International Fight League: Strategy for a Mixed Martial Arts Start-up

1. International Fight League: Strategy for a Mixed Martial Arts Start-up Bridget Russell Garret Carter Spencer Bond

2. Key Points • What is the IFL • Who is UFC • Market Environment • IFL Funding Sources • Advantages and Risks • IFL Strategy • Future Prospects

3. The International Fight League (IFL) • Founded in 2005 • Kurt Otto (Real Estate Exec) and Gareb Shamus (Found of Wizard Magazine) • Went public in November of 2006 • Fighters are organized into 5 member teams. Each team has a member in one of the 5 weight divisions. • Events/Matches are 2 team matchups with one-on-one fights between the members in those weight classes. • Fighters and coaches are salaried. • Also includes profit sharing with fighters.

4. Ultimate Fighting Championship (UFC) • Launched in 2003 by Art Davie and Rorion Gracie (World JiuJitsu Champion) • Bought by Zuffa in 2001 • Privately held company • President is currently Dana White • Fighters are individual contractors that are paid lump sums per fight. Fighters then pay out their personal training staff. • Major partnership with PPV

5. Market Issues • By 2007, there was an increasing amount of MMA Start up organizations • Bodog Fight Pro Elite, Pride, Strike Force • Different strategies • Conflict with the UFC • Lawsuit over employees taking confidential information with them to the IFL • IFL accused UFC of threatening TV networks • Accusation that IFL was trying to “buy out” UFC fighters

6. Group Discussion Can the MMA market sustain two separate leagues? Why or Why not? Should the IFL be grown from within by a unique product offering OR grow by acquisition?

7. Our Thoughts The UFC is a powerful organization with a very loyal fan base. Therefore, it would be difficult for a separate entity to sustain itself in the same market. WWE and WCW similarities The UFC’s advantages include: • Top fighters • Promotion Talent (Dana White) • Financial Backing • Privately Owned • Major Pay-Per-View Contract

8. IFL Funding Sources • Raised $20 million from the initial public offering in 2006. • Another offering in 2007 raised $11.80 million. • Live Arena Shows: • $0.67 mil in 06’ and $0.513 mil in the Q1 of 2007 • Cost was $5.314 mil in 06’ and $5.017 in Q1 of 2007. The costs significantly outweighed the revenues.

9. IFL Funding Sources • Advertising/Sponsorships: • Left the sale of ads and sponsors to FSN. • $0.274 mil in 2006 • $0.067 mil in Q1 of 2007 • No PPV events • Wanted to get into online streaming and online media. • It’s estimated that UFC made over $200 mil gross in PPV revenue alone in 2006. • Merchandising: • $0.044 mil in 2006 compared to $30 mil for WWE in the same year. • Cable/Broadcasting: • Main revenue source. • Fox Sports News(FSN) • $875,000 in 2006 • $960,000 in Q1 2007 • Wanted to break into international broadcasting • WWE made $28.5 mil on international rights in 2006.

10. How do you think IFL could improve their funding sources?

11. Our Response • Find ways to reduce the cost of the live arena shows. • Use smaller venues • Reduce the amount of paid staff and use volunteers • Take sponsorship control away from FSN. • Try and partner with sponsors that are going to fit well with their target market. • Increase the price of sponsorships • Break into online streaming and web casting. • Charge viewers on websites to watch the fights from home.

12. Competitive Advantages • Partnerships with the FOX Sports Net (FSN) & MyNetworkTV. • The IFL adopted stricter rules than other MMA leagues, to increase security and reduce violence. • IFL announces its full season in advance, this enabled marketers, sponsors, broadcasters, fans and the teams to plan accordingly. • Hired coaches who were top of UFC-ranked fighters and managed their own MMA schools. • Aligned incentives with team coaches by granting them options to purchase its common stock.

13. Strategic Risks • U.S. regulations affected the IFL’s ability to hold events in some of the country’s largest markets. • Sport league start ups have 85% failure rate. • Out competed by incumbents, UFC & WWE • Long-term sustainability was uncertain, even with rapid market growth. • High overhead and production cost. • Insurance protection

14. Re-Working Strategy • Get in your business plan groupsand answer the following questions: • What changes in the IFL’s strategy could maximize its chances of rapidly reaching positive cash flow and profitability? • What changes could maximize the chances of IFL having a strong sustainable position in the MMA market in the next 3 years and beyond?

15. Our Response • Move from the team model to promoting individual fighters. • Dana White stated “I don’t think anyone believes in the idea of the Crazy Beavers fighting the Woodchucks.” On the IFL’s team based format. • Break into online broadcasting and streaming to try and compete with UFC’s hold on PPV. • Avoid major conflicts with incumbents in the start-up phase. • Problems with UFC • Hire a face/spokesperson of the company who understands the inside workings of the sport. • Analyze and change the pay format for fighters.

16. Summary • International Fight League created in January of 2006 • Team based fighting • Main sources of Revenue from TV rights and Live Events • Conflicts with UFC throughout existence • Needed to increase revenue • Develop a strategy for the future

17. Current State of IFL • July 2008 - Zuffa LLC acquires certain assets of the IFL • Summer of 2008-UFC signs several of IFL’s top fighters • According to SEC filing on August 27th 2008 IFL: • 4 employees • One Million in Cash • Accrued $36 Million in Debt • Sept 16, 2008 – IFL files for bankruptcy • 2008- Bellator Fighting Championships • Bjorn Rebney Reference: http://www.sherdog.com/news/articles/Bankrupt-IFL-Still-Hunting-for-Sale-14461