completely. The problem with events like those, says Wright, is that most people couldn't see a damn thing.

To properly stage a UFC fight in a big venue, the league's most important weapon is restraint. "If people can't see, they're not going to be happy," Wright says. "We're going to put a 100-foot screen over there," he says, pointing to a section of 500-level seats in the rafters. "That in itself is going to kill about 3,000 to 4,000 seats." There are plans for four screens in total, thereby vanquishing at least 12,000 seats. "We're also going to kill some tickets on the floor," he adds, and some rows closer to the field will be too low to have a good view of the Octagon. "Now, you could argue, why not just sell them as obstructed-view seats? Charge $50 and somebody will buy them, right?" Wright says. "Well, no-it's about making sure that the experience is proper."

After months of playing with various configurations, Wright and White decide to put an initial 42,000 seats on sale in Toronto-far more than the UFC had ever attempted to fill in its 18-year history-ranging in price from $50 to $800. When they finally go on sale to members of the UFC's fan club, they sell out in less than seven minutes. An additional 13,000 added over the next two days sell just as fast. "When we put 42,000 on sale, I'll admit I was a little nervous," White says. "I've been saying for a long time that this is going to be the biggest sport in the world. People said I was a lunatic."

Ever the promoter, White comes off as less than genuine when he acts surprised by the demand in Toronto. But he insists he has no idea what the ceiling actually is for a UFC event in a major market. If Toronto goes well, then maybe it's on to Dallas, then Japan later this year. Soon after, China, India and Scandinavia.

There's one major North American market the UFC hasn't cracked, a place White and the Fertitta brothers desperately want to be: the world's most prestigious sports town, New York City. White and his partners have been lobbying state legislators for years-they even donated a reported $75,000 to New York governor Andrew Cuomo's 2010 campaign. But when Cuomo announced the state's budget in February-an event closely tracked by numerous UFC blogs-he made no mention of new infusions of cash from licensing MMA.

And that's the second reason Toronto really matters. More than dollars, more than prestige, and more than attendance records-New York will be watching. If the UFC can pull off a successful show in Toronto, proving to skeptics that the young sport is ready for the big-time, then maybe it stands a chance of playing the hallowed Madison Square Garden or, better yet, the 54,000-seat Yankee Stadium.

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Back in 1993, when the UFC was founded, mixed martial arts was a curiosity based predominantly on what-if scenarios: What if a boxer fought a wrestler? What if a black-belt in karate took on a jiu-jitsu master? Fights were built mostly around one style versus another, gross mismatches were common and, unlike boxing, there were few rules. This led Arizona Senator John McCain, in a bid to keep the sport out of his state in 1996, to brand it as "human cockfighting."

At the time, boxing was still the king of combat sports. Fighters like Mike Tyson and Evander Holyfield were true household names, and title bouts regularly drew sellout crowds and A-list celebrities, with gates in the tens of millions.

White and the Fertitta brothers attended their first UFC event in the late 1990s. They were weekend warriors at jiu-jitsu and developed a rabid interest in watching MMA live. White-a former amateur boxer who grew up in South Boston and moved to Vegas as a teenager-found himself sitting in the stands thinking he could run the league a lot better than its current owners, who included pay-per-view tycoon Bob Meyrowitz. White soon began managing fighters, and gained some valuable insider knowledge: The UFC badly needed a bailout.

In 2000, White and the Fertittas offered what seemed at the time to be a very generous $2 million (U.S.) for the struggling operation. The brothers ponied up the bulk of the cash for 90% ownership. White, who would become the face of the UFC, assumed a 10% stake.

MMA was banned in almost every state. The new owners realized that the secret to their success lay in bringing structure to the sport. Since many jurisdictions already allowed competitive kickboxing, jiu-jitsu and other martial arts, why not sanction MMA, as long as it followed the same guidelines? The league had already mandated the use of gloves and introduced a more rigorous system of weight classes, similar to boxing, so middleweights weren't fighting heavyweights-a common occurrence in the sport's early days. It had also brought in rules: no eye-gouging, no direct strikes to the throat, no head-butting, no small-joint manipulation. The UFC would adhere to drug testing mandated by individual state athletic commissions and do whatever it could to operate in the same way as, say, boxing. In a sense, Zuffa (the Italian word for "brawl") became a proponent of even more rules. The strategy was twofold: First, a more competitive product would attract fans and build legitimate fighters into superstars. And second, it would persuade regulators that there was indeed something to regulate, rather than just unscripted violence.

Today, MMA is sanctioned in 44 of the 48 states that have athletic commissions-New York being the most notable exception.

Zuffa also tried to impose some business rigour on the operation, controlling every aspect of the production and owning all of its content-unlike boxing, where a mishmash of independent promoters line their own pockets, rather than funding a central operation (which has fed fan disenchantment and opened the door for MMA). "Each fight is its own business," explains White. "We do everything. We rent out the venue, we pay for the production, we put on the show. We sell the tickets and we do all the promotion. We assume all the risk."

Four years after the Zuffa buyout, the UFC was still an unmitigated financial disaster. Week after week, fights played to half-empty arenas, and pay-per-view sales-the lifeblood of combat sports-were lukewarm, barely topping 90,000 for many fights. By 2005, the partners' initial $2-million investment had ballooned into a $44-million deficit.

Salvation came from an unexpected place. Looking to build hype for its league, Zuffa swung a deal with the Spike TV cable network in the United States to carry The Ultimate Fighter, an hour-long series hosted by White. The premise was about as predictable as it gets for reality TV: Several UFC hopefuls live and train together in one house, each competing for a shot at the big time. For Spike, it was a no-brainer: The show would cater to its young-male demographic, and Zuffa would pick up the production costs on Season 1.

When the series became a surprise hit among mainstream audiences, it dragged mixed martial arts out from its shadowy Fight Club beginnings and into the living rooms of middle America. Big-name advertisers began to come aboard, no longer squeamish about attaching their brand to the UFC. Since 2007, the league has signed sponsorship agreements with Anheuser-Busch, Harley-Davidson, Burger King and Bacardi, among others. "We used to put tickets on sale before a fight and we would sell 20 seats," says White. "We were in the hole until Season 1 of The Ultimate Fighter."

Now in its 12th season, the show is central to UFC's global expansion strategy. Zuffa is in talks to produce adaptations in Europe, Asia and South America. Wright has plans to start production on at least one version of The Ultimate Fighter Canada. "We're having conversations with people about The Ultimate Fighter Quebec," he says with a chuckle. "You can imagine what that would be like, if we had a champion of Ultimate Fighter Quebec versus Ultimate Fighter Canada. I might take some shit in Ottawa for that one, but it certainly would be interesting."

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The shrewdest-and arguably most unexpected-business decision Zuffa made on its way to making outrageous amounts of money off MMA came in January, 2009. That's when the Fertitta brothers announced they had brought in new investors to their closely held private company.

For an undisclosed price, White and the brothers hived off a 10% share of the business to Flash Entertainment, a division of Mubadala Development, the investment arm of the Emirate of Abu Dhabi. The deal brought the first UFC match to the United Arab Emirates-to a crowd of 11,000 in Dubai-a place that has been MMA-mad since long before the UFC was created.

The transaction took White's stake down to 9%, while the Fertittas now own 81%. But it brought them something far more valuable: influence. "We're looking to go into China, we're going into India, and there are some things we need to get done over there, and these guys do business with everybody," says White. "Listen, if we pick up the phone and call China and say, 'Hey, we want to come over,' they may not care. But if Sheik Mohammed from Abu Dhabi calls and says, 'Our partners want to talk to you,' we get in a little quicker."

The move raised eyebrows in the finance world, since Zuffa had spent the previous two years batting away overtures from private equity players wanting a piece of the UFC action. "We've talked to everybody," says White. "You name it, every hedge fund has tried to invest. But usually when you go out and do stuff like that, it's because you need capital, and we don't. We don't need the cash. The reason we did the deal with Abu Dhabi is because these guys are good strategic partners."

Trying to divine the UFC's financial picture is difficult. Moody's Investor Service, the debt-rating agency, estimates Zuffa will have $64 million in free cash-flow in 2011, with another $20 million in the bank after costs, including what White and the Fertitta brothers pay themselves. It recently upgraded Zuffa's credit rating to positive from stable, noting "the growing popularity of UFC, and its scale, brand strength and breadth of fighters under multiyear contracts." All those factors "help serve as an effective barrier to entry."

So far, White and the Fertitta brothers have dealt with rival MMA leagues by buying up the weaker players, mainly as a way to acquire the fighters under contract with those organizations (similar to the talent wars that pro wrestling became known for in the 1990s). But, in the process, they've amassed more than $400 million worth of debt.

As well, there's always the risk that a new, bloodier sport will emerge and eclipse mixed martial arts. Who could have predicted that boxing would ever be relegated to second place behind UFC? Until then, however, it's unlikely that a competing MMA league could build the kind of loyalty White inspires, both among fans and fighters. Though the UFC has no players' union, like the ones that exist in hockey and baseball-a key advantage to Zuffa's bottom line-White has a virtual monopoly on the best fighters and uses cash to ensure they stay on his side. He won't talk about how much fighters get paid, but he has said in the past that between 15 and 20 of them probably make $1 million a year, and he has also been known to cut large cheques on the spot to fighters he feels have been wronged by the judges-in some cases, doubling their appearance fee. For the fight in Vegas, Anderson Silva and Vitor Belfort each made over $200,000, according to MMA websites that track such figures. White also paid out bonuses for the night, including $75,000 for the best knockout-which went to Silva.

The middleweight champ could be in line for an even bigger payoff if the fight against St-Pierre goes ahead. When asked where he wanted to see the megafight take place, Silva said that was up to his boss. Then he added that he didn't want to see it in Toronto, since that would give GSP a home-crowd advantage.

White has mused about staging the event in Dallas, in a stadium almost double the size of the Rogers Centre. But Silva likely won't find any comfort there, since White figures the crowd will be packed with Canadians no matter where the fight takes place-that's how it always is, he says. Especially with one of their own up for title of best fighter in the world.

White doesn't care who buys the tickets-he just wants to sell as many of them as possible. Fill 80,000 seats? No problem. "I don't care what colour you are, what country you come from or what language you speak," White says. "We are all human beings. Throughout history, we've always wanted to know one thing: who the toughest guy in the world is. Fighting is in our DNA, man. We get it, and we like it."



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GOLDEN TICKETS It took just minutes for the UFC to sell 55,000 tickets-for as much as $800-to the April 30 fight in Toronto, which pits Canadian Georges St-Pierre against California's Jake Shields. Here's how the buying frenzy went down.

Day 1 (Feb. 10) At 10 a.m., 42,000 tickets go on sale to the 20,000-plus members of the UFC Fight Club, who pay an annual membership fee. They sell out in seven minutes. UFC puts up an additional 5,000 seats, which are also immediately snapped up.

Day 2 (Feb. 11) UFC releases 3,000 or so tickets for newsletter and radio promotions. They're gone in four minutes.

Day 3 (Feb. 12) UFC reconfigures the Rogers Centre seating plan to find an additional 5,000 seats, which go on sale to the general public first thing Saturday morning. Within 15 seconds, there are 3,500 people in the phone queue. All tickets are spoken for within seven minutes.

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