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Conor McGregor wants equity in the UFC – does he deserve it?

Conor McGregor has publicly demanded equity in the UFC. Fields of Green analyzes the financial basis of this demand - is it realistic?

A few weekends ago, the UFC put on its biggest event yet.   An exciting card hosted at Madison Square Garden led to record-breaking revenue numbers for the company.  It was the kind of night that new owner Ari Emanuel surely dreamed of when he acquired the UFC for $4 billion this past July.  Despite the numerous stars in the crowd, the biggest star of the night unquestionably was Conor McGregor.  The electric Irishman once again displayed his signature combination of lethal striking and unparalleled charisma. After making quick work of his opponent Eddie Alvarez, McGregor publicly demanded equity in the company he has helped build.  Lest he be misunderstood, he repeated his position to reporters at MMAJunkies.com after the fight:

“Where’s my share? Where’s my equity? If I’m the one that’s bringing this, they’ve got to come talk to me now. I’ve got both belts, family on the way. If you want me to stick around, if you want me to keep doing [this], let’s talk. But I want the ownership now. I want the equal share.  I want what I deserve, what I’ve earned.”

Since the fight however, this storyline has had few updates.  If one assumes that McGregor’s statements are authentic, and not contrived as some sort of WWE-type promotion, then it stands to reason that there must be ongoing negotiations between the UFC and McGregor behind closed doors.  Ultimately, these negotiations come down to 3 essential questions:

  1. What is a reasonable approximation of McGregor’s value to the UFC moving forward?
  2. How much leverage does McGregor have in this negotiation?
  3. Is the UFC willing to make concessions to the biggest superstar in company history?

McGregor’s Value to UFC

The most important element to this negotiation is the determination of McGregor’s value to the UFC.   How much of a value-add has McGregor been to the UFC’s top line revenue?

It is impossible to perfectly isolate the value generated by McGregor, as the UFC’s rise in the public’s consciousness is inextricably linked to McGregor’s rise in stardom.  Additionally, the UFC’s financials aren’t readily obtainable.  However, due to the UFC’s sale to WWE-IMG, MMAJunkie.com obtained investor reports that help paint a financial approximation of McGregor’s value to the UFC.

Source: MMAJunkie.com

To start, it helps to quantify the percentage of UFC’s revenue that can be considered purely “fighter driven”.  That is –revenue derived directly through fan purchases and fan desire to see the card (PPV buys and tickets).  This will give a sense of how dependent the UFC’s revenue is on star power.  I’ve categorized residential PPV buys and live event ticket sales as revenues that count as “fighter driven” – these are the revenue streams that significantly fluctuate based on the card.  In 2015 the UFC generated $609 million in revenue – $268 million coming from “fighter driven” revenue streams.  Thus, 44 % of the UFC’s 2015 revenue is attributable to the star power of its fighters.  While under 50%, this number indicates the UFC’s dependency on the strength of its fighters and the storylines they generate.

With the UFC’s dependency on its fighters established, is there any way to quantify just much of a “star” McGregor is relative to other fighters on the roster?  To get a sense of this, I’ve compared the “fighter driven” revenues of specific UFC PPVs with McGregor against the “fighter driven” revenues of UFC PPVs without McGregor.

As the tables show, on average, Conor McGregor provides an additional $28 million of revenue to the UFC per PPV.  Using this statistic, McGregor generated $84 million of additional revenue for the UFC in 2016.  This translates to approximately 15% of the UFC’s total revenue.  These numbers show that, undoubtedly, Conor McGregor is essential to the UFC.  The loss of McGregor would mean a 15% loss in revenue.  The question now becomes: can McGregor leverage this $28 million/PPV figure into the equity stake he seeks?

McGregor’s Leverage

There has never been a Conor McGregor in the history of the UFC and it is hard to imagine another figure so simultaneously dominant and electrically charismatic popping up anytime soon.  Surely, this is McGregor’s pitch to Ari Emmanuel.  However, this sales pitch, the revenue figures calculated earlier, and public support don’t provide McGregor with what he needs – negotiating leverage.  McGregor knows this, which is why he obtained a boxing license from the California State Athletic Commission just recently.  McGregor only has two different options should he choose to walk from the UFC – boxing and the WWE.  Neither option is particularly attractive.

In boxing, the big payday is certainly a possibility (Mayweather made $220 million from his fight against Pacquiao).  McGregor would need to fight Mayweather to approach this kind of payout or even the payout he would be making in the UFC.  Additionally, having never boxed professionally, McGregor’s earning power would crash if he lost or got knocked out.  Could McGregor take a massive bet on himself, fight in a boxing match, and make a huge cash grab? Sure.  But  boxing isn’t a viable long-term solution.

McGregor could jump to the WWE, who would be more than willing to make him their top paid superstar.  However, that would mean McGregor is looking at approximately a $10 million annual salary, as Forbes estimates that in 2016 the highest-paid wrestler (John Cena) made nearly $10 million.  Compare this to the nearly $40 million McGregor says he made in 2016, and that is quite a steep decrease in pay.  Additionally, McGregor hasn’t been too kind when speaking about the WWE in the past.

In short, McGregor’s alternatives to the UFC simply aren’t attractive, and the UFC knows this.  Despite the immense value McGregor brings to the UFC, his negotiating leverage is quite low.

UFC’s Willingness to Pay

Ultimately, this negotiation comes down what the UFC is prepared to offer McGregor to ensure he doesn’t walk.  With the rumored news that the UFC is looking to quadruple their broadcast deal with FOX to over $400 million annually, they can’t afford to allow their biggest earner to walk.  At the same time, McGregor isn’t going to be generating $28 million a fight in perpetuity; equity will far outlast McGregor’s usefulness to the company.

If a deal gets done at all, what would a fair deal look like?   With 1% of the company worth $40 million,  I imagine that McGregor and the UFC could agree on a fixed-length contract of 10 fights, with revenue targets built-in.  McGregor would receive substantially less per-fight revenue, but if all revenue targets were hit, he could receive a 1% stake in the company he helped take mainstream.  McGregor takes a bet on himself, the UFC sets aggressive targets to ensure a win-win scenario, and two sides become partners in the quest to make the UFC as big as it can be.

 

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