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California is cruising for a bruising
The state athletic commission recently expressed concerns about going broke. What happened?
A dreadful combination of higher taxes, mergers & acquisitions, aging promoters, and a rise in demand for unsanctioned slap-fighting events is creating a witch’s brew for the California State Athletic Commission.
A combat sports collapse in California will have massive implications for domestic business in the United States.
Why California matters to the fight ecosystem
California remains the most populous state in America. It has a disproportionate amount of trainers, fighters, and agents. If the bottom falls out for fight events in the state, it means international players will pour money into the fight business and hurt domestic production by poaching shows. Think: Saudi Arabia’s Public Investment Fund.
You may not care now but you will care later.
Atrophy is the worst thing that can happen for developing new fight promoters in the United States. There is no manual or college to pick to learn how to do the ABCs of running a high-risk event. Everyone is so accustomed to the concept of UFC de-risking their business model that they assume this de-risking will also carry over to everyone else. Wrong.
California was always a major player in fight sports. Dr. Jerry Buss made boxing a priority at the Inglewood Forum in the 90s. Dan Goossen brought big fights to Southern California. Ken Thompson put his money on the line for club shows. The Fertitta-era UFC ran major events throughout the state. The (formerly) Staples Center was the place to see for big-time boxing events.
Now? You’re lucky if a YouTuber fight show happens. There hasn’t been a UFC event in California under Endeavor ownership in a long time. Many of the major anchors that helped develop talent in California, the people who ran club and circuit shows, and eventually promoted bigger arenas have aged out. They’re retired or dead.
Kill the promoter class and you end up killing the forums for a new generation of fighting talent to grow and blossom. It only takes one generation to alter an industry permanently.
The outside pirates have looted California
A significant collapse in legacy media players like Disney and Paramount, combined with foreign sovereign wealth funds buying out promotions, is wreaking havoc on a state that desperately needs strong government leadership in the Capitol.
The long-standing rumors of PFL buying out Bellator, in some sort of cash/stock combination offer, is thanks in part to investment from the Saudi Arabian government. Buying out Bellator means uncertainty in regards to Scott Coker’s future prospects as a promoter. Would he retire? Would he help promote future RIZIN/K-1 shows? Losing Mr. Coker would devastate California’s event calendar.
The proximate cause of Bellator’s woes are the woes of its corporate parent, Paramount. It’s a race to the bottom for media empires with tens of billions of dollars in financial debt. Who can survive first without being swallowed up by larger operations remains to be seen.
Trouble for Paramount also means (some) trouble for Al Haymon and his satellite operatives like Tom Brown, who came from the Dan Goossen family tree.
Then there’s the question of financial stability for DAZN, which is the media partner of Golden Boy.
Outside of occasional Top Rank events in California, there is a lot of uncertainty. Nobody is in position to enter the promotional ranks, let alone step up to take over massive buildings like the Chase Center, Golden One Center, or the (formerly) Staples Center.
Massive consolidation in the media and promotional space is bad news for California because there isn’t new a wave of promoters in position to step up. As one top official recently stated to me on background, “The quality of promotions is worse. So many unprofessional shows [are] being [produced]. They never filled their pipeline with new recruitment.”
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Chasing headlines over chasing dollars
What’s an athletic commission in financial distress to do? How about creating another underfunded liability.
On Wednesday (September 13th), the state Assembly passed a bill to create the formation of a new MMA pension fund. It grabbed lots of headlines over the last several months with fighters like Cat Zingano supporting the measure.
Only one person on public record opposed the bill – me.
Why? The devil is in the details.
In an analysis report filed by the state Senate, the new MMA pension will require appropriations to create funds for establishment. Translation: taxpayer money wanted. Furthermore, it will require several years’ worth of revenue generation to kickstart the financing of this new pension.
“According to the Senate Appropriations Committee, this bill will result in unknown, potentially significant contracting costs for MMA Fund management and investment services. The Commission may require a future appropriation to stand up the retirement benefit plan until monies in the MMA Fund are sufficient to cover its administrative costs. However, this amount is unquantifiable at this time. The bill will also result in an unknown, increased workload to the Commission to administer the MMA Fund.
“Activities may include tracking eligible martial artists, sending notifications, conducting outreach, monitoring and providing reports on the fiscal health of the MMA Fund, collecting and distributing monies, and responding to inquiries from the public and licensees. Actual workload increases to the Commission would vary, and depend on among other things, the number of martial artists who would be eligible for the retirement benefit plan and the timeframe for when eligible martial artists may seek to claim their benefits. The bill would also result in absorbable costs for the Commission to establish emergency regulations and establish new accounting codes.”
The worst part? Most MMA fighters, past and present, will likely not be eligible for a pension distribution due to a requirement of recording 39 rounds of bout activity in the state. Perversely, this will create a financial incentive for new fighters to accumulate unnecessary rounds and engage in longer fights. The potential for more brain trauma in exchange for gaining more rounds to game the pension system?
Months after Sacramento got put on blast by The LA Times for a troubled boxing pension fund that currently has $4.6 million sitting with Raymond James, we’re now getting a second fight-related state pension.
There’s a reason no other state has or will ever try such an experiment. This new pension comes on the heels of the Athletic Commission arguing to the same state Assembly simultaneously that they are running out of administrative cash reserves.
And how did that happen?
COVID ravaged California more than any other fight market
The recent California State Athletic Commission meeting in Sacramento on September 11th outlined the financial carnage of the COVID era on the state’s budget. An internal memo from Executive Officer Andy Foster told a bitter truth.
“The Commission’s event schedule is the lightest I have seen since the COVID Pandemic, and this could impact the Commission reaching the projected revenue for this fiscal year. The merger of Showtime and Paramount plus is impacting the scheduling of TGB Promotions (Premier Boxing Champions) boxing events and Bellator MMA events.”
As states like Texas, Nevada, and Florida dominate the domestic event calendar, how in the world is California so far behind?
Whatever answer you choose to believe, Sacramento’s solution in addressing the financial problem is raising the tax caps on big events. It’s a risky strategy given that the state can’t attract big events right now. Assembly Bill 1703 raises the tax caps from $100,000 to $200,000 per show with a $35,000 TV tax cap.
We recently wrote an article on Bloody Elbow about the economic impact this tax raise would have on future shows in California.
At the time, we knew that the long-term administrative situation for the state’s boxing pension fund was tenuous. What we didn’t know at the time was how severe the cash crunch was for the actual athletic commission itself.
A state Senate analysis of the proposed tax cap raise proclaimed dire financial straits:
“During [COVID], the Commission’s revenue dropped to approximately $1.8 million in 2019-20 and to only $894,000 in 2020-21. During this time, the Commission relied on its fund reserves and various cost saving measures to support its operations during the height of the pandemic. Between fiscal years 2019-20 and 2020-21, the Commission’s fund reserves sharply dropped from $1.6 million (12.1 months in reserve) in 2019-20 to $757,000 (4.0 months in reserve) by the end of 2020-21.
“In 2021-22, major combat sporting events were allowed to resume in California and the Commission generated roughly $1.9 million in revenues, a significant improvement from the prior year. However, the Commission required additional spending authority of $340,000 to pay the Office of the Attorney General for unanticipated AG litigation costs for which further depleted the Commission’s fund reserves to $343,000 (1.7 months in reserve) by the end of the fiscal year. Based on expenditure and revenue projections, the Commission is anticipated to generate $1.9 million in revenues and expend approximately $2.4 million, which will cause a fund insolvency of $79,000.”
Every state athletic commission lost money during the COVID era. The obvious question to ask is this: where did all the money go? Why does it cost so much more money to regulate a fight show in California than anywhere else?
Without major professional wrestling events paying the bills, what would the future of the Athletic Commission look like?
Higher taxes, regulatory hurdles, and a lack of promotional development for a new generation of talent has put California on its heels. Nature abhors a vacuum, so what’s going to fill empty slots on the entertainment calendar?
How about MMA gyms promoting unsanctioned slap-fighting events on tribal land?
The power (slap) of UFC’s business, and athletic commission dependence on it
When UFC says jump, regulators say “How high?” When UFC creates market incentives for new fight promotional behavior, things change.
One of those incentives is for MMA gyms, who are already supplying talent for events like Dana White’s Contenders Series, to get into the business of promoting slapfighting events.
We’re starting to see the fruits of Power Slap’s marketing, particularly with unsanctioned slapfighting events scheduled on tribal land in California.
We will not promote any upcoming slapfighting events in the state. What we will do is review a recent unsanctioned slapfighting event.
On September 2nd, Bear River Casino promoted “Slap Wars 2” under the auspices of Hard Fought Productions. HFP is the promotional banner of trainer Brian Wilson, who runs Lost Boys Jiu-Jitsu & Muay Thai. The gym gained national notoriety with The Cosce Brothers.
HFP runs MMA events at Bear River Casino. It’s the biggest player on the North Coast. Gyms like Dragon House MMA have fighters participating at these events. So, it’s no surprise that feeder promoters to the UFC are amenable to the idea of promoting slapfighting events. If they play their cards right, not only can feeder promotions produce MMA fighters for UFC but they can also conceivably book participants for Power Slap.
The Casino itself recently published several slapfighting videos on its Facebook page.
With unsanctioned slapfighting activity growing in California, it puts the state in a situation of having to eventually take an official regulatory position. That’s a great scenario for Dana White and Endeavor. Bloody Elbow readers were ahead of the curve on what was forthcoming.
Will California feel enough financial pressure to sanction slapfighting in order to convince UFC to save the athletic commission’s bottom line?
“How did you go bankrupt?”
As the late Ernest Hemingway responded, “Two ways. Gradually, then suddenly.”