Sports economics uses the principles found in general economics and applies them to sports. Sports are primarily driven by individual interests, so there are certain economic theories and topics, mostly micro based, that directly apply to sports. Combat sports however, are different in aspects pertaining to how revenue is generated based on demand for certain fights and PPV sales. A disparity between combat sports and other sports, basketball for example, is that the NBA regulates how games take place, and different cities in the United States contain home teams that play against different cities, ‘away’ teams. Combat Sports promoters, Mayweather Promotions and the UFC for instance, can book any venue and choose the fighters they please in which they believe will generate them the most revenue; there is also no one ‘home’ location for these events. Through analyzing the underlying micro economic assumptions and data pertaining to major boxing and MMA events, the overall economic effects can be measured to conceptualize the effects combat sports have on state economies.
One of the most interesting economic topics to consider when discussing combat sports is how the labor market for talent is measured. Demonstrating different fighters’ skills and talents as a competitive labor market can give discernments on wages using models, however it does contain limitations. Of these limitations, an important one to address follows: “does all the existing talent fight in the top leagues?” This is an interesting point, seeing as numerous fighters do not exactly get the recognition they deserve; it becomes more of how well a fighter can be marketed and “sold” in order to grasp public attention and sell out venues. This is common practice in high levels boxing, as the sport has become highly politicized over the last decade or so. Promoters are not always looking for the best interests of the fans, rather, they will create fights for their most profitable fighters in which the promoters believe they will win. Some may see it as competitive rent seeking in a way, because promoters market and “hype” fights to consumers, promising lots of action and electrifying experiences. Many times, however, fans end up extremely disappointed by these tactics, as seen in the mega fight between Mayweather and. Pacquiao. Promoters do this in an attempt to protect their “cash cows” from losing risky fights so their popularity won’t drop, meaning more revenue for them at the cost of disappointing fan bases. Although many fighters are talented enough to challenge current world champions and possibly beat them, promoters and executives work hand-in-hand, almost as if acting as regulators for the sport, to ensure that popular fighters remain in the spotlight to attain the highest profit margins and to focus marketing budgets on few fighters instead of many. Fans, however, are not always powerless in these situations. A lot of the revenue made from big events come from PPV sells. If fans were truly upset at the types of fights being made, they can boycott the PPV and the physical event, which if enough people do, can hurt revenue generated. Social media is one way how fans can describe their feelings and interests for particular fights. If consumer preferences are geared towards boycotting, then consumers can take to promoters’ social media pages and express their discontent. The promoters will most likely not take an action towards any disagreement between fans’ beliefs of who should be fighting, however, it makes them more mindful of how fans are the ones creating their profits; promoters will be more cautious of making less entertaining fights knowing they must keep fans satisfied to some extent. This is one way how combat sports athletes can demonstrate competitive markets, promoters acting as regulators, and consumers the driver of both, so to speak.
Although there is never a set venue when either MMA or boxing events take place, both call Las Vegas, Nevada the capital of their sports. Until recently, Las Vegas lacked containing any franchises in professional sports, that is until later this year when Vegas Golden Nights of the NHL will begin playing October of 2017, and the Raiders of the NFL following after that. Although previous attempts for hosting professional teams resulted in loss of profits, the economic impact of combat sports however is shown to be significant during events in which well-known superstars attract fans from around the nation. Specifically speaking, appearances from boxer Manny Pacquiao have had significant effects in the economy of Las Vegas. These fighting events affect the local economy through tourism. The New York Times explains how casinos, hotels, and other leisurely driven businesses are able to majorly profit during prizefights. Take, for example, the four fights of Manny Pacquiao against Juan Manuel Marquez, which took place in 2004, 2008, 2011, and 2012 at the MGM Grand. Pacquiao’s 2011 bout with Marquez produced the Nevada State Athletic Commission’s budget for that year. The commission makes roughly 6% of ticket sales made at the gate, in addition to a $50,000 fee, effectively covering its “entire budget” says Keith Kizer, the executive director of the Nevada State Athletic Commission. And that is a relatively small portion of total economic impact, according to Todd DuBoef, president of Top Rank Boxing. When questioned regarding if revenues surpassed $100 million, he responded that “it’s way more. Not $100 million. Hundreds of millions.” Although he never speaks of details as to who and how much certain industries within Vegas are comprised of the $100+ million, MGM Resorts International’s corporate marketing vice president claims that “it’s hard to put a specific number on it, but it’s a marked increase. A fight weekend like this is like New Year’s Eve for us. And New Year’s Eve is the biggest night in the whole city.” There is clear effect on Las Vegas’s local economy as a result of these prizefights, but again, a main factor in the driving of these profits come from individual preferences, meaning that fighters must be marketable and well known if profit margins are to exceed that of $100 million.
Las Vegas, although seen as the “go to” for making the best fights, is not the only city where high profit margins induce local and state economies. The rise in popularity and publicity of MMA competitions is one that shouldn’t be overlooked. It was only last year since New York became the final state in the U.S. to legalize the competition of MMA, with regulations however. The form of regulations comes mainly from taxes, which is intended to boost the economy through taxing of gross receipts. MMA competitions will face a tax on ticket sales of roughly 8.5%, contrary to that of boxing and wrestling, which is around 3%. Moreover, according to New York State Assembly Bill No. S05949, 3% taxes on the collective gross receipts from broadcasting/Internet streaming rights will also take affect following the regulations. However, this includes a cap of $50,000 in tax payments. So, when all said and done, this leaves potential for substantial revenue for the state of New York, because MMA fights are legalized in New York, they can be taxed, and its popularity is skyrocketing for numerous reasons. The legalization of MMA will not only benefit New York in terms of revenues, but it can open the door for profit opportunities by certain economic industries collaborating with promoters in organized fight events. One example potentially includes insurance agencies insuring MMA events in New York which will induce employment opportunities and profits.
When we think of generating economic growth in states that hold prizefight competitions, it’s important to consider how promoters seek ways to grasp the public’s attention and draw them towards coming to events (which include paying for tickets, purchasing concessions, partaking in leisurely activities, and required lodging) or purchasing the events via PPV. Dana White, President of the UFC, in an interview with TMZ stated how women will never fight in the UFC, due to financial reasons. He stated that there were no women actively popular enough in the fight realm to grasp consumer attention, which at the time may have been true. But as we see now, some of the UFCs biggest crowd attractions have come from female fights, as Dana White appeared to go back on his decision to let women fight in the octagon. TIME reports that sexualization of women in the UFC increased publicity for the UFC and some of its female fighters, including Ronda Rousey. I wouldn’t say sexualization per se, but it is evident that an underlying assumption that consumers are actively pursuing their own interests, at the same time, looking to maximize their utility, is present. It lies within what consumers want to see when they purchase fights. In this case, the UFCs previous fight cards shown below show the vast differences in number of estimated PPV buys for those fights:
UFC 197 (Jones vs. St. Preux): 322,000
UFC 198 (Werdum vs. Miocic): 217,000
UFC 199 (Rockhold vs. Bisping 2): 320,000
UFC 200 (Tate vs. Nunes): 1,009,000
Having familiarity with all fighters on these cards, I can attest that the disparities in sales between Tate vs. Nunes (two female fighters) amongst the other three male cards were not due to differences in skill level or popularity. Since men are the most active audience in MMA events, it’s reasonable to conclude that the addition of cage fighting women drives the interests of those consumers wanting to see action in the octagon, more so then men who have been participating in it for a while. Again, some may see it as sexualization of the sport, but Dana White and other executives realized they can profit massively off of women fighting in the UFC, more so that there is a market for those consumers who will pay to see it. This is one example of the UFC can entice consumers and induce economic growth in cities and states, assuming that women’s participation in the UFC continues to be a success.
In conclusion, though examining the revenues generated through prize fights in cities and economic theories associated with consumer preferences, combat sports can have significant effects on local and state economies dependent on: the choice of city, popularity/gender of fighters, and how states regulate/tax events through ticket sales and gross receipts.