In the Ring With UFC’s Lawrence Epstein

Can you talk about the process of putting yourself up for sale and evaluating the field of players that that came knocking and how you how the final deal with Endeavor came to be absolutely you know, we bought the business in two thousand and one and spent you know, fifteen years essentially you know, growing it to what you know,

became one of the fastest growing sports in the world. Um, you know, around we started getting some some inbound inquiries from a lot of Chinese companies about the prospect of buying UFC, and so by late you know, we sort of decided to begin an informal process where we talked to a variety of different potential purchasers about about selling the company. The main owners of the business, Frank runso Fertida, I think, had decided that they, you know, they're interested

in exiting the business if they got the right price. Um. That process went from talking to some Chinese companies, are really talking to a variety of of of American based companies. You know, every sort of big player in the entertainment space, from the Walt Disney Company to Time Warner to uh, you know, a variety of other sort of media companies are strategic, you know, operating businesses that would you know,

be I think a good fit for the UFC. Ultimately, Uh, it was obviously sold to the Endeavor Group and R. Emmanuel we had actually had a long standing relationship with our he had been our agent for almost a decade helping us with our us TV deal. So it was actually a really nice fit. He was able to meet the price. And uh, he said, it's been over two

years now under the Endeavor ownership. When you first when you first heard that they were interested though in the acquisition, did that surprise you that because that was at the early stage of Endeavor building itself out to what it's become. No, it really didn't surprise me. I I mean already had expressed, you know, a passion for this business, you know, you know, for many, many years, and the question always was, you know, financially, could they go out and raise the money to get

this thing done? And it's very clear that they could. They made a series of acquisitions including IMG uh you know, a couple of years before acquiring UFC, and uh, you know, already had a passion for the business. Uh, it was a really good strategic fit. So it really wasn't a surprise. Uh it was I think, you know, the right deal for us at the right time. Did you get did you get into serious discussions with anybody else? Absolutely weak,

we said. We ran a process that probably lasted about nine months, and and of course, you know as these as the process sort of went along, certain parties would fall out for a variety of reasons. But uh, you know, we really got down to probably three or four, you know, really serious bidders. And you know, at the end of the day, when you know the factors that you look at, of course, price you look at, but you also look at you know, who's going to take the business to

the next level. Because the Fertidas had spent a lot of time, effort, and money building this business, but they also really cared about it and they wanted to make sure that they didn't just make a financial transaction. They wanted to make sure that the business would continue to grow and continue to be part of the sports landscape. And so, you know, taking a look at some foreign buyers versus what ari and and Endeavor had I think

made it made the decision, you know, sort of easy. Okay, you know, let's maybe take a little bit less money, but let's put it in the hands of somebody who's going to be able to take it to the next level. What did you I would imagine that talking to people and engaging the interest from outside companies to acquire you would tell you a lot about the strength and the potential weakness of your of the business. Did you learn

a lot during the sale process? You know, we definitely learned a lot in the sale process about certainly what investors were looking for, you know, when they wanted to consider acquiring a business like ours, And it made us focus on maybe some of the things that were weaknesses or perceived weaknesses to make sure we had the proper answers and the proper sort of you know, I think ways to sort of deal with those. Um you know.

The other dividend of the sale process was that so many of the parties that we were talking to were also potential bidders for our rights, the most obvious one being you know, ESPN. So Disney Company was at the table. They certainly listened to the pitch and you know, though they dropped out of the you know, the purchase process, you know, it was pretty clear to me that they

were going to bid on our rights. And you know, that obviously came true because we just entered into a five year deal with with ESPN, which is gonna start January one of nineteen. There was there's been some chatter on Wall Street that that that that ESPN deal wasn't as big as it was, and the you know, with the with the B in front of the you know, in front of the billion, that it wasn't it didn't meet the expectations of endeavor and of the USC. Is

that true, not at all? I mean, the deal that we did with with ESPN is really a multifaceted deal. So the headline, of course is one point five billion dollars over a five year period. Three million dollars per year that you know, is basically for a package of content very similar to what we have with Fox, and that's almost a three times increase over the Fox deal. But that's that's sort of not the end of the deal.

I mean, one of the things that we're frankly most excited about is that ESPN is going to be a non exclusive seller of our pay per view products. So now we've got a real partner that's gonna be focused on selling pay per view that you know, we think can really help us grow our business. In addition to that, you know, the credibility of being in partnership with Walt Disney Company and ESPN has helped us in so many ways,

including sponsorship. It's affected, you know, positively our foreign television deals, deals outside of of the United States. It's and it's just created a lot of credibility for our brand. So yes, you know, one point five billion dollars in the headline, but there's so many other benefits that we're getting out of this deal with ESPN. How um, how much would you say that your revenue mix is driven by the your pay per view events and now this more mainstream

sports licensing with a partner like an ESPN. Do you know what the percentage breakdown is, Well, the percentage breakdown right now is going to change, you know obviously effective January one, because we're gonna getting more revenue from from ESPN that we were getting from Fox. So the you know, sort of the dependence or the percentage of revenue coming

from pay per view will no doubt decrease. That being said, you know, we believe that the relationship with the ESPN is going to actually grow our pay per view business because, first of all, we're gonna get much more exposure being on the ESPN platform than we had with Fox. The television you know, ratings essentially are almost three times more or on ESPN and ESPN two than they are in

Fox and Fox Sports one. In addition to that, ESPN has got an incredible digital ecosystem, you know, which of course has got you know, earned, it's got their media, it's got you know so many you know, many things that are attracting people to you know, that platform. So we're gonna additional exposure via that and um, you know, we believe that you know, when there's sort of one click away from buying a pay per view in that

ESPN ecosystem that's going to add incremental buys. So certainly from the outset, you know, the percentage of revenue coming from pay per view will decrease, but over long term, you know, we think we're going to grow that business and you know, who knows where it ends up. You know, three or four years from now, are you going to do more events that that air strictly on ESPN and

are not offered in a pay per view format. So we're gonna do forty two events uh next year, which is about a three event increase over what we're gonna do in uh forty For those forty two events will appear in some portion on one of the ESPN platforms or either ESPN the broad reach you know, flagship network, or the new ESPN Plus O T T platform. Twenty

nights will be exclusive to ESPN Plus. The entire fight will be on the ESPN Plus platform, twenty two nights will there'll be some portion of the programming which will be on on the ESPN Flagship Flagship network. And then we're still going to have twelve pay per view events. Those will be exclusively shown on pay per view, So, uh, you know, uh that that's exactly the number we've had

this year and for the last several years. Do you feel like in this world of where people are becoming so accustomed to streaming, you know, the instant gratification button is you know, the instant gratification is so important to consumers now for video, do you feel like is the pay per view model maybe becoming outmoded in this in this environment. No, not at all. I mean, in fact, I think the pay per view business is more relevant

now than it ever has been. If you would ask that question five years ago, I said, well, you know what pay per view is a tough business, is churn business us. You know, you've got to sign them up, every sign up, every single time. And we did, you know, a huge event October six, and of course everybody laughed after the event was over. That being said, in this world of cord cutters and cord shavers and cordin ever's having an Ala cart, you know sort of I can

buy it, you know, whenever I want to. Is UH is a distribution platform that makes a lot of sense. I mean, you know, our philosophy for the last five years is the following. I mean, we didn't know where consumers were going with, you know, how they wanted to

distribute content. So our strategy was build franchises in all the important areas, pay per view being one of them, O T t v R, Fight Pass platform being another, you know, broad reach, you know being Fox Sports and Fox Sports one and soon to be ESPN, and then sponsored content Youtubees and those sort of you know pieces, you know, the twitches and those to those types of platforms.

Build franchises in those four areas and then give yourself anough flexibility to move content among those different franchises as their as consumers desire to consume content changes, and I think it's it's worked out really well. So we feel pay per view is an important part of that ecosystem, and it also gives you the ability to peak the peaks on these really big events. I mean, we did a boxing event last year with with Connor McGregor and Floyd Mayweather. I mean it did four point six million

or so pay per view buys. You know, those type of events gave you the with pay per view, give it the ability to peak the peak and not leave any money on the table. Is pay per view are people? Do you find consumers are very price sensitive. If you go up or down five or ten bucks, do you see a big swing in Not really, I mean it depends on the event. I mean it's like anything else

in life. I mean, if people perceive as quality a must have type of event, um, you know, they become a little bit price you know, less sensitive to price. I mean what we also see is when you increase the price, you also increase clustering. So you know, our events are very social type events. I mean people are getting together somebody, perhaps pizza and other grabs of beers and the sodas, and they all come over to the house. The more expensive the event goes, we see the clustering increase.

We also see an increase in our close circuit business, which is where we display in bars and restaurants, you know, the UFC events. We'll see an uptick in people going to bars and restaurants if we increase the price for particular events. So I mean, at the end of the day, if the event is high quality, people are going to figure out a way to see it. They might modify their behavior, but they're still going to watch the event. And even though all those people at a part at

a person's house party or at a bar. They're not they're not each individually paying. You probably love the social aspect of that because it makes a UFC something that people look forward to. It's a it's a it's a destination, if you will, I would imagine that that's percent correct. I mean, we love that community aspect of our events. It makes it more fun when you're hanging out with a bunch of your friends, and you know, it also makes you more likely, you know, to watch it again.

So maybe tonight we're gonna do the event at my house, but a month later we'll go over to your place, and uh, you know, it just creates at a more fun environment to watch these events or social events, and they're supposed to be fun, and if you've got a bunch of your friends with you with you, they certainly are more fun they would be for sitting by yourself, right right. Um. On the streaming side, you know, everybody

is trying to fit. Everybody that I talked to has a slightly different template for how whether it's just scripted series or a reality show or a sports event. I'm curious, do you have anything in your ESPN deal that basically rewards you for success if you hit a certain number of streams or their escalators in any in any of your deals. I'm curious about the mechanics of these times. Yeah,

we didn't. We didn't structure any sort of bonuses if we help them get a certain number of additional subscribers for for ESPN Plus, for example. Um, you know, we still will be retaining our own O T T platform, which is called fight Pass, And of course we've got the reward that will have be a pay per view. So the more pay per views we sell, of course, you know, that's a variable revenue stream. The more we sell, the more we make. But there's nothing in our deal

that specifically rewards us for adding additional subscribers. Now that being said, we want to renew this deal twenty times down the road with ESPN, so we're obviously incentivized to do everything we can to make them happy. And as you can see, you know, ESPN Plus is clearly a priority for them. Yeah, for sure, How do you differentiate what you're gonna put on fight Pass versus what might

be on the in the ESPN ecosystem. You know, it's just part of the deal, and it's also part of you know, sort of the way our fans are used to consuming contents. So virtually every one of our cards sort of right now starts on the fight Pass platform, the sort of what we call the early prelimbs, and then we'll transition typically to Fox and soon to be ESPN, and then the main card will either be on you know,

a broad reach network or on pay per view. So I think we've we've conditioned our fans to know that, you know, the fights sort of start on on the O T T platform and then they progress the different

different platforms for the rest of it. In addition to that, you know, we've got a bunch of other content that we've got on the fight Pass platform, so you know, magazine os features on our athletes, our entire library, and then we've licensed probably twenty five or thirty other types of martial arts promotions there, so some of its mixed martial arts, some of its boxing, some of its kickboxing,

some of the jiu jitsu. So I mean, we're trying to create, you know, a point of differentiation for the fight Pass platform, which is sort of the go to place for all types of martial arts competition. In addition to a robust offering of UFC. One of the things that of course made UFC is so attractive and so valuable is that it has become a magnet for so many young men, you know, teenage boys, young men. Is that is there a misperception that this is a really

this is a guy's guy sport. Do you have a more broad a broader audience than than people like me would perceive. Well, you know, you're absolutely right that sort of the core audiences that eighteen to thirty four year old male that's certainly, you know, the biggest part of our audience. But you might be surprised to know that thirty percent of our fans here in the United States

are women. UM and part of that is because of the fact that we have of female athletes within the organization um SO and that's a growing part of our business. In addition to that sort of gender breakdown, we're one we're really the most diverse audience when in the world of sports right now, other than the NBA, which over indexes US when it comes to African Americans, UM we're

number two. UM in every other sport we have the most compared to every other sport, we have the most diverse fan base, so and it's growing faster than frankly, the rest of our business. So where there's African Americans, Hispanic and women, that part of our business is growing quicker than than the rest of our business. So we'recoming more diverse every day. Have you seen benefits to being

part of the Endeavor family? Obviously a big part of that company is is w M ME a company that builds stars and is you know, one of the world's largest talent agencies. Has that been a benefit? Huge benefits? So just in the process of building stars, I mean, they're so good at doing it. And it's not just about building stars, it's building them quicker than we we've

done in the past. And I think they've done a great job in helping us sort of build the star power and enhance the star power of our existing athletes. The second thing that's been great is that we've got a bunch of celebrity investors that are actually invested in the UFC, and so you know, they're out there, you know, promoting the product because they've got a self interest in it now. And then even those that don't have a self interest in it, I mean, for example, Drake, he's

a he's a w M E client. I don't believe he's an investor, but he's out there, you know, helping us promote UFC, using his social media platforms to help us. He actually, you know, uh, recently streamed a fight at one of his concerts in Las Vegas. So he's been you know, just incredibly helpful to us, you know, growing and expanding the brand. And those are just a couple of the anecdotes about how, you know, the w M E and Endeavor organization has really helped us build stars

and enhance you know, the UFC brand. Can you give us an example of a of a crossover opportunity or a you know, a placement or a guest star shot for one of your fight Is that really helped boost that person's profile outside you know, outside of the world of UFC, in in TV or film or I mean there's so many, uh, there's so many you know, uh, whether it's movies or television shows or things that have

integrated UFC into I mean. The thing is, actually, before UM Endeavor bought the company, you know, one of the biggest promotional things that we had done to expand you know, sort of the fan base of UFC was you know, we got one of our fighters on Entourage and that was all done by Ari got chuckolated l on the show. And even to this day, people come even tho it was like a decade or so ago, people will say, you know, yeah, I remember when chuckolate Dell was on Entourage.

That was a great episode and that really, you know, that really helped us grow the brand. You know, whether it's talk show hosts, whether it's you know, getting on you know, the late night shows or getting on you know sort of morning you know television was Good Morning America. You know. Conan O'Brien, for example, has been just great in bringing our athletes you know, on his He did you know, really a funny segment with Connor McGregor in

the lead up to the October sixth event. And you know, Conan is is an investor, but that opportunity, you know, just wouldn't have been there to get you know, regular coverage of our athletes on his show. Um without the endeavor relationship, there's no there's nothing better than a you know, enthusiastic talk show host or somebody talking about your your product to move the needle, whether it's you know, whether it's shoes or packaged goods or for sure it's great.

And then you know Conan just does He's so funny, you know, he's so into the sport, you know, and he really likes Connor and they have this great sort

of back and forth relationship. And you know, then that stuff after it airs, you know, clips of it go viral and you know people are of course, you know, using their social media platforms to to you know, in further enhanced the distribution and all that stuff sort of leading up to the event, you know, just enhances you know, the interest in the event and ultimately gets more people

buy pay per views. Is there? Um? You know, I think you have the you have the high class problem of of being so successful that there's that there are some start up ventures and and some burgeoning leagues that are that are you know, could grow into competitors significant competitors to UFC. Are you on the one hand, the expansion of the market is you know, it is probably a good thing for the M M A world, But are you concerned about you know, the rise of new competitors.

You know, we've got some real competitors out there. I mean, you know, uh, in the US Belletour, which is owned by Viacom. Outside the US, this is a global business. You know. One FC is built a very nice business in Asia. You know, we don't see it as a zero sum game. You know, we're only doing forty two

events per year. Um. We we feel that, you know, if somebody watches bellot or or one FC or one of the dozens of promotions around the world and they like what they see, you know, they're probably gonna, you know, take a shot at enjoying some of our contents. Is where the market leaders, so um said, we don't see it as a zero sum game. You know, the we have a fair amount of competition for athletes at times.

You know, at the end of the day, we're sort of rooting for those guys to be successful because if people like the product and uh, you know, they enjoy it, they're probably gonna come check out UFC at some point. But what would you say, I mean, I would imagine that with your growth and the growth of the market, that the that the athletes salaries have probably come up significantly in the last couple of years as they see all those big numbers, no doubt about it. I mean,

Connor McGregor. Uh last year made over a hundred million dollars. He was the third highest paid athlete, you know, behind I think Ronaldo and maybe a Lionel Messy. You know, so that's pretty astounding stat right it is. It is so there's no doubt that fighter comp has has increased. But you know, at the end of the day, the overall business grown too. So you know, we don't see that as a bad thing. We see that as a

good thing. You know. We want athletes to be able to make not only a good living, but a great living, because that means more athletes will come into the sports seeing it as an economic opportunity. So, you know, once again, that's a that's a good problem to have fighter fighter comp going up as you expand in perst in to box and now into ESPN, very mainstream traditional TV UM. You know, UFC is made its name. It is a

very physical, it can be a very violent sport. Is that is there pressure at all to tamp down on some of what has made the UFC very appealing. No, I don't think there's any any pressure to sort of change, you know, anything about the sport other than to be proactive and make sure you're doing everything to make the sport as safe as possible and to provide information to

athletes so they can make informed decisions. I think if if mistakes have been made by other sports organizations, it's been it's been the latter it's like, you know, not giving athletes information so they can make informed decisions. And I think, you know, we've been very proactive in doing that and making sure that we're studying our athletes as

much as we can. You know, we've been funding a study with the Cleveland Clinic, which has a location in Las Vegas, where we're studying the brains of our athletes and those of boxers. And the goal of the study is twofold. I mean, number one, trying to figure out are certain people, based upon their physiology, just predisposed towards

brain injury? And number two, are there early indications before somebody starts manifesting a cognitive deficit that we can see and if we see those things, you know, get them out of the sport. Um. You know, there's about six hundred athletes in the study, about six UFC and about boxers, and UM, you know, there's been a three or four

peer reviewed medical studies already published on this data. So the good news is we're getting closer to where we are right now with the eye for combat sports athletes, So as a condition of getting you know, a license to be a boxer, mmy athlete, you've got to get an exam. If you've got a detached retina, you can't fight, you can't get a license anywhere. We want to get to the same point with the brain where we'll have some sort of a test, will follow athletes over a

period of time. If there are changes in their in their brain, for example, they're done. They're not able to fight anymore. So we can get people out of the sport before they actually do you know, get injured. So we're all full the next three to five years, we're gonna have those type of tests and it may be you know, taking taking requiring athletes to get m r E s of their brain and then make that a

condition of licensure on an annual basis. And if changes are seen, once again, just like the eye, you're out of the you're out of the business. You have to do something else with your life. So that's the stuff that that we're doing to make sure the landscape is as safe as it possibly can be. International is a very big growth opportunity for you. Are there are there markets that you're in that are becoming big growth drivers for you? And are there markets that you you aren't

in but you want to be in? The answer, you know the second question. First is, you know, we're in virtually every market right now. We're on TV. I think in a hundred and sixty countries and territories. We're reaching about one point one to one point two billion homes with every single one of our UFC events. So there's not a lot of places on the planet right now where you can't view you know, UFC content, you know, if you've got an Internet connection certainly, or if you

have you know, a basic you know sort of television package. Um. That being said, there are certain markets that we see a tremendous amount of upside in. You know, first is the US. I mean, we've certainly made a lot of progress here, but we feel like the CSPN deal is going to take us the next level. Our second biggest

market currently globally is Brazil. It's one of the foundations of the sports I mentioned to you know, Gracie jiu jitsu and Brazilian jiu jitsu is a you know, key skill that you've got a master in order to be successful in our sport. So we've got a lot of fans and a lot of athletes from Brazil. But um, you know, the list of countries where there's a lot of potential is is very long. I mean one of the areas of the world we're spending a lot of

time on now is China. It's gone from a top twenty market frankly revenue wise to a top five market revenue wise, and it's obviously a huge country but also a martial arts tradition in China. So I think you're gonna see a lot you know of effort goes towards growing that market, you know, over the next several years. We had our first event in mainland China last year in Shanghai, huge success, sold out the Mercedes Benz Arena in Shanghai, and and that's a big deal in China.

I mean, there's not like a huge culture of buying tickets there. But other than the NBA and US, you know, not many sports have sold out. Um, so we're really proud of that, and it really showed, you know, there's a great fan base there. I mean I went to that event. Fans were there early, Um, they knew all about the sport. We had eight Chinese athletes on that card, and so you know, we've got about twelve to fifteen Chinese athletes now and that number is going to grow.

We'd like to get to you know, where we are at Brazil seventy or eighty you know, Chinese athletes on the UFC you know roster, and so I think you'll see a lot of investment and a lot of interesting things happening with UFC and China going forward, looking ahead to twenty nineteen, What what are the events are the initiatives that we should keep an eye on for UFC next year. Well, first and foremost of course, is launched

the ESPN deal. Um, you know that's our January first, we're doing our first event uh in at the actually at the Parkway Center here in New York on I believe the nineteenth of January. So that's gonna be you know, sort of a seminal you know event for us, the first the first UFC under the ESPN relationship. Uh. You'll continue to see significant international expansion China and other markets being a high priority. UM and UM. You know, in addition to that, I think you'll continue to see us

distributing content anywhere and everywhere that content is distributed. We're going to continue to be sort of on the leading edge of content distribution. UM. In addition that, UH, there will be some new sponsors that will be coming in as a as UFC sponsors, both in the UFC and both in the United States and around the world. So a lot of exciting things coming up in twenty nineteen for us. Great well, listen, Thank you so much for taking the time and talking us through all of this.

It's an fascinating business. Thanks for having me, Thanks for listening. Be sure to check in next week for another episode of Strictly Business.