The Economics of Boxing

Boxing stands out as different from the other sports of the American Pantheon of Athletic Allegiances for many reasons (and in fact, boxing is truly on a disappearing relic, the original version of the American Pantheon, along with horse racing and baseball, replaced by football and NASCAR). Chief among those differences is the fact that there is no organized league, no teams, no massive, glistening, billion dollar stadiums. This makes the economics of boxing much different from the economics of other professional sports. With the American economy sputtering along, staggering as if knocked to the canvas by a left hook, leaving financial giants knocked out cold and private investors wishing they could take a knee, why not take a look at the economics of boxing.

There is no set schedule and no set competition. There are many different championships and ways to obtain them, rather than one clear path to a single champion. There are no owners of franchises, and nobody has their own stadium, and so boxers are denied such assumed revenue generation. And no matter how good you are, there is no guarantee that people will know about you, watch you on TV, or be given the chance to. So how do fighters make money, how much do they make, and where does it come from?

We can take a look at the financial systems in place around the sport of boxing through the lens of an Economics 101 class. So pick up your college lined notebook, thrown on that hooded sweatshirt you've worn the last four days consecutively and get ready to go to class; Econ of Boxing 101.

The economics of boxing comes down to balancing the demand a fighter has for money with the demand the public has to see and pay for the fight. This second demand can also be referred to as the supply of money from the promoter; how much money he is able to put up based upon public demand in order to satisfy the fighter and make the sport economically feasible. Boxing is a sport rife with differences. Many receive tiny paychecks at sparsely attended shows, their share of the pie determined by the promoter and his profitability, while others make tens of millions of dollars per appearance and can dictate the terms they demand.

Forming a supply and demand graph from this (see the graph to the side) you can place profitability from a fight on the vertical axis and money paid to a fighter on the horizontal axis. From the promoter's perspective therefore, the supply curve in this situation would be positively sloping. All that means is that as his chances of profitability from the fight increase, so does the supply of money he provides based on those increased potential profits.

The demand curve slopes downward, which simply means that the more money a fighter demands, the lower the profitability is for the promoter. As mentioned, when at the upper echelon a fighter can force a promoter's profitability down and demand - and receive - more money. The most financially successful boxers, such as Oscar De La Hoya (the aptly named Golden Boy), have even started their own promotional companies, ensuring they get the terms they feel they deserve while commanding enormously high contracts.

Economic Factors Affecting Boxing

In the majority of cases, the promoter and his supply of money is the most important element in the balancing act of boxing economics. What makes up and determines that supply of money can however vary greatly and depend on many factors, including the fighter himself. On the lower rung of the boxing ladder, where the majority of fighters ply their trade and the majority of fights occur, the supply of money comes almost exclusively from one element, ticket sales.

Typically a fight card has to have at least 6 or 8 fights on it, involving 12-16 different fighters, in order for it to legally be sanctioned by the athletic commission of the state or territory. While there is no minimum amount legally for a fighter to be paid in order to compete in a contest, there are minimum standards. Promoters trying to ensure the quality of their fighters would normally pay no less than $1,000 for a 4 round fight. The amount paid to the fighter increases from that sum based on the fighter himself, the length of the bout, the quality of competition, potential exposure and other factors and circumstances.

Therefore to legally stage a fight and put on a high quality show, a bare minimum of $12,000 must be supplied by the promoter. When you factor in main event fighters, arena renting fees, referee and judge fees and so on, a typical local level show can cost anywhere from $20,000 to $50,000 to put on. A specific example, as described by Evan Hessel in his article "Golden Boy" shows De La Hoya and his promotional company paying out $32,000 after charging $30 for a ticket and selling 1400 tickets for a series of local level shows in 2004.

This sets a bare minimum of how much a promoter has to be able to supply. In the above example, De La Hoya's company netted $10,000, the remainder of the ticket sales from the local show. However, often times local promoters come away with no profits and instead look at small shows as investments towards future, larger opportunities, as Lou DiBella has with his Broadway Boxing series in New York City.

As a fighter become more popular or successful, his demand for money increases and hopefully for all parties involved the demand to see him fight increases with it. One major element in this is the regional demand for staging shows. Where to put on a boxing match is of major consideration and can greatly affect the supply and demand curves for staging a professional boxing card. Miguel Cotto, professional and world class welterweight fighter hailing from Puerto Rico, has fought 9 out of his last 10 fights in Puerto Rico or in the New York metro area, where a large demographic of Puerto Ricans exist. Because there is a greater chance of profitability and more money that can be supplied, Miguel Cotto fights almost exclusively in these areas.

Just as the supply of money can increase, so can the demand for money that a fighter makes in order to fight. A promising prospect or a world champion will have in his contract additional money promised to pay for his training expenses, including sparring partners, training camp, trainers and other assistants and doctors. A fighter can afford to make these demands when there is a justifiable demand to see him fight, and therefore the promoter can supply the necessary, increased dollar figure.

How Television Dictates The Economics of Boxing

The public will have a high demand to see a fighter fight if he is successful, if he is exciting, if he has a regional or cultural demographic fan base or if he is a promising amateur prospect, such as an Olympic medalist. These kinds of fighters not only can sell tickets, but they also draw the interest of television, which is the major supply of money once you step out of the sphere of local level, small time boxing. Boxing is shown on television on a variety of channels, including ESPN 2, Versus, Telefutura, Showtime and HBO.

There also exist other revenue streams in big time boxing such as arena hosting fees. Whereas small fights have to pay arenas for the space, big fights have arenas pay them for the privilege of hosting events and bringing people in the door. Casinos in Las Vegas for example, jump at the opportunity to host a major card and have 15,000 people cram through their doors and into their casinos and rooms. Still, television is the dominant force in major boxing. So much so, that the premier boxing enterprise, HBO, has been accused of acting as a promoter themselves, rather than just a network showing an event.

Like other sporting events and leagues, a network such as HBO will pay for the right to air a boxing match. They also give contracts to popular fighters to fight exclusively on their networks. These contracts are multimillion dollar deals and stem from a massive budget of over $60 million dedicated to boxing from just HBO alone (Hauser, HBO: 2008). Because of this, HBO has the right to pick and choose the fights they wish to air and have been accused of favoritism and promoting, which would be illegal given their network status.

HBO can decide (for our purposes, since they put up the huge sums of money, they act as the promoter whether they literally are or not, and supply the money) whether the public demand for a fight is enough that it warrants paying for a fight out of their own budget. If they feel it isn't, they can have the actual promoter put the fight onto a pay-per-view status, where a fee of between $39.95 and $54.95 is charged to watch the fight. Therefore the risk of making back the supply of money from the public demand is with the promoter, not the network. Additionally, if the demand for a fight is so high that the price won't deter anybody (and can in fact increase the "event" status of a fight, rousing up even more public demand), HBO will also put the fight on pay-per-view to see extra revenue. It is with pay-per-view boxing that tens, even hundreds of millions of dollars can be earned; a far cry from the $1,000 minimum for a 4 round scrap on a local boxing card.

A Major Fight Case Study - Oscar De La Hoya versus Floyd Mayweather Jr.

In May of 2007, the most lucrative boxing match of all time was held between Oscar De La Hoya and Floyd Mayweather. It was the perfect storm of a match, with the icon De La Hoya and the undefeated pound for pound superstar Mayweather, who was more than willing to play the part of villain in the media circus. With a huge marketing push, including a 4 episode reality series on HBO, the demand from the public to see the fight was huge. The result was a fight that sold over 2 million PPV telecasts, each at $54.95. The pay-per-view sales alone accounted for over $120 million in revenue, while a record live gate of $19 million, sponsorships, arena fees and other revenue streams brought the total to well over $150 million (Rafael, De La Hoya 'ecsatic' That Fight was Richest Ever).

With the huge public demand and potential for profitability, there was a huge supply of money to draw from. Oscar De La Hoya was guaranteed to make over $23 million and Mayweather was guaranteed to make over $10 million. With percentage of PPV sales also going into their pockets, De La Hoya raked in a minimum of $50 million and Mayweather a minimum of $20 million. Of course, De La Hoya, also being the promoter, additionally received the promoter's share of the money. HBO, feasting on the public demand, had no problem guaranteeing these figures for their share of the PPV money stream.

Final Thoughts

Class, our crash course in the economics of boxing in a struggling American economy, has shown that the economics of boxing revolves around the public's demand to see a fight. This can also be called the supply of money that a promoter can put up for a fight, in order to put boxing in relatable terms of a supply and demand graph. Graphing profitability for a promoter vertically and money paid to a fighter horizontally, boxing revolves around matching the fighter's demand for money with the public's demand to see him perform. On the local level this means scrounging together ticket sales to pay a fighter $1,000 or less for a fight and on the grand stage this means harvesting hundreds of millions of dollars from public interest.

In either case, overestimating the public demand supplying more money can result in a promoter losing money, while underestimating public demand and supplying less money can deter a fighter from fighting under a promoter's terms. As with all economic areas, the economics of the sport of boxing depend on the delicate balance between supply and demand, each of which are in turn determined by many assorted variables. If Oscar De La Hoya can figure out how to spin $150 million from 48 minutes of potential entertainment, you're telling me there isn't anybody out there as crafty up in the headquarters of Lehman Brothers, Bear Stearns, Fannie Mae and the slew of other bigger they are, harder they fall, American financial institutions. As Don King would say, "Only in America!"

References

www.boxrec.com; Evan Hessel "Golden Boy" http://www.forbes.com/forbes/2004/0426/120.html; Thomas Hauser "HBO: 2008" http://www.secondsout.com/Columns/index.cfm?cs=24779&ccs=208; Dan Rafael "De La Hoya 'ecsatic' That Fight was Richest Ever" http://sports.espn.go.com/sports/boxing/news/story?id=2865349.