Alliance MMA Inc (NASDAQ: AMMA)
Finally, for those investors that have been patiently waiting to grab an investment into the multi-billion dollar mixed martial arts (MMA) market, the opportunity is now. Alliance MMA, in Q4 of 2016, has become the first and only MMA company that is publicly listed and actively traded on the NASDAQ marketplace. Despite the acquisitive momentum generated during the previous six months, current share prices hardly reflect the intrinsic value already created by AMMA management. Thus, for fans and investors alike, to borrow the phrase, “iiit’s tiiime” to introduce investors to a ground floor investment opportunity into a rapidly emerging MMA stock, Alliance MMA (AMMA).
The AMMA story and business plan are strong, and the acquisition and roll-up strategy implemented since October of 2016 is beginning to deliver the intended results: a basis for a recurring revenue stream that provides both visibility and significant growth potential. And, because the market has apparently ignored the recent spree of acquisitions, shares may represent a bargain at current levels, a statement based on the unreflected value of the ten revenue producing fight promotion companies recently purchased or in LOI agreements by Alliance, each expected to generate revenue in 2017. But, to be clear, revenue generation won’t end with this initial tranche of acquisitions; Alliance has intentions to acquire quite a few more revenue generating companies before the end of 2017. So, stick with me.
In AMMA’s current form, mixed martial arts fight promotion will provide the biggest bang in revenues for the company, but the AMMA strategy goes well beyond one-dimensional reliance on fight promotions as their only source of income. Already, Alliance MMA is quickly taking advantage of its post-IPO status, creating what many believe will lead to the company becoming a lucrative value proposition within the broad scope of MMA production. Through their aggressive and strategic “roll-up” strategy, AMMA is rapidly embarking on its multifaceted business plan, designed to build a substantial multi-regional footprint. Focused not only on fight promotion, but AMMA is also intent on recruiting a dedicated and formidable emerging fighter talent pool, as well as continuing to rapidly and efficiently build its media and services production capability.
First and foremost, let me make one thing clear: Few companies, AMMA included, are looking to go head on against the major league promoters. Instead, smart companies like AMMA are putting themselves into the role of being an active and complementary niche player, with a goal to recruit and develop competitive fight talent that may one day be promoted to compete in the main championships under the UFC or Bellator label. The more fighters that AMMA can advance, the stronger the demand will become for emerging fighters wanting to be represented by AMMA promotions.
Developing its niche space, Alliance MMA has been pushing a concentrated effort toward the promotion of mid-level events, introducing and featuring emerging talent that can ultimately position AMMA as a premier “feeder league,” with AMMA intent on promoting its fighters to compete within the mega name promotion companies in the industry. The company is well on their way to accomplishing this goal, already setting into motion a plan designed to facilitate orderly and consistent growth. AMMA has been active in acquiring prominent and successful local and regional promotion companies and attracting and signing the most promising emerging talent (fighters). Additionally, AMMA is taking advantage of its well diversified executive team who can exploit opportunities of different scale and direction, whether it be fight promotion, media, or distribution and sales based production.
Even though the company has only recently emerged as an influential multi-regional promoter, AMMA is demonstrating to competitors in the industry that it has both the ambition and firepower to quickly develop and acquire the pieces required to perpetuate the aggressive, but managed growth strategy. And, it’s for that reason that AMMA has been extraordinarily successful in the acquisition of small, but influential regional promoters. A colleague familiar with the industry made it simple to understand. He said that promoters are not “selling out” to AMMA; they are “selling in,” knowing that becoming a part of the greater good can have a long-standing and mutual benefit. And, he added that at the pace at which AMMA is rolling-up these regional companies, it wouldn’t take long for them to establish a significant and respectable position in the MMA industry.
Alliance MMA Using A Roll-Up Strategy
With highly capable management in place, the mission and focus at AMMA are well defined, providing the strategic road map for what the company intends to achieve during 2017. Utilizing a “roll-up” strategy, AMMA is committed to creating a premier promotional showcase for emerging mixed martial arts fighters, in particular for those competitors who have aspirations of advancing to the sport’s highest level of professional competition.
Since becoming a public company in Q4 of 2016, AMMA has been aggressive but disciplined, in taking advantage of its new capitalization, acquiring or retaining the services of seven regional fight promotions, a fighter management firm, an electronic ticking platform, and a media production company. Each component at AMMA will be fully developed and is expected to provide a synergistic platform that will have every business soon contributing to current operations. These significant promotion acquisitions have proven their value by producing MMA events that have generated intense fan interest, have led to the signing and representation of a diversified stable of recognized and emerging fight talent, and have shown consistent ability to provide profitable event cards on a local and regional basis.
With the first tranche of acquisitions complete, AMMA is showing no signs of slowing down or losing its deal-making momentum. To the contrary, AMMA is continuing its quest to identify and acquire successful regional promotions, as well as expanding their MMA fan base by simultaneously acquiring and developing a world-class media production and distribution business. In other words, management is showing that they will not be content until they successfully develop an all-encompassing company, one that can promote fights, create and market media opportunities, and facilitate the ticketing and venue partnerships for each of its events. For AMMA, once these synergies become more mainstream to each event, the more likely it becomes for unencumbered dollars to fall to the bottom line.
After closing its IPO, AMMA was purposeful and strategic right from the start, acquiring Hoosier Fight Club, Cage Fury Fighting Championships, Combat Games MMA, Shogun Fights, V3 Fights, GoFightLive, and CageTix.
The good news for investors is that AMMA had no plans to slow down. To the contrary, AMMA has continued to press on the accelerator by acquiring additional MMA promotions and then integrating them into a seamless and efficient AMMA business platform. With each acquisition, the intent is to realize significant cost savings by taking advantage of synchronized business platforms that will not only provide economies of scale but will also strengthen AMMA’s ability to leverage their growth quickly. These savings may also become a tool to advance the vision of AMMA’s aggressive growth model that can transform AMMA into a prominent, fully integrated promotions and media company.
Where AMMA Wants To Position
Recall what was noted earlier. AMMA is not developing a business model to go head to head with the giants in the industry. However, don’t insinuate that management is not entirely committed to getting deeply entrenched in the fight business because they are 100% focused in that endeavor. And, better yet, investors can expect that management will also play it smart, finding the niches between those giants and scooping up many of the dollars that these jumbos gave gotten too large to see. And for a company like AMMA, with strict cost controls and a small float of shares, it does not take too many of these shrewdly found dollars to turn a profit.
To get those dollars, though, they need good events. For AMMA, a huge priority is to identify and attract the best of the best from the emerging fighter pool. Just as top athletes tend to go to the best sports programs throughout the United States, AMMA’s intent is to position themselves as the top “mid-level promoter.” From there, they can sign and eventually promote high performing fighters, albeit likely a small number, to the next level of competition, which in the best case scenario for a fighter would be the UFC. So, whereas the UFC is keen to sign and keep its high-profile fighters, AMMA’s goal is to nurture rising fighters through the development phase and get them promoted to the next level of competition. For AMMA, even though they lose a top fighter and potential event favorite, there is value in doing so.
Consider it this way, to exploit the potential value in bringing up competitive fighters; AMMA is, in essence, intending to build a “super mid-level conference.” Now, I use the term for example purposes to illustrate the business model for AMMA as it relates to their mid-level event concentration. As a top promoter of developing talent, AMMA is working to become the primary conduit to the highest competitive level in the sport in the eyes of professional prospects. Each of the promotions acquired by AMMA has already proven capable of moving fighters to the next level, specifically to the UFC. These “up-listing” placements then create a well-established reputation that creates real demand for fighters to sign exclusive promotion agreements with AMMA properties. As more competitors rise in class, to the UFC or Bellator, for instance, it becomes a marketing windfall for AMMA in their continuing ability to attract emerging new talent.
While in most cases the best talent tends to get acknowledged in the fight game, it’s important to note that even the best competitors are often at the mercy of their promoter. Consequently, if not provided prime time opportunities to showcase their skills, the short career window for advancement slowly begins to close, as the longevity in the fight business is not a long-term proposition. For a fighter to maximize their potential and to prosper in the fight business, it is imperative that they align their career ambitions with a promoter that has both credibility and a proven track record to move fighters up in class.
With that said, AMMA is proposing that its acquisition and development strategy will aid in building a substantial and sustainable development system to the top MMA promotion companies. The greater the intrinsic value provided to fighters by AMMA, the greater the likelihood that the company will continue to sign and represent top emerging talent. At that point, AMMA can leverage their success by attracting top, developmental stage competitors and becoming an in-demand promotion company attracting those fighters that have the ambition and determination to fight at the highest levels.
As the talent recruitment and regional acquisition strategy continue to materialize, AMMA will simultaneously focus on expanding its national sponsorship opportunities, and also intensify its local and regional sponsorship agreements. By capitalizing on core strengths to generate higher sponsorship rates based on its fight talent and premium fight cards, AMMA creates an intrinsic opportunity for increased event exposure and sponsorship demand, creating an additional revenue segment from their core business.
MMA growth is also organic, and AMMA will be a clear benefactor. It’s undisputed that MMA is one of the fastest growing sports in the world, and with the sport sanctioned in all 50 states; there is also no shortage of demand for MMA on a global basis. So, while considering the value proposition here at home for AMMA, investors should not discount the opportunities that will present themselves through both domestic and international distribution agreements.
Building Upon History
With ten acquisitions already completed, two more acquisitions pending with LOI agreements and additional purchases anticipated before the end of 2017, AMMA will be positioned to promote over 125 events per year, with the potential for that number to be considerably higher based on the company’s business strategy. Additionally, banking on the experienced management in place at AMMA, the focus will be on increasing revenue from each acquisition by expanding the average annual number of events for each promotion, with targeted increases of between 10%-20% at each company. The financial benefit of promoting additional events becomes more cost accretive based on AMMA’s consolidated business platform, taking advantage of economies of scale, reducing redundancies, and capitalizing on venue partnership opportunities that offer substantial compensation opportunities from locale’s or sponsors looking to host events.
Over the next eight months, AMMA will be managing the expansion of events held by its acquired target companies, as well as from prospective target acquisitions. The current plan calls for a total of 20 regional promotion companies to be rolled-up under the AMMA umbrella. Once in place, AMMA has publicly stated their intent to maximize revenue opportunity from each by orchestrating over 125 MMA events per year, highlighting over 1,000 of the nation’s top emerging fighters under promotional contract. Remember, AMMA is not trying to be an “average promoter,” it is their intention to be the “highest performing mid-level promoter” in the industry, attracting the best of the best from an enormous pool of available fighters. And don’t expect AMMA to fill it’s event cards with just any low-ranking competitor. AMMA intends to promote quality, not quantity during their sanctioned events, solidifying AMMA’s reputation as they continue to build the brand.
Once the regional pieces are connected to create a national market presence, AMMA then will look to leverage its name and credibility to secure sponsorship arrangements with many prominent consumer name brands. In addition to sponsorship revenue, AMMA will seize upon its sizable library of media content, taking advantage of assets within the target companies to monetize film, print, and online media. At that point, the profitability equation becomes apparent, and the sum of the parts may become the product for substantial revenue growth and bottom line profitability.
The AMMA Management Can Deliver Results
Like any emerging company, active and experienced management is essential, and AMMA is not short on executive talent by any means. AMMA is led by a diversified and well-experienced team of professionals, including:
Paul Danner, Chairman & Chief Executive Officer: Former CEO of three publicly traded companies, including a Nasdaq-listed roll-up venture. A broad-based executive with Fortune 50 experience who has conducted business operations on five continents, Mr. Danner formerly served as a Naval Aviator flying the F-14 Tomcat.
Robert Haydak, President: Former CEO of top ranked regional MMA promotion, Cage Fury Fighting Championships. Prior experience as a founder/CEO of two highly successful ventures provided a formidable foundation in all aspects of business operations. Former NCAA Division 1 wrestler.
John Price, Chief Financial Officer: Previous CFO of MusclePharm, a publicly traded sports nutritional supplement company. Seasoned CPA with broad operational experience in high growth domestic and international companies, including audit expertise gained through his prior affiliation with Ernst & Young.
James Byrne, Chief Marketing Officer: Veteran of arena sports marketing, creating media opportunities, joint ventures & marketing partnerships. Senior marketing executive for Ultimate Fighting Championship, World Wrestling Entertainment and Glory Kickboxing. Formerly operated a boutique marketing consultancy serving clients including Saatchi & Saatchi and SONY Pictures Classics.
Jason Robinett, Chief Technology Officer: Seasoned technology industry executive. Served as Chief Information Security Officer for Watermark Estate Management Services, a private entity responsible for Bill Gates’ personal and family matters, as well as Director of Information Security for Expedia, Inc. where he created the company’s global information security organization.
AMMA Building A Sizable Portfolio Of Promotions
After completing its IPO, AMMA has embarked on a steadfast journey to begin the process of maximizing shareholder value. Now, being just six months old as a publicly traded company, AMMA has quickly built a stable of revenue-generating promotions, each having strength on a regional and national scale. Of the ten post-IPO acquisitions made, seven are MMA promotion companies, one is a digital media sports platform, another specializes in facilitating an electronic ticketing platform optimized for marketing MMA events, and one provides a significant boost in its fighter management division with the acquisition of SuckerPunch Entertainment. A brief introduction to each is certainly warranted:
· Cage Fury Fighting Championship (CFFC): Based in Atlantic City, New Jersey, Cage Fury Fighting Championship has successfully promoted over 50 professional MMA events. CFFC keeps its fight promotion focus in the northeast corridor, concentrating its efforts in the New Jersey and Philadelphia markets, with additional regional MMA promotions scattered throughout the northeast. CFFC enjoys a Top 10 ranking in regional promotional activity and has agreements in place with CBS Sports Network and GFL.tv. to broadcast local and regional events.
· Combat Games MMA (COGA): Combat Games is a Kirkland, Washington-based MMA promotion company founded by Washington MMA pioneer Joe DeRobbio, who has built the company into a regional powerhouse in MMA fighting. AMMA will have the benefit of DeRobbio’s 13 years of experience as both a referee and advocate for fighter safety, where he will join forces with Jason Robinett to lead AMMA promotions in the Pacific Northeast Region. COGA has promoted over 46 shows primarily in Washington State.
· Hoosier Fight Club (HFC): Considered by many as the Chicagoland leader in MMA promotions, HFC is credited with promoting the first professional MMA fight in the state of Indiana. HFC has been an instrumental force in expanding the footprint of MMA in Chicago and Indiana. HFC was founded in 2009 and has promoted over 26 events, including the first sanctioned event in Indiana in January 2010. HFC has sent or promoted eight fighters to the UFC and several to Invicta Fighting Championships.
· V3 Fights: Considered as one of the fastest growing MMA promotion companies in the Southern region, V3 is based in Memphis, Tennessee. V3 is credited with bringing sanctioned MMA fights to the state of Tennessee, and has subsequently built a reputable brand and reputation for fight quality within a region that expands into six large venues in the state, making V3 one of the fastest growing MMA promotion companies in the south. V3 has promoted 45 events primarily at event centers in Memphis, Tennessee and elsewhere in Tennessee, Mississippi, and Alabama.
· Shogun Fights: Based in Baltimore, Maryland, Shogun Fights has become a premier MMA promoter, often featuring fights to capacity crowds at the Royal Farms Arena. Additionally, Shogun has expanded events throughout the Mid-Atlantic region. Founded in 2008, Shogun has promoted 14 fights at the Royal Farms Arena in Baltimore, the same venue that hosted UFC 174 in April of 2014.
· GoFightLive! (GFL): Acquired in 2016, GFL provides AMMA with a sports media and technology platform that remains entirely focused on the combat sports industry. GFL brings an extensive video library, as well as a proprietary platform that can deliver online streaming video content, the production of televised events, and a seamless platform that offers a substantial social media presence that connects MMA enthusiasts from around the world. With a media library containing comprising approximately 10,000 hours of unique video content, and the expected addition of about 1,200 hours of new original content annually, GFL maintains the largest continuously growing database of MMA events, fighters, and fight videos in the world
· CageTix: AMMA acquired CageTix to integrate an electronic ticketing platform and service to complement its promotional activity across the United States. CageTix is recognized as the leading ticketing service in MMA and is the first ticketing service to concentrate solely on combat sports, inclusive of boxing, Jiu Jitsu, Muay Thai, and MMA. The acquisition provides AMMA the opportunity to expand not only its revenue, but to track valuable consumer data that will help to define an efficient, strategic, and targeted marketing campaign. CageTix presently services the industry’s top international mixed martial arts events including Legacy, RFA, Bellator MMA, King of the Cage, and Glory. Since its inception, CageTix has sold tickets for over 1,200 MMA events and currently services 64 MMA promotions operating in 106 cities.
· IT Fight Series: Founded in 1995, ITFS currently hosts approximately ten MMA promotions per year in various cities throughout the Ohio region. Respectively, in December of 2016, IT Fight Series promoted its 70th show at the Ohio Expo Center in Columbus to a sold-out crowd. The IT Fight Series brand has developed more than a dozen fighters who went on to compete in professional MMA competition with Ultimate Fighting Championship (UFC), Bellator and other premier promotions.
· SuckerPunch Entertainment: In January of 2017, AMMA acquired SuckerPunch, widely acknowledged throughout the industry as the world’s top MMA fighter management and marketing company. Now operating under the Alliance MMA umbrella, SuckerPunch will continue to provide world-class representation for fighters inside and outside of the cage. SuckerPunch currently has more than 100 fighters under contract worldwide.
· Ring Of Combat: On September 30, 2016, the Company acquired the exclusive rights to the Ring of Combat fighter library, which includes professional MMA, amateur, and kickboxing events and covers approximately 200 hours of video content. Ring of Combat has sent about 90 fighters to the UFC. The Company has also secured the media rights to all future Ring of Combat promotions.
· Kings Highway Media: In February 2016, AMMA established a noteworthy relationship by retaining Kings Highway Media, LLC for both domestic and international omni-channel media rights distribution. The relationship with Kings Highway supports AMMA’s MMA focus in delivering upon key revenue drivers inclusive of live television, content, and sponsorships. Kings Highway is a full-service global media brand distribution advisory, highly adept at introducing and expanding the domestic and global media presence in venture capital, private equity, IP rights holders and sports & entertainment companies in the United States and internationally. Kings Highway directs the building of equity value in addition to multi-divisional revenue growth of its clients’ branded assets.
Going forward under the Alliance MMA umbrella, each of these regional promotions and acquisitions will continue to operate under their respective names, leveraging the valuable brand equity they’ve built over the years.
Capital Structure And Liquidity
Beyond the significant opportunities already being realized at AMMA, the emerging story would not be complete until the specifics of both the capital structure and cash liquidity details are noted. In that respect, if, as an investor, you are looking to take a position in the only publicly traded MMA stock, it will be reassuring to know that AMMA is about as clean as they come regarding capital structure and cash liquidity.
AMMA is carrying no historical baggage. Unlike many newly listed small-cap stocks, AMMA did not reverse split into a former shell of the past, taking on no legacy issues or past reputation. The most recent 10-K shows nothing but clean agreements, no disgruntled legacy shareholders, and an outstanding share count that sits at only 9,022,308 shares. Importantly, of those roughly $9 million shares, only 2,222,308 shares are not being held tightly by insiders. These metrics leave a tidy capital structure at AMMA, free of debt and in a strong position to capitalize on the direct revenue models being brought forward by the recent spree of accretive acquisitions. Investors should pay little attention to those outspoken investors, or legal eagles, who point to the delay in the first 10-K filing as a red flag. To them, I say, what better way for management to expressly show their commitment to full disclosure than to delay their first 10-K filing until they were 100% comfortable with their accountant’s confirmation of opinion. Despite the headlines made by incentivised commission based legal teams, AMMA did the right thing. They completed, without deceit, each obligation outlined and mandated by the SEC. Investors should praise management and use those conspicuous legal headlines as a part of next years firewood.
On a liquidity basis, AMMA reported over $4.7 million in cash under their 2016 10-K report and a stock treasury that enables the company to issue up to a total of 45,000,000 shares on a fully diluted basis. No worries about the O/S climbing to the hundreds of millions here, with a cap at 45 million shares, the Treasury holds ample firepower to continue the acquisition process without serious near-term dilution to current shareholders.
With no skeletons in the closet and a cash balance that offers near-term growth opportunity without the fear of significant dilution, investors may find an entry at these levels a welcome opportunity. Keeping in mind that each promotion acquisition is immediately accretive to current revenues, the purchases made by the company also come with the near-term financial benefit. Thus, while there may be some sporadic near term dilution to continue the build-out, shareholders should also recognize the value of those assets almost immediately, and according to the business model, investors should model their yearly projections at between 10%-20% higher than current revenue and event figures show.
AMMA is interesting on several fronts, each of which may offer significant and near-term value appreciation to shareholders. First, the low share count and the immediate impact of acquisitions plays directly into bringing the company to profitability in relatively short order. Second, with no debt, and a management team that is bent on building shareholder value, the pace at which the company is delivering on its stated goals is quite encouraging. While investors should not necessarily expect the company to become profitable in the next few months, there is certainly the strong likelihood that AMMA is clearly positioning themselves for a strong 2017, taking advantage of the significant momentum gained at the end of 2016.
Finally, from an investment perspective, finding an opportunity like AMMA, with no legacy issues, a clean balance sheet, a low share count, and experienced management in place, is a comforting spot for investors to consider a position in the company. With the company demonstrating the ability to make all of the right moves, I expect that the shares will soon knock-out the stubborn resistance, and work their way higher. Once investors catch a clue as to what AMMA is actively building, shares may indeed show the strength to recapture all its IPO price of $4.50 and more. From there, guidance and acquisition are the keys, and as long as the deals continue to be accretive to growth, I believe that the share price will win the bout, moving higher in knockout fashion.
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