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5 Oz. Feature: Breaking down ProElite’s current situation

I’ve made a lot of phone calls and have done a lot of reading and can report with confidence that ProElite and EliteXC and are not on the verge of collapse as some have speculated. EliteXC canceled the Sept. 20 show for various reasons. First, it was behind the eight-ball when it came to finalizing a card and getting it approved with officials at SHOWTIME. The card also lacked a marquee main event needed to sell enough tickets to make a 18,000-plus seat arena look full and make the show profitable.

Another reason why ProElite canceled the show is to focus more on its Oct. 4 show on CBS. As of today, the card for that show has not been completely finalized. That task becomes a lot easier with all the displaced fighters from the Sept. 20 show now available. While I do not know this to be the case, it would not surprise me if there was another one-hour pre-show on SHOWTIME prior to the CBS telecast at 9 p.m. ET.

The first SHOWTIME pre-show prior to a CBS telecast on July 26 did not draw an impressive rating, but it may be a tough sell to put a 140 lbs. clash between Wilson Reis and Bao Quach as well as have a second female fight featuring Cris Cyborg on the network show. The Oct. 10 ShoXC event could be a possible landing spot for both those fights. It will be interesting to see what happens with Paul Daley. Daley’s erratic behavior have turned some people off but he remains an exciting fighter with star potential. Putting him on CBS would be a great way to expose him to a large audience.

The cancellation of Cage Rage’sContenders” event is being sold as a way for the UK-based promotion to focus on its bigger November event. The reality is that cost cutting is taking place. The promotion is down to three full-time employees and they are now renting out smaller venues. You don’t cancel an event days out before it is supposed to take place because you want to focus more on a future event. When an event is canceled that close out, it’s done because the promoters anticipate taking a loss and they cancel it to cut those losses.

The huge jump in the value of the stock on Friday is not something that is clear to me. I’m an investor in stocks but hardly an expert. The way it was explained to me is that people are reading too much into the new price and that it really isn’t that big of a deal. The same applies to the company’s decision to file for an extension in regard to reporting their second quarter results. Many micro-cap stocks are repeatedly requesting extensions because they lack the staff resources needed to do full financial reporting while still trying to run a viable business.

As a micro-cap company that is not attached to a major exchange and isn’t carried by major firms because it’s a pink sheet, there isn’t a lot of volume trading going on. According to the financial information that is out there, a single investor recently bought 5,300 shares and that is what pushed the stock up. And unlike a major stock, a micro-cap’s asking price often has little to do with its true market value. Just because someone bought the stock at $8 a share doesn’t mean they will be able to sell it for anywhere near that much. If you try to sell stock in General Electric, you’ll have no problem unloading it because it’s a high volume stock. There are always people looking to buy stock in GE. The same cannot be said for such a small company such as ProElite. ProElite stock often goes weeks without a trade. The next time it’s sold it probably will be for a lot less than $8 a share and when it does sell, that will likely be the new price.

The one thing I do not understand is why someone would pay $8 per share. If the stock price is at $8 a share, it means someone sold it at that price. And if it was sold at that price, someone had to buy it at that price. I’m not sure how someone could unload 5,300 shares of stock at $8/share when it had been trading at $2.50/share. Even if they were contractually locked in to buy at $8 a share, why would you strike at that price considering it’s trading so low? Since it was only one investor, maybe they got some bad advice? Or maybe they were being generous and trying to get someone some money? Or, maybe someone decided to spend $40,000-plus dollars to try and take away some of the negative attention for the Sept. 20 cancellation? Again, I’m no stock expert so I could be way off the mark here. The important thing to know here is that the company is not on the verge of being bought by the UFC, CBS, or anyone else.

Also, some have speculated that the stock jumped because of a possible merger with Affliction. Well, a merger with Affliction is out of the question for now. On paper, a merger makes sense. Affliction would get access to EliteXC’s major distribution platforms and EliteXC would get to feature Affliction’s high-priced talent on its platforms. But from a pure business standpoint, a merger makes no sense. It remains to be seen if Affliction can afford to pay its talent for what they are contracted to be paid. If EliteXC wasn’t able to go out and sign guys like Andrei Arlovski, Josh Barnett, and Fedor Emelianenko in the first place, how could they afford to take on their six-figure guarantees now? Neither company is in a position to take on the other company’s problems. But for the sake of ensuring that there’s a viable competitor in existence to rival the UFC, they may need to find ways to work together and support one another.

So for now, EliteXC is not in danger of suddenly going out of business. According to their SEC filings, it appears they have enough capital on hand to get them through the year. Will they be able to go out and land major free agents such as Tito Ortiz? Most certainly not. Can they afford Frank Shamrock’s six-figure guarantee and book him for a show? I have my doubts. No matter how you want to spin it, the promotion is underfunded, as it came well short of its goals for executing a raise. The $3 million it did raise several months ago is believed to be nothing more than a loan from corporate partner SHOWTIME. The fact that the company was not able to attract new major outside investors following the strong numbers that its May 31 show did on CBS is a major cause for concern.

But the changes and cuts we’re seeing made are being done to help insure that the cash to get them through the end of the year is there. In addition to the management changes involving the resignations of Gary Shaw and Doug DeLuca, I’ve heard that other staff cuts were made. I can’t get confirmation as to who was let go at EliteXC but MMA Hawaii is reporting that Patrick Freitas, a matchmaker and marketing guy at ICON Sport, who was a vital part of the company’s success, recently resigned. It is surprising because Freitas was often an active voice in the Underground forum and quite often came to ProElite’s defense and sounded very positive about the company’s long-term prospects.

One thing to take note is that even though Shaw and DeLuca have taken on reduced roles, they are still being paid the same. The Wrestling Observer even reported that DeLuca received a bonus upon his resignation. Why would such moves take place? This is pure conjecture on my part, but if someone has a guaranteed contract then a company can only take their salary off the books if they have just cause to fire them. If ProElite wanted to get some new leadership in place with a different vision for the company’s long-term growth then they just couldn’t cut the contracts of Shaw and DeLuca without winding up in court.

If the company can’t reduce its costs by cutting back on upper management then they will have to find other ways. Not going through with shows such as the Sept. 20 event that they may started to believe would be a money-loser is one way. Investing less money in smaller shows such as Cage Rage and ICON Sport that offer EliteXC little exposure is another way. If you look at the August ICON show, it featured Phil Baroni and then Quach vs. Mark Oshiro. Baroni doesn’t fight cheap and while a match between Quach and Oshiro isn’t going to break a show’s budget, it’s a pretty good fight that easily could have headlined a ShoXC event and been presented to more potential viewers. It was essentially a title eliminator fight that hardcore fans would have cared about but had no way of watching.

One idea for ProElite to consider until it improves its financial position is to stop promoting mid-level EliteXC shows such as at the one that had been planned for Sept. 20 and instead just focus on doing ShoXC events and major CBS shows. ShoXC events appear to be money makers. Most promoters I have spoken to indicate that most casinos pay an event fee for promotions to bring a boxing or mixed martial arts event to their casino. In this situation, a promotion doesn’t have to worry too much about ticket sales, marketing the event, or rental costs for a venue. The fighter budget for a ShoXC event is also much less than what a show such as the Sept. 20 event would have cost, plus, there is no rental fee. Renting out a 18,000-plus seat arena for a night is not cheap.

If EliteXC cut back from mid-level shows for the time being, they would then have the depth to bring more star power to the ShoXC events. Proposed fights for Sept. 20 such as Daley vs. Lyman Good and Reis vs. Quach for the vacant EliteXC 140 lbs. title would fit in well for planned ShoXC events on Sept. 26 and Oct. 10.

In order to make it into next year, ProElite must secure financing. In order to continue to operate like a major national promotion, it needs to secure lots of it. I’m not sure it’s going to be able to do that. For one, the economy sucks right now. This is a terrible time for startups and young companies to have to go out and try and secure investors. Second, investors aren’t as bullish about MMA as they once were. If an MMA company makes a pitch and presents a PPM to a prospective investor, that investor is going to do its due-diligence. And when the investor does his or her research, they are going to see that the IFL, WFA, BodogFIGHT, and several other promotions faded into oblivion. The reports of low ratings and poor attendance for the July 26 show didn’t exactly do much for investor confidence either.

Some are speculating that it will be CBS who rides in and saves the day. That was my prediction at one point. However, CBS isn’t going to make a play for the company anytime soon. I know that some network executives at CBS were pleased with the quality of the July 26 show but I don’t think many people can be happy with the ratings even in light of the fact that expectations were tempered. The reality is that the masses want to see recognizable names fight each other. You could put on the greatest card in the world that has hardcore fans foaming at the mouth but it’s not going to draw a strong rating if the starpower is lacking.

As much as I love it when corporate executives pay attention to blogs, perhaps CBS paid too much attention to them? The July 26 show was programmed in large part in response to what was written by members of the hardcore MMA community. Is that the right way to go? It was television pioneer Roon Arledge who once said in regard to “Monday Night Football,” “F— the fan, they’ll watch anyway. Let’s go after the casual viewer.”

Arledge was a man ahead of his time. If MNF was a pure football show, it wouldn’t have lasted more than a season. But because they jazzed it up, it changed the way people watched the sport. “Saturday Night Fights II” was a much tighter production than “Saturday Night Fights I” but SNF II looked more like a SHOWTIME event while SNF I was a new way to present how the sport was viewed and it hooked the casual television viewer that was channel surfing.

If you watch NBC’s prime-time coverage of the Olympics, you’re not watching a pure sports event. They are doing a lot of story-telling and selling a lot of human-interest drama. Such an approach angers pure sports fans to no end, but without the casual viewer, NBC would be better off running new episodes of “Deal or No Deal” as opposed to spending billions on the summer games every four years.

When you look at what CBS has done with MMA after its first two shows, I think they need to find a happy medium going forward. The production for the 5/31 show was a little overboard. But perhaps the production for the 7/26 show was a little too stripped down? You need something for everyone, which is the direction EliteXC when in for its “Street Certified” show this past February, a show that I consider to be the company’s most successful to date.

If you are looking at things from a business perspective, one thing that the company cannot afford to do on Oct. 4 is a match involving Slice and Brett Rogers. Rogers would be a heavy favorite in that fight and could possibly finish Slice early. Slice has the better technique when it comes to the standup, but Rogers will have a serious advantage when it comes to power. Slice’s fighting weight is 235 lbs. while Rogers cuts to make 265 lbs. and apparently has weighed at much as 280 lbs. on the day of his fights. Slice could be giving up as much as 45 lbs. if the two meet. So what you have is a lighter heavyweight fighter going against a super heavyweight. If this was Olympic-style boxing, Slice’s footwork and head movement would allow him to out-point Rogers. But Rogers has massive hands and if he touches Slice’s chin, he’s going to be dazed.

When Slice fought former heavyweight boxing champion Ray Mercer in an MMA-rules exhibition match in 2007, Slice’s camp decided for him to play it safe and take Mercer off his feet and not to stand with him for a prolonged period of time. The strategy worked like a charm but Mercer was in his mid-40s and abandoned any attempt to learn ground fighting after a couple of classes at Ricardo Almeida’s. Rogers is not a master of ground fighting but reports on him is that he’s a good natural wrestler. I would think a man that big and strong would be rather difficult to take of his feet. What I’m getting at here is that Plan B isn’t an option for Slice. He’s going to have to stand and slug it out and the odds are against him. He might want to fight Rogers, but he’s not ready.

EliteXC has not built many stars and Kimbo is one of their few exceptions. If he loses to Rogers in his hometown, that will kill him completely as a draw. The promotion needs more drawing cards, not less, which is likely why the promotion is holding off on promoting a match between Gina Carano and Cyborg. Coming off Slice’s disappointing performance vs. James Thompson during the 5/31 show, EliteXC needs to build him up again and give him more time to develop. Hardcore fans will bitch and moan that he’s not fighting top competition, but after three pro fights, should he be fighting top competition? Many will point to Brock Lesnar as a guy going out there early in his career and taking on top guys but Lesnar is an aberration. Slice is not Lesnar. But how many fighters are?

The company needs to choose wisely when finalizing Slice’s next opponent. For the life of me, I can’t figure out why they wouldn’t do Ken Shamrock vs. Slice. The promotion is believed to have soured on Shamrock following his upset loss to now-retired Robert “Buzz” Berry during a Cage Rage event earlier this year, but how many people saw that fight? And did Thompson not lose to Rogers in February yet he was brought back to headline vs. Slice? I don’t see anyone complaining about the ratings for Slice vs. Thompson.

EliteXC needs to bring back the casual viewer for the Oct. 4 show and the Shamrock name could help in that regard. Plus, the loss to Berry could be viewed as a positive in some ways. The average casual fan will be oblivious to the loss and a promotion that is looking to cut costs could use it against Shamrock when trying to negotiate a guarantee for a fight with Slice.

Those speculating that CBS is about to buy EliteXC need to realize that it is not going to invest heavily into ProElite coming off the numbers from the 7/26 show. Being a network television executive is a high-pressure job that doesn’t usually offer a lot of job security. A network television company buying a mixed martial arts promotion has never been done before. If executives push CBS to buy ProElite and the bottom falls out, chances are they’ll not only be looking for a new job, but they could be looking for a new career as they could be branded as untouchable in the television industry. It’s too high risk for CBS to buy the company out now and whether they’ll be interested in doing so in the future will have a lot to do with how Oct. 4 goes. If the ratings aren’t strong, why would the network buy programming that it may end up canceling or not renewing in the future?

EliteXC has to make sure the ratings are good for Oct. 4. They need to use the same formula they used for “Street Certified” to make things work. Slice vs. someone like Shamrock and Carano vs. Kelly Kobald-Gavin will be a good hook for the casual fans. When filling out the final two matches on the show, they should keep the hardcore fans in mind. Sure, they’ll bitch about Kimbo but if you give them Jake Shields, Eddie Alvarez (who is not expected to be on the show as he takes time off to get married… but man, they really need him), Quach, Reis, etc. that will get them talking enough for them to tune in. They also need to do a better job building up the K.J. Noons to Nick Diaz feud. Trying to pretend the melee that happened on June 14 never took place is a bad idea. EliteXC is handed a gift and it wants to take it back for a refund?

We already know the Oct. 4 show will have a stronger lineup from a marquee name standpoint than 7/26 but will it be enough? May 31 got a great number because all of the planets were aligned perfectly. There wasn’t much competition for the 18-34 demographic and they had months to promote the show to a targeted demographic during events such as the NCAA tournament. But you know the UFC will counter-program the Oct. 4 show again and EliteXC could be going up against both college football and the Major League Baseball playoffs that night. Also, how much promotional resources can CBS devote to “Saturday Night Fights” in August and September when it has to promote its new fall lineup?

There’s also the curiosity element to factor in. A lot of people tuned in on May 31 just to see what all the buzz about MMA was and exactly who this Kimbo Slice guy was. A lot of new fans were created while a lot of people will never tune in again. The first telecast of mixed martial arts in prime-time network television history was a big marketing hook that can never be used again.

If the Oct. 4 show does not hit it out of the park in all facets then CBS will not be the corporate savior some expect them to be. And without their support, I do not see how ProElite can survive. If EliteXC folds, I don’t think that will be good for fighters or the fans (competition brings the best out of everyone) but this is how I see things breaking down. If something doesn’t change and change soon, we could be living in a UFC-only world by next summer. Having four major national promotions compete for the same nut might not be the best thing for the growth of the sport. However, I am not sure having one major national promotion is good for the sport either.