Mind Boggling Economics of the Mayweather-Pacquiao Fight

It is truly mind boggling how much of a big deal today’s Floyd Mayweather Manny Pacquiao fight was, globally. And it wasn’t just for its great boxing entertainment, but because of the money involved. The two boxers earned between US$ 10 and US$ 15 million per round this morning.

Why is this match so expensive? Media hype is one, but scarcity, is a big part of the answer. Economics shows that scarcity is a major driver of price and the value of a product. It follows from the simple axiom in economics – fewer the supply, higher the price. Mayweather and Pacquiao have never fought each other and it is very unlikely that they will ever fight again after todays match (Mayweather intends to retire after one more fight in September). Why is boxing so different? Because unlike football or tennis where there is a fairly regular timetable of match-ups, and a schedule of possible games/tournaments throughout the year, boxing matches take place on a far more ad hoc basis. So, scarcity of this game is a big driver of its economic value.

Here are snapshots from some of the most informative articles on the subject, to give you a sense of the economics of today’s match.

Revenue for Mayweather-Pacquiao may reach a record $400 million world-wide. As much as $200 million of that could go to Mr. Mayweather and possibly more than $100 million to Mr. Pacquiao (they agreed to a 60/40 split in deference to the former’s recent pay-per-view track record)

– Wall Street Journal

The Las Vegas Convention and Visitors Authority estimates that the battle, for which boxing fans have been waiting for years, will have an economic impact on the region of more than $150 million, excluding gaming spending. Hotels are expected to be at 95 percent to 99 percent occupancy as fight fans fly in from around the world to watch the match

CBS Money Watch

Tickets for the fight start at US$1,500 – and 1,000 of the best seats have been sold for US$10,000. Most of the money will come from pay-per-view TV sales; viewers are paying US$99.99 to watch it at home in high definition

– Fortune Magazine

The bulk of revenue from the super-fight will be generated from pay per view (PPV) television sales. Forecasts indicate that pay-per-view buys in the United States could reach 3.5 million with a minimum of three million buys projected. Showtime and HBO, two major stakeholders in the fight, will jointly sell PPV with prices pegged at $89.95- also a boxing record. High Definition viewing costs $10 extra. Given projected numbers for PPV buys and set prices, the fight will most certainly also break the record for PPV revenue which stands at $150 million and was set during the 2013 Mayweather v Saul Alvarez fight. A simple projection of 3.5 million PPV buys at $89.95 will see the fight bank over $300 million. […] International interest in the fight is intense as various broadcasters have picked up rights to transmit the fight in different territories. In total, international rights sales are projected to generate a minimum of $35 million in revenues.

 – Ventures Africa

Meanwhile, there is a massive global multiplier effect of this match that isn’t immediately obvious, or indeed reported. For instance, this morning Playtrix Sports Bar in Colombo opened at 7am to show the fight and was charging LKR 3,000 per head for patrons to watch there. Just on cover charge alone the bar could earn over LKR 400,000. This may not be a sanctioned screening, however, because in the US there are strict rules about where the fight can be shown and how revenue can be generated off it. For instance,

Sports-bar chain Buffalo Wild Wings will only screen the Mayweather-Pacquiao fight at a few of its locations, and there will be a US$20 cover. The price for Buffalo Wild Wings to screen Saturday’s fight at just one of its locations is approximately $5,100, reports Bloomberg. It would have cost a total of $6 million to air the fight at all 1,080 B-Dubs locations across the U.S.

 Who are these people charging absurd prices for bar owners to screen the fight, exactly? The Guardian refers to them as the “Pay Per-View Cops.” And although they aren’t actual cops, they sure do act like the po po. “The PPV cops will attempt to find bars showing the fight without having paid licensing fees,” reports The Guardian. “If they help promoters nail establishments that have not paid, the companies say they can make hundreds or even thousands of dollars.” PPV cops are paid by the number of illegal locations they are able to find, which gives them a whole lot of incentive to bust bars screening the fight without paying the fee. One Lake Elsinore, CA bar shut down after paying a $23,000 fine for illegally showing a previous Mayweather fight.

– First We Feast

Aside from all the global multiplers of this match, the biggest gainers are the two boxers –Mayweather and Pacquiao earned roughly US$ 4.9 million and US$ 3.3 million every minute that they spent in the ring this morning. I can’t help but wonder whether the scale of the money involved for just one night’s match isn’t rather ludicrous.

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