I read this article in the news the other week.
It's about the two billionaire Fertitta brothers who made the UFC into the multi-million dollar business it is today.
These guys are brothers, but also the best of friends, train and lift weights together 6 days a week and generally have their shit together.
I thought it was quite an inspiring story, so I thought I'd share it.
Warning, the article is quite long, so it's not for the faint-hearted.
It's about the two billionaire Fertitta brothers who made the UFC into the multi-million dollar business it is today.
These guys are brothers, but also the best of friends, train and lift weights together 6 days a week and generally have their shit together.
I thought it was quite an inspiring story, so I thought I'd share it.
Warning, the article is quite long, so it's not for the faint-hearted.
Quote:Quote:
Cain Velasquez, a tattooed mixed
martial arts fighter, slams his elbow into the face of Antonio
“Bigfoot” Silva, opening an inch-long gash on the bridge of the
264-pound Brazilian’s nose. Blood sprays onto the Bud Light logo
in the middle of the canvas mat.
Oscar-winning actress Charlize Theron, at ringside, yells,
“Fight, fight, fight!” A few feet away, Dallas Cowboys running
back DeMarco Murray and Arizona Cardinals wide receiver Larry
Fitzgerald gawk at the brawlers through the black chain-link
fence that surrounds the Octagon. Pockets of fans among the
15,000 spectators -- who have paid an average of $300 apiece --
wave Brazilian and Mexican flags.
Blood smears across Silva’s face and blinds him, as he
grapples, kicks and punches furiously at his Mexican rival,
unsuccessfully fending off repeated blows to his head. With 1:24
to go in the first round, the referee declares Velasquez the
winner by a technical knockout. Two members of the ring crew
summon extra towels to mop up the blood before the next fight
begins, Bloomberg Markets magazine reports in its September
issue.
The brawl is one of five heavyweight bouts staged by
Ultimate Fighting Championship on a Saturday evening in May, at
the MGM Grand Garden Arena in Las Vegas. The world’s largest
promoter of mixed martial arts -- a violent stew of jujitsu,
wrestling and kicking in which the victor often makes his
opponent “submit” through holds that approach strangulation --
it’s also one of the fastest-growing and most lucrative draws in
entertainment.
148 Countries
UFC today has 442 fighters from 38 countries under contract
and will host 14 pay-per-view events this year, bringing in $500
million in annual sales. The Las Vegas-based company signed a
seven-year television contract with News Corp.’s Fox Media Group
in July 2011, and its content, broadcast in 19 languages, is
available to more than 1 billion homes in 148 countries and
territories.
That’s a long way from 2001, when brothers Frank Fertitta
III, now 50, and Lorenzo Fertitta, 43, heirs to their father’s
casino business, bought UFC for $2 million. “It was probably the
worst brand in the United States because of all of the
negativity surrounding it,” Lorenzo says. The brothers say that
rules adopted in most U.S. states in the past decade --
outlawing practices such as eye gouging, biting and blows to the
trachea -- make it safer than other sports such as boxing.
‘Violence’
“This is a form of violence,” says Bob Reilly, a Democratic
assemblyman in New York, the only state that still bans UFC
competitions. “When you give a prize for the best knockout of
the evening -- and that does serious damage to a person’s brain
-- it’s troubling.”
Reilly says head injuries from the sport could have
repercussions on participants decades later, similar to boxing
or football. Boxers Muhammad Ali and Joe Frazier both showed a
decline late in life that Reilly attributes to the effects of
repeated blows to the head. “We know the sad cases of Frazier
and Ali,” Reilly says. “This will happen to UFC fighters, too.”
The Fertittas respond by citing a 2006 study by doctors at
the Johns Hopkins University School of Medicine that found “the
lower knockout rates in MMA compared to boxing may help prevent
brain injury in MMA events.” The study also found that facial
lacerations accounted for almost half of all injuries, followed
by damage to the hands, nose and eyes.
‘Human Cockfighting’
“They take pains to make sure fights are clean and that the
medical supervision at all their events is stringent,” says Joe
Ravitch, founding partner of New York-based sports consulting
firm Raine Group LLC, who has worked as a strategic adviser to
the Fertittas for five years. “The UFC is one of the fastest-
growing sports franchises in the world. The biggest risk they
face, just like any sport, is losing control over those things
in a new country and getting enveloped in a corruption or injury
scandal.”
U.S. Senator John McCain, a Republican of Arizona, who
likened the sport to “human cockfighting” back in the early
1990s, says that’s no longer the case. “They haven’t made me a
fan, but they have made progress,” he told National Public Radio
in a 2007 interview, which a spokesman says still reflects his
view.
Brutal or not, Ultimate Fighting has made Lorenzo and Frank
Fertitta billionaires. Each owns 40.5 percent of Zuffa LLC --
named after the Italian word for fight -- the private company
that controls UFC. Flash Entertainment, an Abu Dhabi government
investment company, bought 10 percent in 2009 in a deal that
valued Zuffa at more than $2 billion, according to a person
familiar with the matter who asked not to be named.
Dana White
The remaining shares are owned by Dana White, a fight
promoter and former high school friend of Lorenzo’s who first
suggested they buy UFC. White became UFC’s public face: starring
in a reality TV show, lobbying for MMA legislation and
lambasting fighters if they were out of shape or put on a boring
show.
The Fertittas also own a majority stake in Station Casinos
LLC, a Las Vegas-based gambling outfit founded by their late
father, Frank Fertitta Jr., in the 1970s. Frank III is chairman
and chief executive officer of Station, which owns 17 casinos in
Nevada and other locales, while Lorenzo is chairman and CEO of
Zuffa.
Manicured Stubble
Wearing bespoke suits over their muscular bodies at the MGM
Grand arena, sporting manicured salt-and-pepper stubble and
flanked by their wives and some of their children -- each has
three kids, whose ages range from 12 to 22 -- the brothers talk
between fights about how they’ve managed to work in tandem,
building their business without starting the feuds that are so
common in ultrawealthy families.
Each Fertitta controls a fortune worth at least $1 billion,
according to data compiled by Bloomberg. In addition to their
company stakes, they own real estate, art and four jet planes.
The brothers hold their assets separately and through family
trusts, they say. Las Vegas-based Fertitta Enterprises Inc., a
single-family office that employs about 60 people, manages the
Fertittas’ wealth. The office staff vets investment
opportunities (it turned down a chance to buy stock in Facebook
Inc. before its public offering), handles art transactions (each
brother has a collection of art worth more than $100 million)
and arranges for personal security.
Heavy Bags
The brothers not only work together; they work out
together. Six mornings a week, at a 4,000-square-foot (370-
square-meter) gym underneath the Station Casinos corporate
offices 10 miles (16 kilometers) west of the Las Vegas Strip,
they spend two hours lifting weights, jumping rope and hitting
heavy bags.
Both are obsessed with nutrition and have a personal chef
make them meals at least twice a day. Bowls of protein-rich
cashews and almonds are always within their grasp. While they
exercise, the brothers talk business.
The brothers say their regular chats help them avoid
clashes. That makes them unlike some billionaire families, such
as Hong Kong’s Kwok brothers. When Dhirajlal Hirachand Ambani
died as India’s richest man in 2002, he left no will. His two
sons, Mukesh and Anil, embarked on a bitter battle for control
of publicly traded energy conglomerate Reliance Industries Ltd.
Three years later, the brothers’ mother, Kokilaben, brokered a
deal to split Reliance in two, giving Mukesh the company’s
petrochemicals, oil and gas, and refining businesses and Anil
its telecommunications, financial services and power-generating
operations.
Koch Brothers
The four sons of Koch Industries Inc. founder Fred C. Koch
also had a fraternal feud. In 1983, Bill and Fred Koch sold
brothers Charles and David their shares in the company for $1.1
billion. Bill and Fred sued two years later, claiming they were
underpaid. A 15-year legal battle ensued, and Charles and David
eventually defeated their brothers in court. Charles and David
Koch are now worth more than $35 billion each, according to the
Bloomberg Billionaires Index.
The Fertittas spend a lot of their free time together. With
their family, the brothers funded Fertitta Field at Bishop
Gorman High School in Las Vegas, where their sons now play
football. And they gather at the home of their mother, Victoria,
with their wives and children for dinner every Sunday night -- a
tradition started by their father decades ago.
Pit Boss
Also joining the dinners is their sister, Delise Sartini,
53, who sold her stake in Station Casinos during its 2007
leveraged buyout for more than $200 million. Her husband, Blake
Sartini, 53, worked with the Fertittas for 15 years before
creating Golden Gaming Inc., a closely held Las Vegas-based slot
machine business, in 2001.
Both brothers say there’s no pressure for their children to
join either business, where their succession plans involve one
brother taking over for the other.
“I want my kids to do whatever makes them happy and what
their passion is,” Frank Fertitta says. His oldest daughter
recently graduated from college and will soon join a yearlong
management-training program at Station. Then she plans to enroll
in business school.
Frank Fertitta Jr., the family patriarch, was born in
Galveston, Texas, the grandson of Italian immigrants. In 1959,
he moved to Las Vegas with Victoria and their infant daughter
and landed a job as a bellman at the Tropicana hotel. He worked
his way up in the casino business, acting as a blackjack dealer,
pit boss and general manager for properties such as the
Stardust, Sahara and Fremont.
Desert Patch
In 1975, Fertitta Jr. joined with three partners to build a
casino off Sahara Boulevard, on a patch of desert west of the
Las Vegas Strip adjacent to the Mini-Price Motor Inn. Fertitta’s
partners wanted to add a casino and some amenities alongside the
small hotel.
“People thought it was crazy at that time to open a casino
that wasn’t located either on the Strip or in downtown Las
Vegas,” says Frank Fertitta III. “Dad wanted to cater to locals
-- all the cabdrivers, cocktail waitresses, blackjack dealers.”
The Casino, which is now called Palace Station, opened in
1976 and featured 100 slot machines, six gaming tables and 90
employees. A year later, Frank Fertitta III started working in
the family business, beginning as a construction worker, during
his school breaks. After graduating from the University of
Southern California with a business degree in 1984, Frank
started managing the casino with his father during the day --
and dealing blackjack and craps at night. By then, the casino
was generating $16 million in earnings before interest, taxes,
depreciation and amortization.
Slot Route
Younger brother Lorenzo started in the casino’s accounting
and food and beverage divisions during the summers while he was
studying business administration at the University of San Diego.
In 1991, after Lorenzo graduated from college, the brothers
used their own money to expand a slot route business -- renting
slot machines out to pubs and other smaller establishments --
that they had created with brother-in-law Sartini in the mid-
1980s. The three bought land zoned for gambling in Missouri in
1992.
“We went around and around and around, planning the best
way for the family to maximize its wealth,” Frank says. “We felt
we could replicate and re-create the success of Palace Station
over and over again.”
Their conclusion: Combine the family casino in Las Vegas
with the slot route and their Missouri operations, which later
included a riverboat casino, sell shares in a public offering
and use the proceeds to expand the business beyond their one
casino in Las Vegas. In May 1993, Station Casinos raised $294
million in its IPO, the largest gaming public offering in
history at the time. It had a $600 million market capitalization
at the end of its first day of trading. Frank was 31 years old,
and Lorenzo was 24.
New Rules
“When we took the company public, my dad decided to
retire,” Frank says. Frank Jr., who had had his first heart
attack at age 32, wanted to get out of the day-to-day operations
and sold his stake for $230 million.
Las Vegas’s population was growing, and the brothers spent
their weekends driving around town, scouting and buying up
pieces of property in growing areas they believed would
eventually be ideal for local gambling.
From 1993 to 2007, they developed and acquired 13 casinos
in Las Vegas and other locales such as Sacramento, California,
at a total cost of $5.4 billion. At the same time, the company’s
stock soared almost sixfold, more than double the return of the
Standard & Poor’s 500 Index.
Dying Business
In 2000, as the casino business took off, they were
approached by White about investing in UFC, which had been
founded by Brazilian fight promoter Rorion Gracie and pay-per-
view entrepreneur Bob Meyrowitz in the early 1990s. UFC could be
had for a song because it was a dying business: It had been
banned from cable television because it was unregulated. The
sport was also violent; head butting was commonplace. The only
state that sanctioned the fights was New Jersey. The Fertittas
themselves had recently become practitioners of jujitsu, one of
the martial arts used in UFC bouts.
Their father was put off by the sport’s violent reputation.
“Dad was a fairly conservative guy,” Frank says. “He asked us
not to do it. I think that’s the only time that Lorenzo and I
actually went against what he wanted us to do. Thank God we
did.”
Seeking Rules
They bought the franchise, giving White a 10 percent cut to
serve as president, and invested $38 million to rehabilitate the
sport. Lorenzo, who had been on the Nevada State Athletic
Commission when Mike Tyson bit off a chunk of Evander
Holyfield’s ear in 1997, says he believed the only way to make
UFC a viable business was to establish standardized rules for
the events and have it regulated as a legitimate sport.
He held a summit in New Jersey with athletic commissioners
from around the country to draft new rules for mixed martial
arts. The Fertittas then lobbied state legislatures to pass laws
that would sanction MMA events. In May 2012, New York Assembly
Speaker Sheldon Silver, a Democrat, kept a bill that would have
legalized the fights from reaching a vote.
The rules set out nine weight classes and limit most bouts
to three 5-minute rounds. Opponents can wear only shorts, a
groin protector, a mouthguard and gloves weighing about 5 ounces
(140 grams).
‘Inflict Injury’
The three most common ways a fighter can win are by a
knockout, a decision or by forcing an opponent to submit -- when
he either passes out or feels one of his bones is about to
break, for instance. MMA rules also point out that in this so-
called unarmed combat “a blow is usually struck which may
reasonably be expected to inflict injury.”
To build an audience for pay-per-view bouts on television,
the brothers spent millions of dollars to produce a reality TV
show called The Ultimate Fighter that pitted rising brawlers --
most of whom are former college or Olympian wrestlers -- against
each other with a chance to land a slot on a UFC pay-per-view
event. The Fertittas gave the footage for free to Spike TV -- a
cable channel aimed at men ages 18 to 34 -- and it quickly
became a hit. By 2007, UFC had more pay-per-view buys than Time
Warner Inc.’s HBO Boxing and World Wrestling Entertainment Inc.
The success was timely for the Fertittas, because Station
Casinos’ luck was about to turn bad. In 2007, the Fertittas took
Station private in a $9 billion leveraged buyout with
billionaire Tom Barrack’s Colony Capital LLC. The brothers
received about $1 billion in the transaction and reinvested $700
million into the private company.
Soon after, the worst financial crisis in 80 years began --
and the gambling business ground to a halt. “A few days after
Lehman, we knew we were in a terrible spot,” Frank says.
Deutsche Bank
Station couldn’t make payments on the $7.3 billion in debt
the Fertittas and Colony had saddled the company with during the
buyout. It filed for bankruptcy in July 2009. “For two years, we
thought we were going to lose the company almost every Friday,”
Frank says. “It’s a family-run business started by our father.
There was a massive sense of pride in fighting for it.” Frank
Jr. died in 2009 following heart surgery.
Station hired former Deutsche Bank AG analyst Marc Falcone
as its chief financial officer, and he set to work renegotiating
with banks to eliminate $4.8 billion in debt.
In June of last year, the company exited bankruptcy. The
brothers invested $238 million -- much of it cash they had taken
out of the company four years earlier -- for a combined 58
percent stake.
Native Americans
Former bondholders own 16 percent, and creditor Deutsche
Bank owns 24 percent. The revamped Station Casinos now owns 17
casinos and is moving into new markets.
In June, the company broke ground on a $550 million casino
resort the brothers will manage for the Graton Rancheria Native
American tribe, 43 miles north of San Francisco. Station will
receive a 2 percent development fee, plus 24 to 27 percent of
net gaming revenue for seven years, to manage the casino, which
will have 3,000 slot machines, 150 gaming tables and 18 poker
tables.
The brothers have also set up Fertitta Interactive, which
is eyeing the market for online gambling. Last year, the U.S.
Department of Justice reversed its interpretation of the
Interstate Wire Act of 1961, which had made intrastate and
interstate online gambling illegal. At least 10 states are
looking at passing bills to legalize online poker.
Three Rounds
The Fertittas acquired poker platform CyberArts Licensing
LLC in October 2011, positioning them to take poker wagers if
states begin to legalize the activity. The plan would be to then
run online poker games for the predominantly young and male UFC
audience, they say. In July, the brothers set up a free poker
game on Facebook called Ultimate Poker.
UFC’s audience continues to expand. This year, the promoter
will provide Fox Media with more than 300 hours of programming,
including 56 live fights. The content can be seen in more than
200 million households that are also watching Major League
Baseball, National Football League and Nascar events. Spinoffs
of The Ultimate Fighter are airing or in development in
Australia, Canada, India and Latin American countries --
including Brazil, where UFC is second only to soccer as a
spectator sport.
If, as UFC grows, the Fertittas ever wind up disagreeing on
the company’s direction, they’ve found a unique way to settle
things: They had their lawyers draft a document that stipulates
the brothers fight each other. “If we can’t resolve our
differences, we’ll have three 5-minute rounds of sport jujitsu,”
Lorenzo says. “It’s on a point system, so whoever gets the most
points gets to vote the other guy’s share. Dana White would be
the referee.”
So far, they haven’t come to blows. “Lorenzo got the best
of me on that one,” Frank says of the deal. “The older I get,
the better his chances.”
