UFC: The Story of a Corporate Turnaround

Michael Thomsen is the author of Cage Kings: How an Unlikely Group of Moguls, Champions, and Hustlers Transformed the UFC Into a $10 Billion Industry.

Motley Fool host Ricky Mulvey caught up with Thomsen to discuss:

• The rise and transformation of the UFC.
• How President Dana White negotiates with fighters.
• What investors may want to know about the upcoming merger between WWE and the UFC.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on June 18, 2023.

Michael Thomsen: The WWE is an interesting case because they are a mature business too. They've been at a plateau for the last few years and trying to think about what the next growth catalyst would be for them. In a way, it's a precursor of where the UFC is heading, I think. The UFC is heading toward a point of saturation also.

Mary Long: I'm Mary Long, and that's Michael Thompson, author of the new book, Cage Kings, how an unlikely group of Mogul's Champions and Hustlers, transformed the UFC into a $10 billion industry. Ricky Moldy caught up with Thompson to discuss the early days of mixed martial arts, the upcoming merger between WWE and the UFC, and what it takes to be the Alpha of a cage fighting organization.

Ricky Mulvey: Today, the UFC is this mixed martial arts conglomerate. It's something that's regularly on ESPN. We often associate it with Dana White, the president, but he's not the founder. This, it's hard, is the story of a corporate turnaround. I'm hoping you can share with us that story, starting with its founder, Art Davies.

Michael Thomsen: Yeah, sure. Art Davie originally came up with the idea in the early '90s. He was a marketing executive in California. He had come up with this pitch for one of the clients, this beer importer. Ironically, it was the same company that distributes Modelo, which is now big UFC sponsor. Back then, he was trying to rebrand Modelo, and they asked for pitches, so he came up with the idea of doing this martial arts tournament that pitted different styles against each other. They wound up passing, but in the process of researching it and putting it all together, he got so excited by the idea, he decided to just run with it, and he ended up quitting the job, taking his savings and starting his own production company and then trying to just slowly sell everybody on it. At the time, pay-per-view was a huge growth market. Investors were expecting that to be the next big high-margin media sector or in the '80s that had been all about cable subscriptions, and so people were thinking if a family will pay 20, 30 bucks a month for premium cable television, they might also pay 10, 15, 20 bucks for premium shows individually. It was almost as this fantasy of like infinite, like profitability. There's a huge incentive for pay-per-view companies to start looking for original programming. Now, we think of it as just boxing and pornography and second run movies that are done with the movie theaters, but aren't out on home video yet. But back then they were really pushing for original content and original series ideas, and that was the sweet spot that Art Davie hit with the 1993 launch.

Ricky Mulvey: But it always had to push the edge, I think, what was it? They also tried like street racing in like leading-edge reality shows. Art Davie starts at, the story is well-known. Royce Gracie comes in, wins the first tournament. This regular every man proving to the world at that time that Brazilian jiu-jitsu is the top martial art. But then after that, the company starts to falter a little bit. Maybe there's a little bit more pressure on them. The shine has worn off. What is the state of the business, maybe just before Dana White brings the Fertitta brothers in?

Michael Thomsen: They were pretty close to bankrupt. The company that Art Davie had partnered with was called Semaphore Entertainment Group that was a subsidiary of BMG, the Big Music Conglomerate, and they had started this smaller pay-per-view company. They were left running the show. After all the legal problems or a bunch of local governments all the way up to the federal government, John McCain really had turned against the sport as this kras exploitive human cock fighting. They had eventually been kicked off US Cable. They were only available in the US on satellite, which cut their addressable market in less than half. I think it was about a third of the number of homes they were in. They had a wave of bad press, and so in 2000 SEG they were scrambling to get money to fund the next show. They didn't even have money for a full year of shows. It was, Rob Meyrowitz who is running it at that point, he had taken over after Art Davie left the company under some controversial terms. He was basically trying to get people to give him money to fund the next promotion, and he started looking for ways out, and that's how he found Dana White and the Fertitta brothers who end up buying the company at the end of 2000, early 2001.

Ricky Mulvey: What's interesting about this as well is that your book discusses is the UFC didn't just have a regulatory problem or a pay-per-view interest problem. At the heart of this, there's also a product problem because it's intensely difficult, especially in the early stages of this sport to book competitive, exciting, compelling matchups.

Michael Thomsen: Yeah, that's still a problem with the sport today in a lot of ways where if you're selling bulk fights, which is what the UFC is in, it's easy to get excited about Chuck Liddell and Tito Ortiz or Conor McGregor and Nate Diaz or whoever, but when you have 12 fights and event, 40 events per year, you're putting on hundreds of fights and each of them can't have this Hatfield versus McCoy blood vendetta to it. A lot of these over time, they just feel purposeless. Part of the magic I think that the UFC had in the early days was it was a tournament. You look back at a lot of the early fighters and in the mid '90s, they would come to the UFC as a tournament this like one night win three, in some cases four fights in a couple of hours. It was almost like climbing Mount Everest, and you'd see guys try and fall short and then come back. It wasn't really about being the champion of the world or winning your weight class. It was about just accomplishing this feet on the night. That gave it drama. But I think after 7, 8 years that got old also. It was like, well, we've seen a dozen, two dozen people climb Mount Everest. Now, it starts to lose its specialness, and then it became more about matchups and building characters and personalities and stakes for the individual fights. That's where it really becomes a promotional problem in terms of business like, how do you create a sense of meaning and significance to each fight enough that you're going to convince someone to spend $30, $40 on it?

Ricky Mulvey: Well, not just that, I think it's like almost $85 per hour. Let's talk about one of the key figures at the UFC who's actually going to be at the helm of the new IPO, the company, the conglomerate between the WWE and the UFC. I think it will be TKO. That gentlemen is Ari Emanuel. Tell me about who Ari Emanuel is and how he becomes such a key figure for the UFC.

Michael Thomsen: Yeah. It's a tempting question. There's a lot of different versions of the Ari Emanuel story you could tell. The simplest one is he's an agent, he's Italian agent. He got his start in Hollywood in the mid '90s as an agent trainee, and he didn't really have any particular vision at that point, I don't think. There's an interview like quote in the book, if you go back, they interviewed, I think this is around 1995, and they asked him what his ambitions or what is his big goals were for the future. He said, he didn't really have any beyond just money and power. That was the closest thing that he could come up with for like a personal motivating mission. That's really been his life arc in a way. He's just gone from agency to acquisition. Now, he started his own agency which is called Endeavor in the late '90s, and then just steadily built that up. He got a choke-hold on the talent business, especially in television. That was his where he started television and animation. He represented a really valuable client list in the '90s when television deals were at their peak. We had Seinfeld, is the age of the sitcom, the network sitcom where there's just absolute premiums for actor commissions, writer commissions, show-runner commissions. He's like was in the center of all of that. He parlayed that into consolidating the agency business, went on to acquire William Morris and made Endeavor into an even bigger agency, and then he started to make that conglomerate into a multimedia.

Michael Thomsen: Chimera, it's not really clear what Endeavor is anymore, whether it's a fashion show or a bull riding production company or a cage fighting promotional company, or they're still in talent, but he found the UFC because he was their agent. In 2005 after the launch of the UFC's first reality series called the Ultimate Fighter, Ari saw the success they were having and in typical REM annual fashion, he just started calling and calling and calling and calling and saying, how can I help you, how can I help you? Eventually, he persuaded Dana White and the Fertittas to let him represent the UFC in its media licensing negotiations. The way he persuaded them to do that at the time was he promised to get Dana White a meeting with the head of HBO Sports to try and get the UFC on HBO Sports, which had a really long running reputation as the place to go for boxing. Dana White was a huge boxing fan, so the idea that the UFC could be on an equal footing with boxing was very appealing. That deal fell through, but the relationships stayed.

Ricky Mulvey: Now that UFC is at a point where it just made $1.1 billion in revenue. Mixed martial arts journalist, great Luke Thomas pointed out that that was more than every other combat sports promoter combined. If you look at where the UFC is today, HBO doesn't even have boxing anymore and the UFC is on ESPN, which also has become a home of boxing with top rank on there. For as much as fans complain about not having any superstars, there's too many fights at this television studio for the UFC, the Apex and training facility, it seems like their strategy is working pretty darn well.

Michael Thomsen: Yeah, absolutely. I mean, it's always been a cyclical sport. If people complain about the sport being in a lull in terms of stars, presently with Conor McGregor not being out with injury and having his own issues.

Ricky Mulvey: Like knocking out the mascot of Miami Heat in a brutal and unnecessary way in between a basketball game, please continue.

Michael Thomsen: If you can watch it for free, why pay 85 bucks to watch him fight Michael Chandler. But people would say the same thing in 2013, after George St-Pierre went away and Sudo retired, he needed a break, John Jones had a bunch of fights canceled and there was a talent void for awhile. There's always a talent void. The era of Tito Ortiz being this unstoppable force and the great fights with Ken Shamrock in 2002 and then all of a sudden Tito couldn't win a fight anymore than it was Chuck Liddell era, and then he started losing, he couldn't win a fight. There's just a continual churn of talent, but you still have people like Jorge Mosvidal, he emerged as a superstar out of nowhere. He had been a long-running presence in the sport. He's been fighting since mid-2006, or even Nate Diaz.

Nate Diaz was one of the most familiar names in MMA, but very few people thought of him as a superstar and then you just hit this catalysts match up, a matchup where the stakes, the significance of why these two people are fighting suddenly becomes clear and it just drives us intense reaction from fans. I think that's always going to be there. You can feel it happening a little bit with Israel Adesanya who is one of the biggest stars I think they have now. Kamara Huisman became a big star, even though for large parts of his career, he was thought of as a dry boring grappler, not a knockout artists, not a submission fighter, he was just a smothering wrestler. There's a gambling analogy to the way they deal with the star building, where they hold the maximum number of chips, and then they just choose when they're ready to go all in on a certain fighter, but they have all the fighters available to them, and then when one of the fighters hits a streak, then they have the media platform to really blow that person out, send them all over, promote them, buy commercials for them on radio and YouTube and everywhere else, but until there's that momentum going, then it feels like nothing's happening.

Ricky Mulvey: I want to talk about where the UFC is going, specifically this IPO slated for the second half of the year. The UFC Endeavor is combining with the WWE in the TKO group. The CEO will be Ari Emanuel who we just discussed. In Endeavor, Ari Emanuel is able to own a 51% stake while the WWE shareholders are going to get the remaining 49%. That in and of itself has to be an incredible feat to wrestle away ownership of the WWE from Vince McMahon.

Michael Thomsen: Yeah, absolutely. I mean, Ari, famously, he has a lot of doubters. He does things similar to what the Fertitta's did in the locals gaming market where they take on an enormous amounts of debt and they make bets that a lot of people on the sidelines say are not going to pay off, they're going to leave them too vulnerable, they're not even going to be able to repay the interest on the debt. I mean, it was the same with UFC acquisition in 2016. A lot of people at that time were like, this is way too much money for what the actual revenue this company produces year-over-year and he just keeps finding marginal profit to scrape out of these companies as they build up. I think the WWE is an interesting case because they are a mature business too. They've been at a plateau for the last few years and trying to think about what the next growth catalyst would be for them. In a way, it's a precursor of where the UFC is heading, I think. The UFC is heading toward a point of saturation also. With domestic ratings, you've seen clear evidence of that.

Even in the last few weeks, people have been talking about how low the ESPN ratings are for the Conor McGregor Ultimate Fighter series, it just launched. Those are just linear cable, that's not the ESPN Plus streaming ratings. There may be a substantial audience divide there, but 300,000 viewers for a Conor McGregor cable series show on a platform that's still has some 70 million households that it's available with ESPN, that's shockingly low. Even you go back to the UFCs heyday in the mid to 2000s, those the era of Chuck Liddell and Randy Kotura and Brock Lesner, they were getting regularly 2, 3, 4 million viewers per fight night. Some Ultimate Fighter episodes broke two million people watching, so this is a far cry from what it was even back then. The company never made more money, it's never been more profitable, which is the magic of someone like Ari. He just finds more and more ways to monetize where that's like, you mentioned earlier, the gambling or international licensing sponsorships.

Ricky Mulvey: Just for a little bit of context, the Fertitta brothers were the longtime owners, financial partners of the UFC, along with Dana White running the show, and while the UFC has grown revenues, and I want to focus on this IPO, especially it's public investors in Endeavor who have been fairly disappointed. Well, revenue has grow insignificantly, the stock went public in 2021, and the stock itself has returned about -20% since then total. Meanwhile, the share count has risen by about the same figure, so you have this contrast where the WWE has been intensely friendly to its common stockholders, meaningfully reducing share count, it's been phenomenal performer, but, I would say, with Emanuel's leadership, you often see these deals such as boosting earnings, but only for the sake of hitting maybe short-term bonus payments for the owners of the company.

Michael Thomsen: Yeah, absolutely. I'm not sure he has a grand vision either other than keeping the channels for investors open for institutional investors to fund whatever is next acquisition is, whether it's F1 or whatever he's got planned, but that's been the common criticism of Endeavors; how does bull riding fit together with an amusement park in the middle of London with the WWE, what's the grand vision of all of this? There's not one necessarily beyond just sort of continuous expansion into as many different areas of entertainment as possible. It's a fair assessment, I think to say. His priority is not necessarily giving shareholders back or return, it's keeping his lines of credit open so that there as many options as possible for future acquisitions. As long as he gets to be involved in every bid, when a company like WWE goes up for sale, if he gets to be involved, he gets to have at least "an offering" and stuff like that. That's what he wants to be. It's an agent's mindset, whatever is happening, I want to be in the middle of it.

Ricky Mulvey: We'll continue to keep an eye on that IPO. I'll be very curious to see how the structure is set up, especially between those preferred stockholders and the common stock holders because I think there might be some key differences there. We haven't talked about Dana White that much. Let's talk about the president, which you feature prominently in your book. Not your opinion of them necessarily, but what does it take to be the silverback of a cage fighting organization?

Michael Thomsen:: It's a good question. It takes a lot of different things. I think the one thing Dana is a true believer, right? The thing Dana can't fake is his excitement about fighting. There's genuinely gives him joy and that joy gives him a form of insight into what will be interesting about a prospect or one matchup versus another timing for different matchups. Especially in the early days the mid 2,000s when people were still getting refamiliarised with the UFC as a brand. Again, there wasn't this '90s paper view, freak show. It was actually heading toward a legitimate sport with legitimate athletes, and in legitimate skill sets. His enthusiasm was really a very powerful stepping stone. I write a lot in the book about how UFC had figures that modeled a certain way of looking at fights that for the uninitiated in the public, they could mimic that excitement, they could mimic that jargon. Joe Rogan would do this a lot too, where you'd describe fights, use certain types of words. That became easy for fans to mimic that as they're learning to try, and understand the sport on their own terms. Dana White was the same. It was almost like a proctor as people were.

They saw this media spectacle. They weren't sure what it was, and he guided them through into it, and help people become comfortable with the idea of cage fighting as a mainstream sport. He is ruthless negotiator. He's very charismatic person. He is very good at drawing fighters to him, and giving them a sense that they were valued, there was a bright future for them. He talks a lot about Tony Robbins,, and a lot of different motivational, self-help ways of looking at the world. I think that comes from a genuine desire to see people succeed. It's not a gimmick, but it's also tied to a business model that runs a lot more functionally with the odds of a casino. Where nine people that walk in the door are going to lose, and there's only one that's going to hit the jackpot, the big winner. Everyone will be happy for that part of it. Who could not be happy for someone that hits the jackpot. But the reality of the business, reality of the profit-making machine is that they need more people to come in and lose than they come in and win. It's just not possible in a sport that has 6,700 people on the roster at any given time, that they're all going to hit the jackpot.

Ricky Mulvey: In comparison with Vince McMahon. Abraham, Josephine Riesman has a wonderful biography about McMahon, and it's called ringmaster, and one of the common themes of it is that hate is not a barrier to working with McMahon in any sense of the word. That's why, you know, Bret Hart back working with the organization. But in the case of the UFC, it does seem more intensely emotional, and that absolutely those emotions drive many of the negotiations, and practices of White as a boss. His credit, it seems to have worked pretty darn well for him. I also think that there's this yearning that I can't quite explain with. I would say MMA media, maybe observers that they're almost looking for moral boundaries when they talk about Dana White, and I think you're going to be consistently disappointed. This is someone who has basically steamrolled fighters for decades and granted, he's made some of them absolutely wealthy. He's put a lot of money in their pockets. He's made a created a middle-class of fighters that doesn't exist in boxing or any other combat sport. But he's also promoting slap fighting, which is just people taking turns slapping each other, giving them brain trauma, and putting it on TBS.

Michael Thomsen: Yeah.

Ricky Mulvey: I'll stop there.

Michael Thomsen: Yeah, that's true. It's more of a cultural truism of the sport. But it is true that the fans are always open to, and susceptible to a desire to square the moral circle about like, is it really good for us to even be watching this? I had my own moments with that. Every few years you'll just see a fight that's just so purposely violent. For me, the worst one I think in recent memory was this second Conor McGregor, Nate Diaz fight. It just ended as a dog fight where neither of them could beat the other, and they were just locked on each other. You can just feel like they were neither was going to knock the other out, but they were still doing damage to each other. It's just like you don't have to prove this anymore, you both great fighters you both can take the pain. You both will never quit. You won't break. But usually just still smashing each other on the head. Like how many more rounds, how many more minutes, how many more punches, especially in a rematch, like how deep into the darkness do you have to go? There's always going to be that paradox in the Fandom where you want to see the darkness, you want to see the courage that comes from someone being willing to go all the way down into the last round, the last minute of the fight, their body broken, maybe have a broken bones somewhere, eye swollen shut, and they hit a knockout punch, come all the way back from behind to even like Leon Edwards and Kamara Huisman. The second fight, just losing the fight pretty handily, and all of a sudden fifth round head kick like shocks world. People love that, but the cost of that is always going to be unsettling, and Dana White, his conviction is real optimism in his buoyancy, I think is a real important for us in that cultural swirl where he'll come to post fight conferences, and is very caring like we sent them straight to the ER. I've talked to him, we're going to take care of them. It's a very paternal figure. He's also a moral beat caught in a way like this is right, that's wrong.

Ricky Mulvey: He's not going to pay for their health insurance or give them pensions.

Michael Thomsen: Yeah.

Mary Long: As always, people on the program may have interest in the stock they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Mary Long. Thanks for listening. We're off tomorrow for the holiday, but we'll be back again on Tuesday. See you then!