Sports Business

UFC Uses New Media To Secure $4 Billion Score

UFC Uses New Media To Secure $4 Billion Score

The largest acquisition of a sports organization does not involve the NFL, NBA, MLB, NHL, EPL, La Liga, or Bundesliga. It involves fighting. Monday, WME-IMG announced that it was purchasing Ultimate Fighting Championship (UFC) for a reported $4 billion. It is almost the same price of the Los Angeles Dodgers and Los Angeles Clippers, the two previous largest sports acquisitions, combined.

So how did brothers Lorenzo and Frank Fertitta turn their $2 million investment in UFC in 2000 into a return on investment of 2,000 times in 2016? The Fertitta brothers and UFC President Dana White made a series of decisions that leveraged new forms of media to build a highly devoted, engaged audience willing to pay a premium for more traditional service offerings.

For example, the UFC created called The Ultimate Fighter for Spike TV in 2005, a reality contest show that provided a “six-figure” contract for the winner. At the time, there were few reality shows focused on sports. Boxing had already moved away from cable and broadcast television and instead relied on pay-per-view fights to generate most of its revenue. The UFC made a bet that the more exposure it could gain to its target audience, males 18-34, the better. One excellent way to gain that exposure was to create a show for a channel designed to target this exact demographic.

In addition, the UFC made early, significant investments into social media. White is famous for engaging with people on many different social platforms with content authentic to his direct (and some would say confrontational) personality. White’s openness to communicate directly and authentically with fans and the media was different than how other sports executives engaged with their audiences.

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Using innovation and newer communication channels largely accomplished what the UFC hoped for in maximizing the exposure of the sport. With a large, highly-engaged audience the UFC was able to more effectively monetize traditional revenue streams, including charging $245 (on average) for live events in 2014 and making much of its current $600 million annual revenue from pay-per-view events. In addition, a new media rights deal with Fox Sports is projected to be worth $200 million per year starting in 2018.

Some of the implement of this strategy was not fully by choice. The UFC was close to filing bankruptcy in 2005 when The Ultimate Fighter launched. The show was an attempt to save the business. The main way Lorenzo Fertitta and White persuaded Spike TV to broadcast The Ulitmate Fighter was for UFC to pay for all of the production costs. However, the result of this strategy came to fruition with the $4 billion purchase.

ESports has closely followed UFC’s path to success in the way it has used new communication channels to build its audience and is now starting to use this large, highly-engaged audience to monetize more traditional sports revenue streams. In two recent episodes of the StartUp podcast, the Twitch co-founders shared that they discovered a large portion of their audience was using the live streaming platform to watch people compete against each other in video games. Even with the success of YouTube, live streaming was not considered a mainstream communication channel when the original company began in 2007. However, eSports players innovatively used live streaming channels, like Twitch, to build large, engaged audiences that would spend hours watching them compete at very little cost.

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Once eSports athletes built audiences through new communication platforms they were able to monetize more traditional sponsorship, in venue, and television revenues streams. These athletes have built large sponsorship portfolios with companies including Intel INTC +0.89%Coca-Cola , and Nissan Motor  becoming heavily involved. ESports competitions have been selling out large sports venues, including 40,000 people coming to Seoul’s World Cup Stadium to watch the finals of the “League of Legends” tournament in Korea in 2014. TBS began broadcasting the ELeague this May with teams competing on larger-scale cable platform for the first time through a deal with WME-IMG. Twitch was acquired by Amazon for $970 million in 2014 because of Amazon’s strategy to focus more on live streaming content and compete with companies such as Netflix NFLX +1.64% in this space.

There is a concern in the sports industry that the influx of new technology will make it more difficult for sports organizations to make money from traditional sources. Technology like Virtual Reality headsets will make it easier than ever before for people to consume sports content without actually having to attend or watch games. What the UFC and eSports have shown is that the emergence of new communication can be the catalyst for sports organizations to maximize revenue in more traditional revenue streams rather than their replacement.

Adam Grossman is the president of the sports sponsorship and analytics firm Block Six Analytics. He is also the co-author of "The Sports Strategist: Developing Leaders for a High-Performance Industry." In addition, he is currently an adjunct lecturer at Northwestern University, where he teaches classes on entrepreneurship and quantitative analysis. Grossman also contributes to Forbes. Follow Adam Grossman on Twitter @adamrgrossman.

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Why Cirque du Soleil, NFL experience could come to Chicago

Why Cirque du Soleil, NFL experience could come to Chicago

With the success of the NFL Draft going mobile, the league may eventually decide to take another NFL experience on the road.

The NFL has partnered up with Cirque du Soleil to launch an interactive exhibit in New York City this fall.

The attraction, titled NFL Experience Times Square, will include interactive screens, an auditorium for 4D shows, coaches clinics, autograph sessions and much more.

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CSN Sports Business Insider Rick Horrow explains why taking the experience on the move could be a good thing for the franchise value of the Bears.

"This is an example of a $25 billion NFL business joint-venturing with another pioneer in the entertainment industry Cirque du Soleil to make it better," Horrow explained. "Here's the case, because the NFL Draft has become mobile with Chicago leading the way, then Philadelphia, the Pro Bowl, the Super Bowl, you can't believe it's not an opportunity for potentially doing this NFL experience along the streets of Madison Avenue, along State Street, as well as Michigan Avenue.

"How about downtown Chicago on the way to other places."

Watch the video above to see what else Horrow had to say about the NFL Experience possibly coming to Chicago.

Sports business: Using targeted promotions to earn more dollars

Sports business: Using targeted promotions to earn more dollars

In Monday's episode of National Public Radio’s (NPR) Fresh Air Joseph Turow, professor of communications and associate dean for graduate studies at the Annenberg School for Communication at the University of Pennsylvania, ominously "Warns That Brick-And-Mortar Stores Are Watching You."

While this may seem a bit like the real-life equivalent of "Big Brother" from George Orwell's book 1984, Turow is describing the reality that the tracking companies do in e-commerce has moved more fully into the offline stores. Using technology including mobile applications, iBeacons, loyalty cards, geo-targeting, and geo-fencing companies have more information about customers in-store buying and behavioral patterns. This enables companies to design targeted adds and promotions specifically tailored to customers that can increase the likelihood of them making a purchase.

While the ethical implications of this activity would require and entirely separate blog post, Turow and host Terry Gross discussed an important idea that comes from having this technology. In the past, companies have focused on rewarding and retaining loyal customers. Those are the customers that keep coming back and buying a company's products or service offerings. Because the cost of keeping a customer has been much lower than attracting a customer it would seem to make sense that companies would want to focus on keeping the customer's they have.

However, this may no longer be the optimal strategy for maximizing revenue growth. Instead, companies should be focused on the marginal customer rather than the most loyal customer. A loyal customer is loyal for a reason – he / she likes the company's service offerings. Why spend money on advertising and promotions if that person is already likely going to buy the product anyway?

Instead, targeted promotions should be focused on customers that will only make a purchase if they are influenced in the right way. For example, let's say a customer is indecisive about buying a pair of jeans. In the past, this customer may have tried a pair of jeans on and then left the store without purchasing them. Now, a customer can download a company's app to access additional content, deals, and other helpful information. In return for delivering these benefits the company can receive information from the app that shows the location of the person while he/she is in a store. It can then use a geo-fence, a virtual fence that surrounds a geographic area, to determine when a customer leaves a specific geographic area. If this customer leaves the store without making purchase after spending a certain amount of time (i.e. the time to try on the jeans) then the company could send a targeted ad saying that the customer has 15 minutes to come back to purchase the jeans at a 15 percent discount. Essentially, companies now can identify "disloyal" customers and then attempt to bring them back to stores to make purchases.

Using technology to reward "disloyal" customers is something that sports organizations need to increasingly focus on given the demands of the business. More specifically, there are loyal fans that are going to buy tickets, watch games, and purchase merchandise even if they do not see any advertising from a team. These customers add significant value and should not be ignored. However, sports organizations want to focus on targeting the marginal customer using new technology to encourage ticket sales, in-venue purchases and increase game viewership.

The added benefit of using technology and customer outreach in this way is that it should increase sponsorship revenue as well. Not only can sports organizations use targeted promotions to help their current sponsors expand reach, but organizations can also show how these targeted marketing efforts cause lifts in purchasing. For sports teams, clearly communicating how sponsorship/marketing assets are used to create a lift in sales provides powerful evidence of how similar tactics can drive new revenue for partners. Rewarding "disloyalty" seems counter-intuitive, but there are many ways that targeting marginal customers should lead to substantial revenue growth.

Adam is the CEO and Founder of Block Six Analytics. He is also a lecturer for Northwestern University's Masters of Sports Administration and the co-author of The Sports Strategist: Developing Leaders For A High-Performance Industry.