Written by Luke Paterson
Edited by Antony Fitzsimmons
29 May 2020
Reading time: 7 minutes
Since nobody is getting a boxing fix in lockdown, and there are constant reminder of fights that have sadly been delayed till later in the year, such as Usyk vs Chisora and Dubois vs Joyce, let’s talk about boxing!
Source: Getty images | Antony Joshua regains the unified heavyweight championship |
Boxing, rather strangely, is related to economics in various ways. Most economists would generally agree lots of money and people is the concoction required for economics to function, or at least I’m telling myself that because I want to talk about boxing.
Although practically carried out drunk, I’ll never forget my first professional boxing fight in 2018 when Antony Joshua took on Alexander Povetkin at Wembley. The booking system, as for many concerts and other events, was a demonstration of economics in action. The event organisers, Matchroom Boxing, made a broad range of tickets, varying dramatically in price, available to purchase on third party websites. In doing so, the boxing promoter is targeting different groups of consumers as they have a different willingness to pay. In other words, if a boxing fan like me, you’ll probably be hoaxed into paying a higher price for a better seat.
Author’s graphics | Source: Photo taken by Author at Wembley Stadium 22/09/18 |
Profitability and income inequality
Boxing is somewhat strange because, unlike some other sports, it’s a sole event centred around two people. The event may have undercards (smaller fights beforehand), but the majority of people in attendance are only interested in the main fight.
Why is it that boxing matches are some of the most profitable sporting events? Well, boxing is different from other sports; take the English Premier League where 20 teams play each other, twice, over a season spanning three quarters of the year. For boxing, victory depends on one match only and the ability of the competitors to perform on a given night (unless you of course believe in parallel universes). This is partly why there is a huge interest in boxing and, subsequently, a ridiculous amount of money involved. Most boxing fights last 47 minutes, or 12 rounds, which, for major events, can generate hundreds of millions of dollars.
This interest in boxing comes at the reward of those involved; however, this is reserved for those at the elite level who receive 6, 7, or even 8 figure sums depending on those involved. In comparison, the average professional boxer makes a salary of roughly £30,000.
In recent years, there has been a slight change to the absurdly unequal income distribution in the boxing system. Matchroom, with large financial backers, has been able to offer boxers more generous salaries which has caused a lot of talented boxers to switch promoters. Additionally, huge strides have been made in female boxing with stars like British Gold Medallist Nicola Adams and Irish boxer Katie Taylor who, in many ways, are reducing the gender inequality in boxing.
Source: Sportsfile | Katie Taylor wins WBO super-lightweight title |
Deals and pricing
In boxing, there are multiple organisations (WBC, WBA, etc) which have their own ranking systems. In doing so, each sanctioning body issues a belt to the dominant fighter.
Assume there are two professional boxers, one the champion (dominant fighter) and the other a challenger. Each has their own promoters who cooperate to reach an agreement on the terms of the fight. Each boxer is paid a purse or prize money – this is received regardless of the result – which is agreed by themselves, their promoter and the opposition promotor (note, both fighters could be promoted by the same promoter). A mandatory defence is where a champion is obligated, by the sanctioning body, to fight the challenger for the belt they hold. The benefit of this system is, if both parties cannot reach an agreement, the fight can be ordered on purse bids. Similar to the economic concept, sealed-bid auctions, purse bids enable any promotor who bids the highest to organise the fight. Crucially, the auction is anonymous and extended to include promoters who aren’t involved in the management of the two fighters.
On the other hand, if we assume the fighters are not in a mandatory position, then it becomes significantly more complicated to organise the fight. A well publicised example of this was the unification fight between Joshua and Wilder who negotiated for a long period of time, albeit to no avail. This is referred to as a voluntary defence; neither fighter is obligated to fight, as in the case of Joshua and Wilder who were, at that moment in time, champions in their own right. Roadblocks like this occur in boxing because the most accomplished/popular fighter (A-side) effectively dictates the terms of the fight which can be hard for the lesser party to agree on. Everything, including the location, TV networks, share of the money and even the type ring fabric used, is more-than-likely determined by the A-side!
A boxing event is, in essence, a monopoly as there is a lack of competition (there’s only one Tyson Fury!) Additionally, each elite fighter has a network deal which limits their broadcasting options to just one (for example, Sky Sports, DAZN or ESPN).This gives TV networks, who pay the right to broadcast, a monopoly power over pricing and thus the opportunity to maximise profits by being the only legal entity to broadcast the event. Boxing pay-per-views can vary in cost depending on who’s fighting and the country you live in. In the US, to watch Wilder-Fury I you had to fork out $74.99 compared to £19.95 (approx. $25.50 in 2018) in the UK. Note, if substantial, there are occasions where a fight may be available to view on multiple networks which reduces the monopoly power.
Source: Getty images | Wilder vs Fury 2
Boxing fights are sold through the idea of “hype” bubbles. I made the hype bit up, but it holds the same concept as an asset or housing bubble. I’m probably right in saying you’re aware of the dot-com bubble crash that occurred in the early 2000s, or the housing market crash in 2007/08- it’s the same idea. When someone is doing something to make lots of money, it’s likely another will follow suit in order to do the same which causes the price to rise. Generally, the bubble will continue to grow as more people follow suit until the bubble bursts and the price rapidly plummets. Take Logan Paul vs KSI; when both Youtubers initially announced that they were fighting (or re-matching), the hype bubble slowly built as more and more people began talking about the event on social media platforms or in the mainstream media. This is why at press conferences fighters like Tyson Fury dress up as batman or get shoved across the stage like Anthony Joshua did. Yes, there’s bad blood sometimes but boxers know deep down it helps to sell the fight by growing the bubble. Even when something crosses the line, like when Deontay Wilder said he wanted a “body on his record”, although bad press, in the fighting business the phrase any press is good press is definitely true! However, eventually the bubble bursts, the boxing event happens, and people begin to move on to something new – they are no longer interested; however, the boxing industry has made an absolute fortune and both fighters are walking away with heavy wallets.
Source: Al Bello/Getty images | Mayweather vs Pacquiao |
So far, I have essentially explained how boxing fights make money and how they’re sold, but how is the purse split? Take the largest PPV boxing event of all time: Mayweather vs Pacquiao. The PPV price in the US was $100 for HD or $80 for SD. Once other revenue streams through sponsorships, advertising and merchandise are included the fight generated around $500 million. Now, since at the time Mayweather was the “A-side”, which meant he was the bigger name, he got the majority of the 60-40 percent split. However, boxers are still subject to income tax and they still have managers (20-25%), promoters (20-25%), trainers (15%) and cut men (2%) all to pay. Mayweather may have won the fight by a unanimous points decision, but we can all agree the true winner of that night was the US Government!
There’s always new PPV stars coming up in boxing. When Mohammed Ali retired, commentators said we are never going to see this again, but then the same was true when Sugar Ray Lennon, Mike Tyson and Floyd Mayweather retired. Boxing has a habit of creating superstars and, with the magnitude of money involved, it doesn’t look like it’s done yet.
I hope you enjoyed this. I did brush over some topics quite lightly, but it is something that I genuinely enjoyed – the economics of sports is interesting in general. I would happily write more on football, tennis or Formula One, if you are interested. All sports are somewhat unique in their own ways. Just for clarity, I briefly mentioned the following economic concepts: price discrimination, income & gender inequality, purse bids (sealed-bid Auctions), monopolies and asset bubbles. However, something that I didn’t cover which is equally as interesting is the incentive structures in boxing!
The Economics of Sports
Sound Economics Blog