Strikeforce's tombstone...

From BE - from user nottheface ;



It’s 2011 and the Strikeforce deathwatch continues on the blogosphere, as we await the company’s eminent demise under the massive debt that the company has either accrued, or will soon be incurring thanks to the Heavyweight Grand Prix. Strikeforce’s fate has thus already been foretold, all that remains to happen is for Scott Coker to be ritually sacrificed on the steps of the Temple of Kukulkan in Chichen Itza to the sun god Em-wun-gloebul in the year 2012.

But must this happen? Is Strikeforce really doomed to fail? If we look at the past history of other promotions that have found themselves in the UFC’s crosshairs the answer seems to be yes. But this observation could also be a problem of induction, since the death of each previous promotion seems to be as much due to their own missteps and shortcomings as it does from merely coexisting with an angry Zuffa. For Affliction it was overspending on talent - $5 million a show – and ineffective marketing while trying to make an immediate splash on periodic payperview events. In the case of the IFL it was running up too much debt trying to convince fans that preferred fighting in a cage and rooting for their favorite fighters to make the switch to MMA teams competing in a ring. Elite XC’s sin was piling up huge debts buying useless promotions and a too costly website while pinning their fortunes on a "street fighter" with little actual MMA skill. And the tragic collapse of Pride had nothing to do with any actions in the American market at all, but instead a problem native to Japan - the yakuza.

The common denominator in the failures of all of these American promotions seems to be debt. So then, Strikeforce must surely be on the path towards doom as well for one only has to look at the disparity in revenue between the UFC and them to see that they that they have little chance of success. Again, we shouldn’t confuse the UFC's success with anyone’s failures. The difference in revenue only tells us that they aren’t nearly as successful as the UFC.

So the question for Strikeforce long-term survival seems to be are they losing or making money? Well, without access to their books this is difficult to gage, but by harnessing the power of Google [side note - you kids don’t realize how easy you got it] we can try and determine to the best of out abilities if they are. It might not give us as a complete or detailed as answer as we would hope, but it should be suffice to tell us if we need to start planning their funeral or not.

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via t3.gstatic.com

Star-divide

First we will need to determine their revenues to even have a modest chance of calculating their survivability. So what were their revenues for 2009:

1. Gate. In 2009 Strikeforce averaged $578,657 at the gate for their Champions events based on the releases for gates for their Miami, Live, Fedor vs Werdum, and Noon vs Diaz events. For their Challenger series it was $85,516 based on the average from 3 events (6, 7, 11).
2. Television. According to the Florida State Boxing Commission, Strikeforce receives a $700,000 "Broadcast, Television, or Motion Picture" rights fee from Showtime for each Champions event. Various reports have put the Showtime deal at either $8 million a year or $25 million for three years for 16 events per year (8 Champions and 8 Challengers). This would mean they are receiving roughly $300,000 per Challengers card as well. In addition, Strikeforce has separate deals for the foreign rights with SHINE and SPACE TV. The revenue from foreign distribution was recently put at over $1 million a year.
3. Sponsors and merchandise. The figures that came out from the Strikeforce: Miami show ($8,003 in souvenir sales) doesn’t seem to indicate that there is much to be made selling Strikeforce merchandise. Although with the hiring of a new marketing firm and their re-branding we should expect these numbers to increase dramatically in 2011. Still, to be conservative let’s say they made nothing off merchandise. As for sponsors, they have a sizable roster of recognizable brands: FullTilt Poker, Rockstar, GoDaddy, EASports, sporting logos at their show. I ran this by a friend of mine who is in the marketing department at Universal and she came up with $4 million dollars a year being a realistic and conservative number.

Before we get into Strikeforce’s costs lets take a look at what the UFC’s spends on an event to get an idea of what we should be looking at. For about the Fifteenth time I’ll be stealing Michael Rome's summary of expenses (as T.S. Eliot wrote, "mediocre writers borrow; great writers steal"):

I’ve done a lot of research into sports overhead, my guess is the UFC is probably spending between $3 and $4 million in overhead costs for the average event not including salaries.

They spend $500,000 on the countdown show, a six figure fee for the arena, between 500 and a million to broadcast in-house, then you have a very high cost of hotels and flights for all their staff and all the fighters, and finally all the money they spend on ad spots.

This is ignoring all the salaries they pay to staff and such, going to assume those as year-end expenses and not event-specific expenses.

Now before we get on to Strikeforce’s expenses let us examine their business model, for there seems to be much confusion amongst the fans about how they operate. First of all, for all practical purposes they are a television promotion, making a product to be aired by Showtime, so their chief concern is making a product that Showtime will pay for. In fact, the prelim portions of the cards should often not even be viewed as a Strikeforce event, but a separate event held in conjunction with them. Strikeforce usually does not book these fights, instead leaving it to a regional partner to book local fighters. This benefits Strikeforce because:

A) It lowers their expenses greatly. Not only are local fighters more affordable, but there are no traveling expenses to accrue as well. In addition, by using a local promotion to assist in the production they can cut costs on logistics.

B) When they do air the prelims, in the form of a Challenger card, they are paid for it, so that there is always a return on a fighter's payout.

So what are Strikeforce’s expenses?

1. Payout. Their largest expense is the payout to fighters. Using what has been released by the various state athletic commissions last year their payouts averages were $441,125 per Champions event and $61,950 per Champions card.
2. Television production costs are handled by their partner Showtime, saving Strikeforce hundreds of thousands of dollars in expenses, although they do pick up the tab for the house show which runs around $30,000 for a Challengers card
3. When fighting at the HP Pavillion, the arena fee is being paid back directly to their partner, Silicon Valley Sports and Entertainment.
4. As Leland Roling detailed, Strikeforce’s advertising budget is microscopic in comparison to the UFC’s.

So what does this tell us. Going by this numbers I have come to the (very) rough estimate that their revenue is somewhere in the neighborhood of $20 million per year, while their (reported) expenses run about $13 million a year.

Now should we accept these numbers as accurate? Good god, no. But they do give up enough of a picture, even if it is painted in very broad strokes, that while they may not being doing well by UFC standards they don't seem to have fallen in the shame trap that killed the other promotions.

My prediction:t Dana will have to hold off on adding a new name to his tombstone .

Sound research and writing. Especially the executive summary(2nd to last paragraph).

good stuff!

bigbeastcardinal12 wrote:

good stuff!

you didn't read it lol!

josh200612 wrote:

bigbeastcardinal12 wrote:

good stuff!

you didn't read it lol!

Neither did u!