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Fighter MRP: How one study statistically defined “Moving the Needle” in MMA

Fighter MRP: How one study statistically defined “Moving the Needle” in MMA

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Back in April of 2014, Nate Diaz lambasted the UFC over his current contract with the promotion in an interview with MMA Fighting, citing low pay compared to other fighters that he trained with at the time. During the tirade, Stockton’s second favorite son claimed he had never turned down a fight in his then eight years under the promotion’s banner, and that he felt conned into signing an eight-bout contract before challenging Benson Henderson for the UFC lightweight title in December of 2012. Diaz went on to state that fighters, in general, were not making as much as they should be based on the UFC’s perceived revenues, and prior to the interview had gone so far as to ask the UFC for his release via Twitter. When UFC president Dana White responded to Diaz’s grievances three months later in July, he stated that the promotion would not release the longtime company veteran and summed up the reasoning behind Diaz’s compensation with a single remark.

“Nate Diaz is not a needle mover.”

While the mixed ratings of shows featuring Diaz as a headliner up until that point didn’t necessarily clarify White’s statement either way, the idea of “moving the needle” continued to live on in the MMA lexicon. Referring to a fighter’s ability to draw in an audience interested in watching their bouts, the UFC has long made clear that athletes who “move the needle” receive the full support of the promotion, including increased marketing, preferential treatment, and far greater monetary compensation than that of their peers. Although it has been relatively easy to identify fighters who have exceptional drawing power, such as Brock Lesnar, Ronda Rousey, and Conor McGregor, no one has been able to quantify that ability and track it to the actual revenue brought in from an individual athlete.

That is until recently.

The UFC antitrust Lawsuit: a catalyst for calculating Fighter MRP

Diaz wasn’t the only one who apparently felt underpaid by the UFC, as a group of fighters—led by Cung Le, Nathan Quarry, and Jon Fitch—launched a class-action lawsuit against the promotion in December of 2014, touting allegations that the MMA organization had violated the U.S. Sherman Antitrust Act. That piece of litigation has been dragging out through the court system for the past six years, with each side making their case and bringing in expert testimony (more details on that here), but in February 2018 a class certification motion revealed a particularly interesting bit of information. According to the document, both sides’ economic experts agreed that in a competitive labor market fighters would receive their “marginal product of labor” (MRP), which is the monetary value that an athlete would generate for their particular promotion, providing all other inputs were the same. Yet despite both parties agreeing to this notion, based on all of the available information made public from the lawsuit, there seemed to be no indication that either party involved had made any attempt to actually calculate fighter MRP.

Enter sports economist and MBA professor at Pepperdine University, Dr. Paul Gift. A longtime contributor to Forbes and Bloodyelbow.com, Gift has been one of the few diligently tracking the UFC antitrust lawsuit since it first came to light, along with fellow colleagues John S. Nash and Jason Cruz. When Gift realized that no one had taken it upon themselves to calculate fighter MRP, he decided he would complete the task himself. The result was a study published in the Journal of Sports Economics in November of 2019, titled, “Moving the Needle in MMA: On the Marginal Revenue Product of UFC Fighters.”

As with any academic research, Gift’s analysis takes into account various constraints and assumptions. The study makes an important distinction between fixed and variable revenue streams for the UFC, with PPV being the largest variable component, and uses Google Trends as a surrogate for fighter popularity. PPV buy data used in the study was collected from MMAPayout.com, Tapology.com, and Google Trends, ranging from January 1, 2006, through March 3, 2018, and UFC revenue data came from various sources, including Deutsche Bank and a 2016 UFC lender presentation, with Gift acknowledging that precise information on revenue is currently limited. The professor’s research also points out that three important caveats to the study should be considered—it estimates fighter marginal product (MP) as the impact on residential PPV buys, it doesn’t attempt to estimate MRP in terms of ticket and merchandise sales, and it doesn’t include private/non-public fighter compensation. For constraint specifics and the exact formulas used in the study, you can purchase the article here (Which in the author’s opinion is worth the fee, and if you’re a university student you may be able to access it for no charge at all).

The Results of the Research

The results of the study have produced a treasure trove of information, not just regarding fighter MRP. During the aforementioned time period between 2006 and 2018, 66% of UFC fighters didn’t fight on the main card of a pay-per-view, 32.5% fought on both PPV main cards and fixed content revenue streams (PPV prelims, television cards), and 1.6%, or 24 fighters total, fought exclusively behind the PPV paywall. The research concludes that the main event is the strongest influencer of a consumer’s decision to purchase a pay-per-view, and when analyzing events with five fights scheduled for the main card, bouts 2, 3, and 5 (with bout 5 being the card opener and bout 2 being the co-main event) all had a positive effect on a customer’s choice of whether or not to buy a PPV while bout 4 seemingly did not influence the decision at all. The study’s data also supports the notion of diminishing returns when it comes to “stacking” cards with interesting matchups or title fights, finding “no evidence that promoting a second or third ‘belt on the line’ influences PPV purchase quantities over-and-above the consumer interest in the fighters themselves.”  Additionally, the results found that there is a positive effect on PPV buys during particular times throughout the year, including July 4 and New Year’s holiday weekends.

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When it comes to actual fighter MP and MRP, the findings and conclusions of the research are insightful. According to the study, roughly 20 percent of all PPV main card bouts created less than $2,000 in MRP, while just 5 percent of fights managed to generate more than 200,000 pay-per-view buys and over $5 million in incremental revenue. A mere 15 of 509 total fighters that appeared on a PPV main card generated 50 percent of all fighter MP and MRP during the sample period, whereas 44 fighters generated 75 percent of total MP and MRP within the same timeframe. Fighters who never appeared on a PPV main card, thus never having an opportunity to “move the needle,” were “overpaid by traditional standards” according to the study, “[Having] an average MRP-compensation gap of roughly -$16,000.”

Gift extrapolates several conclusions regarding the data from his research. He posits that using fighter popularity, over a more traditional approach of fighter winning percentages, better explains whether or not consumers decide to purchase a UFC pay-per-view event (i.e. the study of Demetrious Johnson PPV buys). He also argues that the findings support the notion that a handful of UFC fighters generate the majority of the promotion’s variable revenue, and that those fighters are the most severely underpaid due to the gap between their compensation and what they make for the organization. Conversely, Gift states that the UFC pays an ever-increasing premium for those fighters that do not generate MRP at or above their compensation—specifically those that never fight on a PPV—most likely as a cost of doing business expense, attempting to find the next up-and-coming star that can generate massive MRP. The Pepperdine professor also points out that even if a fighter can prove their ability to bring in incremental revenue, their bargaining power may be limited under the economic theory that in a competitive market a fighter’s compensation is determined by his second-best opportunity, with the UFC nearly being in a league of its own within the sport.

Even with the caveats and unknowns, this type of research shines a statistical light on anecdotal claims that have been made about the UFC for years. Gift’s findings reinforce the idea that superstars have been a top priority for the organization and help explain some of the promotion’s business decisions, such as creating “top-heavy” cards and hosting events over holiday weekends. Whether or not Gift’s analysis will come into play during the UFC antitrust case remains to be seen, but it wouldn’t be shocking considering his colleagues’ work has already been cited in the litigation.

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