With traditional revenue models on the decline, over-the-top streaming might just be the future of Sports Entertainment.

Nearly eight months after the announcement that the UFC and ESPN reached a five-year $1.5 billion media rights agreement, the largest MMA promotion in the world made its debut on ESPN+. Although it wasn’t an all-star lineup, there were a few recognizable names on the inaugural card of the new partnership. Names on the card included Donald Cerrone, and Paige Van Zant. The first ESPN+ event had a main event that saw Henry Cejudo defend his flyweight championship against bantamweight champion TJ Dillashaw.

Overall, the entire viewing experience seemed quite familiar. Despite changing broadcast partners, the UFC managed to retain control over event production. With Jon Anik and Daniel Cormier doing commentary, and Michael Bisping, Rashad Evans, and Karen Bryant working the ESPN desk, one would be hard-pressed to discern exactly what changed between 2018 and 2019 besides the station logo or the television channel number.

Except of course, for the biggest change of all—The main card was on ESPN’s subscription streaming service.

There is no question that the streaming era of MMA is upon us. Bellator kicked things off by broadcasting Bellator 206 on DAZN in September of last year. The UFC and ONE Championship followed suit by utilizing ESPN+ and B/R Live respectively to showcase their first events of 2019. Although the ONE Championship App has been streaming live events for free since May of 2018. Given the decline of pay-per-view (PPV) numbers and television ratings, the change to a new type of media was always inevitable. Even several fans and pundits would agree that the switch is long overdue.

The Cost of Doing Business

But a major reason for the delay, at least in the case of the UFC, has been a financial one.

The first extensive subscription service for MMA was UFC Fight Pass. This service launched back in December of 2013. As of February of last year, the service had around 400,000 patrons paying somewhere between $7.99-$9.99 per month for a vast library of over 20,000 fights and exclusive UFC events. In a best-case scenario of every subscriber paying the maximum amount per month and the UFC receiving 100% of the revenue, Fight Pass generates approximately $4 million a month. This, of course, before the costs associated with running it are factored in.

That number, however, pales in comparison to what pay-per-view can generate. Although there is no public data on Rizin’s PPV buys, and Bellator’s few forays into this space have been lackluster, it’s no secret that pay-per-view is one of the largest sources of revenue for the UFC. While events overall have seen a decrease in numbers, based on these calculations the current model is still quite profitable for Endeavor’s MMA investment. Especially when it comes to major cards like UFC 229. Given that the UFC is also currently renegotiating their revenue split with pay-per-view providers to be more favorable, letting go of the traditional model in favor of paid streaming seems to be a hard idea to sell.

Looking at Vince McMahon’s New Business Model

But as more and more people cut the cord and refuse to pay for events they view as less than spectacular, the question must be asked—can paid streaming services ever overtake pay-per-view income?

The answer to that question may lie in the realm of scripted fighting.

Shortly after the UFC launched Fight Pass, World Wrestling Entertainment (WWE) introduced the WWE Network at a similar price point of $9.99 per month. The format and type of content the service provided was comparable to Fight Pass, with one notable exception—pay-per-view events were included. While PPVs were still available for purchase to non-subscribers, it was a major change in strategy by the professional wrestling powerhouse and a bet on the future of broadcast media.

Based on the numbers we have now, that bet has seemingly paid off—depending on who you ask.

After calculating the costs of running the service, it’s estimated that the WWE makes a profit of around $2 per WWE Network subscriber. While the bigger PPV events (Wrestlemania, Summerslam, etc.) still generate significant revenue for the company, Citigroup estimated in 2017 that the WWE would need approximately 1.76 million paid subscribers to make up for lost pay-per-view earnings it had incurred by launching the WWE network. Based on corporate filings, however, the organization has already surpassed that number with 1.8 million paying members as of April of 2018.

A Deeper Look at Financials

But a closer look at the books paints a slightly different picture. Over the years the WWE has followed the lead of other corporations by reporting numbers using various accounting methods for different periods of time. One reporting period may use Operating Income Before Depreciation and Amortization (OIBDA) while another uses Earnings Before Interest Taxes Depreciation and Amortization (EBITDA), making financials harder to compare year over year.

If one were to solely use the OIBDA method year over year for WWE’s financials, you could argue that the cost of the new strategy has not yet hit a break-even point. Between 2011-2013 OIBDA for pay-per-view events averaged out to be about $40 million per year, before dropping to $ -1.8 million when the WWE Network launched in 2014. If we assume that the $40 million per year was already taking into account the costs of ramping up the new network and would remain around the same had the service not been introduced, then between 2014-2017 the WWE would have generated nearly $160 million in OIBDA from pay-per-view alone. In that same period of time, the WWE reported actual OIBDA of $155 million from its WWE network segment (which includes non-subscriber PPVS) falling $5 million short of the potential $160 million.

A key factor to keep in mind is that although total subscribers for the WWE Network fluctuate throughout the year, there has been consistent growth in the space. As long as that continues to hold true, it’s possible that the subscription service may have overtaken what pay-per-view used to generate for the WWE in terms of OIBDA when the company releases their full 2018 financials next week.

Looking Towards the Future

So does this mean that MMA organizations, especially ones that rely on pay-per-view like the UFC, should follow suit?

Not quite.

Fight Pass is still miles away from reaching the number of paid subscribers needed to offset the UFC’s pay-per-view revenue—especially the record-breaking ones. Although the WWE proved its possible to replace one-off events with a subscription model, it took nearly 4 years and offering the WWE Network in over 170 countries to do so.

Meanwhile, the UFC put itself in a great position. Under its new deal with ESPN, the MMA behemoth has guaranteed money without any of the risks that come with using paid membership to offset costs. At a price point of $4.99 per month, ESPN+ will need to reach a significantly higher subscriber count than the WWE Network to counteract the estimated $7-10 million per event price tag that comes with airing UFC events. As the Disney-owned sports giant attempts to tackle that the problem while fighting declining ratings, the UFC gets to safely watch from the sidelines.

With so many variables at play, only time will tell if the UFC or any other MMA promotion will attempt to replicate what the WWE has managed to accomplish with the WWE Network. But the answer appears to be yes—a subscription service can, in fact, replace pay-per-view revenue. The caveat is that it takes time for the pivot in strategy to work—and finding a way to fill the revenue gap in the interim is crucial.