Singapore-based ONE Championship has been an interesting MMA promotion to follow over its seven-year existence. Some of its media coverage is so consistently complimentary, you have to wonder if ONE's own PR reps could've written them any better. Yet other journalists like Bloody Elbow's Anton Tabuena have been far less kind in their sentiment.
Recently discovered documents trace ONE Championship’s financial history since its 2011 debut. (AP … [+] Photo/Sakchai Lalit)
Like most MMA promotions, ONE is a privately-held business, presumably making it difficult to get a peek under its financial hood.
Until last week.
Bloody Elbow's John Nash – and one of my co-hosts on the Show Money business podcast at SBN MMA – recently unearthed ONE's official 2015-2017 financial statements filed with the Singapore Accounting and Corporate Regulatory Authority and published an in-depth look at ONE's finances . Nash paints a picture of a promotion with smaller revenues than one might otherwise have expected, annual and growing losses for 2015-2017 and total accumulated losses through 2017 of almost S$93 million (S$ is Singapore dollars).
In addition to Nash's records, I've collected ONE's financials from its 2011 debut through 2014 and can add to Nash's piece.
Similar to Nash, since ONE is a Singapore-based company all currency amounts will be reported in Singapore dollars. To convert to U.S. dollars at the current exchange rate as of this writing, take 72.47% of any currency amounts.
Also similar to Nash, since ONE Championship is the trade name for Group One Holdings PTE LTD and Group One recently established two wholly-owned subsidiaries through the 2017 period (One China Pte Ltd established in 2016 and One Warrior Series Pte Ltd established in 2017), all financial data will be presented for Group One as a whole and will generally be referenced "ONE." For 2015 and earlier, Group One appears to entirely represent ONE Championship. For 2016-2017, ONE Championship appears to comprise the large majority of Group One's revenues and expenses.
Revenue and Barter
The most prominent thing that stands out upon review of ONE's financials is the May 2018 Variety report that "annual revenues of $100 million are imminent." A seemingly dubious claim at best, ONE's financials through 2017 show that the organization would need revenue growth of 503% to jump to $100 million Singapore dollars by the end of 2018. A 733% bump would be required if Variety were referencing U.S. dollars, which appeared to be the case in its story.
While ONE's revenues have been trending up over time, a larger and larger percentage have come from "barter transactions," according to ONE's financials, which are "transactions that involve the exchange of advertising and media rights, in part, for other products and services."
Group One Percentage of Total Revenues (2012-2017; Source: ONE Championship financial statements)
[ Writer's Note: Since ONE held only a single event in 2011, I start most financial charts in 2012. One chart showing revenue growth will start in 2013.]
Initially non-existent in 2012, ONE's barter transactions as a percentage of total revenues shot up to 64.8% over a five year window to 2017 while ticket sales and sponsorship percentages both fell.
If we net out barter and look only at what would seem to be cash revenues, ONE had S$5.8 million in 2017 and those non-barter revenues have appeared to somewhat flatten out since 2015.
Group One Revenue (2012-2017; Source: ONE Championship financial statements)
A 2011 IRS tax tip describes barter in the context of something "small business owners sometimes look to" and it also notes that companies "must include in gross income in the year of receipt the fair market value of goods or services received from bartering."
In the MMA industry, barter revenue is something I've seen only once before in promoter financials with the International Fight League (IFL). Per its 2006 10K, the IFL reached an agreement with Fox Sports Net to broadcast its MMA content with "no payment of any distribution fee…" The IFL treated the transaction as a barter and recognized $1.375 million in television rights revenue and a corresponding $1.375 million in distribution fees in its Costs of Revenues, essentially netting out to zero in terms of profits and cash flows. In consultation with accountants, it later restated its 2006 10K essentially reversing the charges and treating television rights revenues and distribution fees as $0.
Sometimes companies barter through exchanges and can accumulate credits or "trade dollars." A Journal of Accountancy article describes candidate companies for barter as those with high T&E costs, excess inventory or capacity, seasonal fluctuations, or a new product or service. So perhaps ONE had excess seating capacity at its shows and was bartering away tickets? It may have also bartered excess ad space or used barter as a promotional tool as part of being a relatively young company.
In a recent appearance on The Luke Thomas Show on SiriusXM radio, Nash suggested , "I don't want to say exactly this is what they do, but I've heard they give tickets to people who went out and did some marketing for them or did e-mail marketing or added their name to some other ad campaign…"
ONE CEO Chatri Sityodtong's public statements run contrary to the existence of excess seating capacity at his shows, noting, "We're absolutely packing stadiums. We are filling thousand-seater arenas with passionate martial arts fans. We have the support of local governments, most importantly, the support of our fans."
Yet promoter hype and exaggerations are not uncommon in this sport. The World Series of Fighting famously described its New Year's Eve 2016 mega-event WSOF 34 in New York City as "sold out," a description that may have been technically accurate depending on how a sellout is defined, despite the fact that nearly two-thirds of its tickets were given away for free . UFC President Dana White, when asked under oath whether some of his public statements could not be taken as "entirely accurate," responded, "I'm a promoter and I sell fights for a living. Are you seriously asking me if I would go out and say, hey, when this thing happens, it's going to be the most mediocre thing to ever, you know."
A puzzling part of ONE's financials is if barter revenue is a non-cash transaction, it would seem to need to be removed as part of the adjustments to calculate cash flows in operations. A review of ONE's consolidated cash flow statements does not seem to show such adjustments. This is not to suggest any accounting improprieties, but rather that it remains mysterious exactly how ONE is using barter transactions. Perhaps it's using them in a manner similar to the IFL before restatement? Perhaps there are also cash elements to barter which are being accounted for? As of right now, it remains unclear.
What's more clear is that as a steadily increasing and important component of revenues from 0% to almost two-thirds in just five years, to truly understand ONE's financial history and current financial standing necessitates an understanding of its use of barter. I reached out to ONE for comment on its barter revenues and did not receive an official comment.
Growth and Margins
With rumors of a possible IPO on the horizon, ONE's financials allow for the construction of a couple traditional metrics for companies with negative earnings: Revenue growth and margins.
Group One Revenue Growth (2013-2017; Source: ONE Championship financial statements)
A company's growth rate in revenues is generally expected to decline as it scales up and ONE's negatively-sloped trend line fits that bill. For a company whose representative confirmed to me a valuation in the "billion dollar range," 2017 revenue growth of only 29% is surprising when combined with the fact that USD $1 billion is a giant 83x multiple of ONE's 2017 total revenues (converted to USD) and an enormous 237x multiple of non-barter revenues (converted to USD). Since we don't have clarity on exactly what barter revenues are, focusing on non-barter revenues shows a 4% decline in 2017, per ONE financial records. This essentially means that in the part of ONE's business that we can more confidently believe reflects cash transactions, growth basically stagnated in the promotion's most recent full year of operation.
Bringing expenses into the mix, ONE doesn't explicitly show margins in its financial records, so I calculated gross margin as Gross Profit divided by Revenue and operating margin as Loss Before Tax divided by Revenue.
Group One Margins (2012-2017; Source: ONE Championship financial statements)
Per these calculations, ONE's substantially negative operating margins are not surprising and are in the range of what I calculated Alliance MMA's to be last year. But for a $1+ billion company, ONE's gross margins were again unexpectedly low. Improving in ONE's early days, they seem to have flattened out around 0% over the last three years (2015-2017).
It's not uncommon to see high-valuation companies with negative operating margins, but they often go hand-in-hand with a very profitable return on the direct costs of selling goods and services (gross margin). But ONE doesn't seem to have this. Its margin chart essentially shows that, since 2015, the promotion has roughly been breaking even on those direct costs. Then it still has to add in all the other costs of running its business and acquiring customers (e.g., marketing expenses, employee salaries, office leases, professional and consulting fees, etc.).
So is ONE half of a " global duopoly " in MMA along with the UFC? Not even close, it seems.
As what seems to be more of an early growth-stage company whose past financial metrics in this piece don't look particularly strong (especially if the mysterious barter is excluded), what are ONE's investors really buying?
These investors shouldn't be the same type of people who two years ago supported Alliance MMA's roll-up IPO into a penny stock. Among ONE's most recent investors, Sequoia Capital (India) is an elite name in venture capital financing and has certainly done thorough due diligence and had extensive pre-investment discussions regarding ONE's go-to-market strategy.
Yet everything Sequoia touches doesn't necessarily turn to gold. Their job is to take calculated gambles and hopefully have a long-run edge over time.
Shortly after the release of Nash's story, Sityodtong made a Facebook post and website blog entry which seemed to capture the gamble Sequoia and other investors' were taking on ONE's growth. "Reach, frequency, and engagement" were the most important factors for success, supported with metrics on ONE's peak television ratings, broadcast hours, broadcast footprint, social media impressions and social media views.
Alternative metrics may be the preferred "go to" if traditional financial metrics aren't yet up to snuff, but eventually even alternative metrics need to be monetized. According to ONE's financials through 2017, the things one might expect to go hand-in-hand with improved fan interest, like ticket revenues per event, don't seem to be growing yet in the way we might see from an engaged fan base.
Group One Ticket, Sponsor & Barter Revenue per Event (2012-2017; Source: ONE Championship financial … [+] statements)
Improved reach, frequency and engagement should mean that more people want to come see a ONE show and/or are willing to pay more for the experience. While sponsorship revenues per event have improved since ONE's early days, ticket sales per event have seemed to decline or been relatively flat since 2014.
Which key per-event revenue statistics have shown consistent growth since ONE's early days? Barter transactions, of course. And PPV revenues. But even with consistent growth, at S$5,200 = USD $3,768 per show in 2017, ONE's PPV revenues were still relatively miniscule.
Group One Broadcasting & PPV Revenue per Event (2012-2017; Source: ONE Championship financial … [+] statements)
And so we've kind of circled back to where we started with ONE's revenues: Revenue per event has been improving over the years, not so much for non-barter revenue. Per event, the latter appears to have been relatively flat or even declining since 2015.
Group One Revenue per Event (2012-2017; Source: ONE Championship financial statements)
Another recent Sityodtong Facebook post arguably attempted to justify ONE's financial performance with a hotel analogy: "A startup global hotel chain would have to invest billions for years before they could start charging guests to stay at peak room rates with maximum capacity utilization."
A theme of this second Facebook post was the idea of "scale." Likening global sports media properties to tech media businesses and describing "huge margins, huge returns on invested capital, and huge cash flows" at scale, this doesn’t seem to be where ONE was at through 2017 based on its recently-discovered financial records. We've already seen ONE's margins and the promotion's negative cash flows in operations inflated from -S$6.7 million in 2012 to -S$34.1 million last year.
No doubt, ONE's investors must believe the company's current financial performance isn't necessarily an indicator of its future. Instagram famously had no revenue when Facebook valued it at USD $1 billion . And in the combat sports space, boxing manager Al Haymon's Premier Boxing Champions (PBC) allegedly bled money for years through television time buys and appeared to plunge in value , yet it remained in business and recently signed multi-year deals with Showtime and FOX reportedly collectively worth over USD $120 million annually.
The OTT streaming service DAZN has been throwing large amounts of money around on combat sports media rights lately and from apparel to games to gyms to eSports to energy drinks, Sityodtong's mind seems open to a wide array of monetization opportunities.
Sityodtong says ONE should have a U.S. television deal before the end of this year. With that in hand and a claimed USD $166 million capital injection in 2018, now's the time for ONE to make its push. With its recent signing of former UFC and Bellator lightweight champion Eddie Alvarez to a purported eight-figure deal, it seems ONE's already started. And Alvarez claims he won't be the last big free agent signing "in the next month or so."
An investment fund manager once supposedly described the investment of hundreds of millions of dollars into Haymon's PBC as an " undervalued call option , with the high risk but very high return."
That may be the perfect description of ONE as well.
UFC Antitrust Lawsuit
Another question of potential importance is if ONE isn't yet the global MMA force it's been made out to be, are there any implications in the ongoing UFC antitrust lawsuit ?
What matters most in this regard is not the magnitude of ONE's profits or losses, but how much of a competitive alternative it's been in the labor market for MMA fighter services. For instance, if a money-losing startup wants to compete for the best employees, it will need to pay at or close to market wages in order to attract top talent and keep its best employees from leaving to more established companies.
The question is does ONE compete in the same relevant labor market for MMA fighter services as the UFC? ONE's recent Eddie Alvarez signing with an offer that supposedly "crushed everyone" should help the UFC's position, if true. But an apparent 2011 e-mail from ONE's Victor Cui to the UFC's Mark Fischer stating "ONE FC has no intent on competing with UFC" and "ONE FC is well positioned to be a feeder organization to UFC" could certainly qualify as a "hot doc" in the plaintiffs favor.
Alleged e-mail from ONE Championship’s Victor Cui to the UFC’s Mark Fischer.
More important than both of those will be the behind-the-scenes analyses performed by economic expert witnesses on the bidding market for new fighters coming up from regional circuits and more established fighters who reached restricted or unrestricted free agency. Thus far, those expert reports have been heavily redacted.
A request for comment was made to ONE on multiple elements of this story. As of this writing, no official comment was provided other than confirmation of its valuation range.
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