Jake Paul has embarked on a public campaign designed to push the UFC to share a greater percentage of company revenues with fighters and to improve healthcare benefits for them, too. In recent weeks, the social-media influencer turned undefeated pro boxer (5-0) has made a series of moves connected to the fighting promoter. First, Paul offered to sign a one-fight deal with the UFC if a series of ESG related demands were met. He also announced that his investment fund bought shares of Endeavor stock (the UFC’s parent company).
Finally, he released a diss track taking aim at UFC president Dana White and the UFC’s fighter compensation plan. It is fair to wonder why Paul is concerned with how the UFC treats its athletes. But conversations with industry insiders suggest the “Problem Child” has created a win-win scenario for himself. Paul said he wants social impact to be “a part of [his] legacy.” So, if the UFC decides to bring revenue ratios in line with the big four leagues and offers its fighters long-term healthcare benefits, he can take credit for having helped spark change in combat sports. If it does not, insiders say it creates an opportunity for a competing fight series to take a run at the UFC—one he could potentially play an instrumental role in. Nearly every MMA organization (UFC and Eagle are among the few exceptions) has reached out to Paul’s Most Valuable Promotions in an attempt to bring him into the fold.
JWS’ Take: To be clear, Paul is not trying to tear down the UFC. “That is the one thing people get confused about,” he said. “I like the UFC. What they have done to push MMA forward has been so powerful. They’ve made a lot of superstars and helped [to grow] the sport.”
But Paul sees “a big discrepancy” between the revenue fighters generate for the UFC and the percentage they retain. “[This campaign] is not about putting the UFC out of business. It’s about making it a fair business for the fighters,” he said. The big four sports leagues share ~50% of annual revenues with their players. The New York Post reported the UFC paid out less than 16% to fighters in 2019. It needs to be noted the average fighter pay has risen 600% since 2005, and recent licensing deals signed with Panini, Dapper Labs and Crypto.com entitle fighters to a 50/50 revenue split.
Paul’s background as a YouTube content creator has undoubtedly influenced the way he views the fight sports business. “The one thing I’ve tried to [convey] to fighters is that they are the content creators,” he said. “And it’s important for all content creators to own their content.”
Considering White has publicly downplayed the severe brain trauma fighters incur as “part of the gig,” that may not be realistic for those under UFC control. But Paul and his business partner Geoffrey Woo (co-founder, Anti Fund Investment Fund) are planning to release an economic white paper that makes the case that evolution towards an aligned, incentive-based model (think: Silicon Valley) would drive—or at least protect—long-term EDR shareholder value.
The Anti Fund team sees the systemic issues that have driven UFC fighters away repeatedly (see: Francis Ngannou, Henry Cejudo, Cris Cyborg) and does not believe the business’ current model “lines up for the long-term durability of the parent brand. If [the UFC] keeps losing its stars and consumer sentiment [continues to view it] as exploitative, how could that be value accretive in the long-term?” Woo asked. “We [as Endeavor shareholders] need to ask the question: Do we see this kind of critique going away or accelerating in the future?” When one looks at the rise of Web3, crypto currencies and DAOs, which all include elements of community, decentralized ownership and governance, it is hard to imagine the criticism waning.
Creating a more equitable ownership and governance model would “tie in the heart of the business, the fighters, while incentivizing them for the long-term,” Woo said. And in doing so, the UFC would widen its moat, which would benefit long-term EDR shareholders.
The investment Anti Fund made into Endeavor was “in the low six figures,” Paul said. So its stake in the company is far smaller than you would typically find associated with an impact or activist investor. But Woo argues Paul’s sizable platform will empower Anti Fund to apply the shareholder pressure necessary to “change management.” FWIW, Paul says there are “already talks about scaling up and going bigger [in EDR]” once the fund has a better grasp on the corporate governance structure and cap table.
Woo seemed to think that Silver Lake, a controlling shareholder in Endeavor, would stand behind Anti Fund’s impact investing initiative. Network overlap aside, “from a philosophical perspective, Silver Lake is a technology investor at its core, so they understand how technology companies have been able to build enduring brands and enduring employee bases,” Woo said. “We think there is alignment.” Silver Lake did not respond to a request for comment.
The UFC declined to comment on its willingness to consider a more decentralized ownership and/or governance model. But if the company maintains the status quo, particularly as it relates to revenue ratios and health benefits, it may open the door for a challenger brand with a different approach. Either way, Woo said he expects “the major components of a fighter’s union [will be] governed through a DAO, with fans and institutional shareholders and athletes, whether that is in effect like a union or a subset of a union, within the next three to five years.”
That does not mean a challenger brand would necessarily start from nothing. Consolidation played a big role in the UFC establishing its dominant position within the sport. With multiple upstart MMA promoters currently competing for second place, it is not difficult to envision someone attempting to roll them up and position the combined entity as the clear challenger to the UFC.
Other MMA outfits have taken a run at the UFC over the years, and none have managed to topple White & Co. “It’s a lot harder than people think,” Paul acknowledged.
While Woo said that every challenger fights “a very, very strong network effect,” few have raised enough money from the outset to really give themselves a viable chance to unseat the UFC, either. Fight sports insiders say it would take a $250 million investment and five years to have a realistic shot at doing so.