Fight Sports » Mayweather Formula to Make Money Hand Over Fist

Mayweather beat Ortiz in a controversal TKO. We are sure you have heard all the commotion regarding this fight and the “head butt & sucker punch”. End of the day its business and we came across this article on the NY Times. Check it out.

Published: September 16, 2011

LAS VEGAS — On Saturday night, Floyd Mayweather Jr. will make tens of millions of dollars for an hour’s worth of work, if that. He will be paid for what happens inside the ring and outside it, paid far more than any other boxer fighting today, for far more than just his performance in a welterweight title fight against Victor Ortiz.
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In his previous four fights, Floyd Mayweather Jr. earned $115 million.
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On fight nights, if it were not for the din of the crowd and the sounds of fists striking chins, Mayweather could hear the ringing of cash registers. He earns a percentage of every ticket purchased, every pretzel consumed, every poster sold. He will earn from countries that paid for broadcasting rights and the theaters where the fight is shown.

Mayweather, regarded as one of the best boxers in history, fights under a highly unusual financial structure, exchanging upfront risk for back-end profit while retaining total control. He is even responsible for paying his opponent, in this case a business expense of at least $2 million.

“It’s never been done,” Mayweather, who is 41-0, said about his financial model. “Not in entertainment history. Not in sports history. You see that arena Saturday? It’s all Mayweather money. Want a hot dog? Mayweather money. Want a T-shirt? Mayweather money. I need all that.”

He can pull this off because of the leverage he forged with his success in the ring. Few, if any, other boxers command such widespread attention and generate so much revenue with a single fight.

In his previous four fights, Mayweather earned $115 million. For Saturday night’s event, he is expected to make about $40 million, and the checks will come for years, determined by the results of many things beyond the fight itself, like the gate and the pay-per-view television numbers. This makes Mayweather a regular among athletes on Forbes magazine’s list of most powerful celebrities, even though the bulk of his annual income is usually generated in one night.

Mayweather, 34, described his business plan after a workout this week at the family boxing gym here. Sweat dripped down his face as he sat on the ring apron in business attire (shorts, hand tape), growing more animated over his favorite subject, money. Money earned. Money wagered. Money spent. Money flashed. Money lost.

On that topic, Mayweather said he collected $100,000 the previous night betting on N.F.L. games. He mentioned his 29 cars and charitable donations in the same sentence. He even compared his spending habits to a stimulus package: “If I’m making it rain, I’m throwing it to American citizens. In a recession!”

For most of the first 10 years of his career, Mayweather fought for the promotional company Top Rank Boxing, under a more typical model, with most of his money guaranteed upfront. Their split, in 2006, was far from amicable, marked by lawsuits.

Once freed, Mayweather met with Leonard Ellerbe and Al Haymon, his most trusted advisers, to develop a new plan. They wanted to control every aspect of a promotion, including the promoters, whom Mayweather hires on a contract basis for each fight. He also changed his nickname, from Pretty Boy Floyd to Money Mayweather, part of a philosophical shift.

For his last four fights, Mayweather has hired Golden Boy Promotions, a company started by Oscar De La Hoya but run by Richard Schaefer, a former Swiss banker with no previous boxing background.

To explain the business model, Schaeffer starts with a pie. A little more than half goes to the distributors (Time Warner, DirecTV, etc.). The balance goes to the network, HBO or Showtime, which takes its distribution fees and hands the rest to the promoters.

In this case, Golden Boy has one contract with HBO and another with Mayweather Promotions. But the money, less what distributors and networks take, is under Mayweather’s control; normally the promoter would control it.

That pie is only part of the total revenue, the pay-per-view TV part. To illustrate the other revenue streams, Schaefer pulled a piece of paper from his pocket, a spreadsheet written in 6-point typeface. Drawn out, Schaefer said it would take up two chalkboards, but on the sheet in his pocket, it was boiled down to a formula for how much Mayweather would earn, based on how many people bought the fight and what the other revenue streams brought in.

Those streams include foreign sales for a fight broadcast in 168 territories; closed-circuit revenues (in 2,000 or so bars and restaurants nationwide, in theaters and in rooms at Las Vegas casinos); site revenue (ticket sales, merchandise); and sponsorships. Most boxers would see little, if any, of that money, whereas, Schaefer said: “All revenues here are Mayweather revenues. He gets part of everything.”

Roger Federer does not make money off the sales of strawberries and cream at Wimbledon, nor does Derek Jeter’s contract include the Yankees’ TV contract in Asia. Mayweather has devised an altogether different model for marquee athletes.

But, under this model, the expenses are Mayweather expenses, too, including advertising (radio spots, print ads, TV commercials), publicity (press tours, news conferences), sanctioning fees, legal contracts and insurance. For a fight of this magnitude, Schaefer said the expenses would run about $10 million.

First, Mayweather will write himself a check this week in the neighborhood of $25 million. This is similar, in concept, to the guaranteed money that other fighters receive from their promoters, but the check is much larger. Besides Mayweather, only Manny Pacquiao would command that much. What Mayweather earns in addition depends on the success of the event.

If 1.4 million or 1.5 million fans buy the fight — which is expected — Mayweather will make about $40 million, Schaefer said.

For comparison, consider Pacquiao. For his coming November fight, Top Rank has guaranteed $22 million and a percentage of other revenue for a total of $30 million, said Bob Arum, chairman of Top Rank. If the fight is canceled because of a natural disaster, for example, Pacquiao will still make $22 million, whereas Mayweather would stand to lose much of his total earnings.

Because Mayweather has averaged about 1.5 million pay-per-view buys in his last four fights, and because no natural disaster has wiped out any boxing event in recent memory, he considers his risk quite low. Even Arum, Mayweather’s stated nemesis, conceded “there’s no loss, only profit.” He added: “In the end, it may be less than the guarantee, but it’s all profit.”

Arum and others, however, believe that there is value in promotion and that Mayweather would make even more if he ceded total control. Mayweather disagrees, and even says the formula can be duplicated by other fighters — for a fee, of course.

“That’s going to cost you!” he said.

A version of this article appeared in print on September 17, 2011, on page A1 of the New York edition with the headline: Unbeaten Boxer Pioneers Ways to Make Money Hand Over Fist.

September 18th 2011