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MANNY'S MILLIONS: THE ANATOMY OF A FIGHTER'S PAY

By Ben Thompson | January 30, 2012
MANNY'S MILLIONS: THE ANATOMY OF A FIGHTER'S PAY

With all the latest talk about guaranteed purses and revenue splits, I decided to take a much closer look into the anatomy of a bout agreement, namely that of Manny Pacquiao and how it relates to Top Rank and his co-promotional agreement with them. The majority of this information is public record. While some of it is taken directly from comments made by Pacquiao's own promoter, Bob Arum, a good portion of information is derived from a copy of a 23-page lawsuit document filed by Golden Boy Promotions against Top Rank in 2010. In that document, you can find details of how the percentages are split up to derive his purse guarantee, his promotional guarantee, as well as any additional revenue he may earn from the net profits. On the surface, the information may seem complex, but if you follow along, you'll find that's easier than you think and extremely educational.

PURSE GUARANTEE & CO-PROMOTION

Manny Pacquiao's income is largely dependent on the projected total net profits of an event. In 2006, Top Rank entered into a "Co-Promotion Agreement" with MP Promotions USA, Inc., Pacquiao's promotional company. The agreement allows Pacquiao to earn revenue as a result of his purse and as being the owner of MP Promotions, setting aside 72.5% of the net profits for Pacquiao while the other 27.5% is retained by Top Rank. Prior to the event, both Pacquiao and his promotional company are guaranteed a minimum against the projected net profits. In other words, the 72.5% is broken up in a manner that guarantees 45% to Pacquiao and 27.5% to MP Promotions. So just to recap, Pacquiao and MP Promotions are given a guarantee against the projected net profits and the percentages are broken down as such:

45.0% - Pacquiao
27.5% - MP Promotions
27.5% - Top Rank Promotions


So what does that mean as far as dollars are concerned? Well, basically, when you hear Bob Arum telling you that Pacquiao was guaranteed $22 million, as he recently said he was for his third bout with Marquez, then worst case scenario, Pacquiao's 72.5% of the net profits will amount to a guaranteed minimum of $22 million. Knowing that, and knowing that his 72.5% is broken up into 45% for himself and 27.5% for his promotional company, it's fairly simple to calculate the dollar breakdown using good ol' fashioned algebra to solve for X.

22 = .725
------------
 X = .275


(22)(.275) = (X)(.725)

X ~ 8.5 (rounding up)

So if X represents 27.5%, then we know that $8.5 million of Pacquiao's reported guarantee was set aside for MP Promotions, while $13.5 million was set aside as his purse. Now, keep in mind, that's just how Pacquiao's minimum guarantee is broken up in accordance to his co-promotional agreement, as outlined in the 23-page lawsuit document. Furthermore, those numbers are simply based on a projection of what the net profits will amount to at the conclusion of the event; a worst case scenario if you will. Obviously, if the event is more profitable above and beyond the projection, then Pacquiao will still be entitled to 72.5% of the remaining profits. That's the reason why his minimum guarantee is an advance against the total net profits, meaning whatever the final net profits turn out to be, his $22 million guarantee ($13.5 million purse and $8.5 million promotional guarantee) is subtracted from the total before his 72.5% is calculated. It's also important to note that this is a co-promotional agreement, and as such, Manny Pacquiao is responsible for a portion of the promotional expenses, which also get deducted from the net profits before his 72.5% is calculated. There will be more on that subject later in the "Net Profit Expenses" section.

For those that are wondering about the difference in numbers reported to the Nevada State Athletic Commission (NSAC), a large reason is due to the division of the $22 million guarantee between Pacquiao and his promotional company, therefore the bout agreement that's submitted to NSAC would likely only show the $13.5 million that's set aside as Pacquiao's actual purse. Furthermore, as promoter Bob Arum pointed out, under the rules of NSAC, he's only required to provide the commission the amount he's actually paying Pacquiao on the night of the fight, which amounts to the $6 million that NSAC reported. The remainder of the $13.5 million purse ($7.5 million) is paid over a timeframe usually within 30-60 days after the fight. The remaining guarantee to Pacquiao's promotional company ($8.5 million) is also likely paid out during that same 30-60 day timeframe.

So to summarize, on the night of the fight, Pacquiao gets cut a check for $6 million (minus expenses), and then he gets the remainder of his purse guarantee ($7.5 million) and his promotional guarantee ($8.5 million) spread out during a timeframe after the fight, thus totaling the $22 million guarantee ($6 million + $7.5 million + $8.5 million) that was promised to him. It should be noted that prior to Pacquiao, or any other fighter for that matter, receiving his check on the night of the fight, he is deducted a number of expenses, including manager/trainer fees, NSAC drug testing fees, advances, tickets purchased, and other incidentals. Furthermore, because he is a foreign fighter, roughly 30% ($1.8 million) is automatically set aside for the IRS, so that $6 million can quickly be cut in half.

Now that we have an understanding of how Pacquiao's guarantee works, the next step is to take a look at any additional revenue he's entitled to from the total net profits.

NET PROFIT INCOME

Obviously, the first step in determining the net profits is to calculate the total income produced from the various sources related to an event, including live gate, foreign distribution, sponsorships, merchandising, and the biggest revenue generator, pay-per-view (PPV) buys. Therein lies the rub, however, as it's difficult to know what the exact figures really are as it relates to pay-per-view. When it comes to the sport of boxing, outside of certain network execs, like Mark Taffet, and a few select lawyers, there's only 6 individuals who fully understand how pay-per-view really works: Bob Arum, Don King, Al Haymon, Richard Schaefer, Shelly Finkel and Leonard Ellerbe. That's it! That being said, there are some assumptions we can draw based on numbers that have been kicked around to various media outlets.

Generally, the networks will provide a breakdown of the pay-per-view buys to the individuals in charge of the event (the 6 names I previously mentioned), who in turn decide whether or not they want to release those official numbers to the public. For Pacquiao's last fight, those official numbers were never released, but according to Arum, the event generated roughly 1.4 million buys. Although we have yet to hear the final dollar amount that those 1.4 million buys amounted to, we can assume that, at a price of $54.95 per buy, the total was roughly $77 million. Now, keep in mind that that total is generally divided in half and shared with the cable/satellite operators, so when it comes to calculating the net profits, you're really talking about $38.5 million. Furthermore, HBO is entitled to a small cut, which would likely bring the number down to around $35 million.

According to NSAC, the live gate revenue from the event was roughly $11.6, but similarly, there are also expenses taken out of that - including security fees, taxes, etc. - which would likely bring that number down to about $10 million. Although it's unclear as to exactly how much revenue is generated from sponsorships and merchandising, based on figures associated with Pacquiao's bouts against Ricky Hatton and Oscar De La Hoya, which are also outlined and talked about in the copy of the lawsuit, one can assume the number is roughly around $1 million. Foreign distribution is also a number that's difficult to verify, however, based on conversations with several individuals within the industry (and I'm sure other reporters can verify this), my understanding is that the number is also minimal, around $2 million if you're fortunate. Adding all those numbers together brings the total net profit income to $48 million.

Now that the total income is known, we must now figure out the total expenses.

NET PROFIT EXPENSES

In determining the total net profits that Pacquiao's 72.5% is calculated from, all of the expenses from the event must first be deducted. As previously pointed out, Pacquiao has a co-promotion agreement, therefore, his promotional company is responsible for a portion of the undercard fees. In the case of his fight with Marquez, those fees can add up if you have a fighter like Timothy Bradley making $1.025 million on the undercard. For the sake of this example [Pacquiao vs. Marquez III], let's just add up the known purses of some the undercard fighters, which were reported by ESPN's Dan Rafael:

Timothy Bradley     $1,025,000
Joel Casamayor        $100,000
Mike Alvarado            $75,000
Breidis Prescott          $35,000
Luis Cruz                   $35,000
Juan Carlos Burgos     $22,500
-----------------------------------
TOTAL                  $1,292,500


Now, assuming that MP Promotions is only responsible for 50% of that cost, then we're looking at roughly $650,000 in expenses so far. Once again referencing the previously mentioned 23-page lawsuit document, you'll notice that in previous fights, MP Promotions was also charged a $500,000 "Co-Promotional fee" for fights. Assuming that practice has not changed, that brings the expenses up to $1.15 million. On top of that, there's also standard promotional expenses - press conferences, conference calls, touring bus, etc. - that can tack on an additional $1.5 million, but let's just call our total expenses an even $2.5 million.

From here on out, it gets a little fuzzy when it comes to additional line items that may be reported by Top Rank. Because they keep their books closed and there's virtually no way of verifying the amounts that are reported, it's difficult for anyone to know exactly how accurate the numbers may be. That being said, we can use some of the numbers that were outlined in the lawsuit that was filed by Golden Boy Promotions. According to the documents that they were provided by Top Rank, Golden Boy Promotions suggested that there were a number of questionable items that they felt were inflated. One such item included the above mentioned "Co-Promotional fee" ($500,000), which was allegedly added in twice under two separate line items. There were also travel costs that were said to be in the ballpark of $750,000, training expenses (which are usually included in advances provided to the fighter prior to the bout) that were upwards of $200,000, and sanctioning fees as high as $300,000 that were supposedly already deducted from the purse (which should have already been subtracted from the $6 million that was reported to NSAC on the night of the fight and not included in the expenses). If we assume the same practices and calculations for the Marquez bout, that brings the total expenses to about $4.25 million.

After you get done adding in foreign taxes, medical expenses, legal fees, meals, hotel rooms, TV taxes, production costs, and a number of other incidentals, those expenses will quickly double, especially when there's no way of verifying the numbers if the books are closed, easily bringing the total to about $8.5 million.

TOTAL NET PROFITS

Now that we know the total income is 48 million and the total expenses is about $8.5 million, it's easy to calculate the total net profits to be $39.5 million. It is from that number that Pacquiao's 72.5% is supposed to be calculated from, however, it is unclear if that is truly the case, and that was the crux of Golden Boy's lawsuit. According to the 23-page document, for Pacquiao's 2010 fight with Joshua Clottey, Golden Boy Promotions was informed that "Pacquiao supposedly agreed to give up his contractual right to share in 100% of the net profits so that TR [Top Rank] and Clottey could share 20% of those profits." In other words, for that particular fight, the net profits were reduced by 20%, before Pacquiao's 72.5% was calculated. It's difficult to know if the net profit was reduced in a similar fashion for the Marquez bout, but let's assume that it was at a modest 10% (and if it wasn't, Marquez will be upset to learn that Clottey was given a percentage of the net profits while he wasn't). That means the original total of $39.5 million would have been reduced by roughly $4 million, bringing the total net profits down to $35.5, of which Pacquiao would be entitled to 72.5%, or a total of approximately $25.7 million.

Keep in mind, the $22 million that Pacquiao was guaranteed prior to the event was an advance against the net profits. In other words, the $22 million that he collects after the fight is subtracted from the 72.5% of the net profits that he's entitled to, so that $25.7 million is quickly reduced to $3.7 million. Those net profits can be reduced even further if Pacquiao has taken any advances prior to the fight, which he's been rumored to do in previous fights. Let's just go with a low figure and say he requested a $700,000 advance, so that would bring his additional profits to $3 million. Adding that to the $22 million guarantee gives him a grand total of $25 million in revenue for his third fight with Marquez.

Now, this breakdown is in no way meant to justify one fighter deserving more money than any other fighter. It's simply an educational tool to allow fans to understand exactly what's involved when you're talking about the salary of a fighter who might also be involved in a co-promotion agreement. It should be noted that not all fighters have contracts structured in this manner. For example, when it comes to pay-per-view, some fighters simply get a flat dollar amount (say $5) on every buy above and beyond a minimum threshold of buys (say 500,000). For those that are looking to draw any comparison to Floyd Mayweather, I have absolutely no idea of what his situation is other than the fact that his team will tell you that he keeps 100% of all the profits. I don't know exactly what that means, but needless to say, he does not have a promoter keeping any percentages from him.



[ Follow Ben Thompson on Twitter @fighthype ]

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