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You can stop worrying about Zuffa’s finances right meow

(Pictured: NOT future hobos)

There’s been a lot of talk amongst the masses that the UFC is in peril due to the financial failures of Station Casinos. There seems to be two camps: one that worries Zuffa may have to sell off its assets – which include the Ultimate Fighting Championships and World Extreme Cagefighting – in order to pay off debtors over the failure of their casinos; the other getting Joker-style laughs day by day at the expense of anything negative happening to the ‘evil empire’.

Yahoo Finance listed Station Casinos (owned by the Fertitta family) as one of the fifteen companies that might not survive 2009:

Las Vegas has already been creamed by a biblical real-estate bust, and now it may face the loss of its home-grown gambling joints, too. Station – which runs 15 casinos off the strip that cater to locals – recently failed to make a key interest payment, which is often one of the last steps before a Chapter 11 filing. For once, ” target=”_blank”>the house seems likely to lose.

I don’t mean this as a slight en masse, but lots of MMA fans are young, naïve, or a combination of both. Michael “THE MAN” Rome hit the nail on the head with his assessment of bankruptcy not being like it is in Monopoly. Very fitting metaphor when taking into account how misconstrued the definition of bankruptcy is for many people and how ginormous of a stigma it has. The catastrophic economic failure that’s hit the world upside the head did no favors to the word either. (Also good because of how many board games I play; sometimes I think he’s writing right to me!)

Steve Cofield recently put up an article pointing out the Fertittas were in no financial worry despite the failing gambling chains they own. He left out the explanations why so we’re going to go through it point-by-point to show this is no issue to MMA. Keep in mind I’m a journalism major. Let’s just say “ ” target=”_blank”>I want to go to there” about Wikipedia.

In reality, business bankruptcy is just a smidgen less complex than rocket surgery. This article may get a bit wordy but stay with me; we can try to stop the propagation of misinformation. Just like the books I read, there are seven chapters to bankruptcy. The sob-story bankruptcies you hear about on the afternoon news have nothing to do with what we’re talking about. Those kinds of things are personal bankruptcies, like when Visa sends people to your door for not paying your bill (or so I’ve heard-). Station Casinos is a business and in turn are subject to completely different rules and solutions to their bankruptcy. Like I said, this stuff is complicated enough so we aren’t going to waste time talking about personal bankruptcy.

The Station Casinos went private with their stuff in 2007. Contrary to popular belief, gong private doesn’t mean people can’t buy equity in something, it just means you have to do it through the owners of the company instead of the stock exchange. There are a lot of investors who have big stake (mmm-.steak) in the casinos besides the Fertittas, who only own about 25% collectively in addition to being executives. Those guys with investments – along with the rest of the country – got hit pretty hard when the economy face planted last year, which meant owning a casino in the gambling capital of the world meant jack because it stopped being a license to print money.

Rather than just cutting their losses and shutting everything down, they went the smart route and started preliminary paperwork on filing for a debt restructuring, A.K.A chapter 11 bankruptcy A.K.A strategic bankruptcy as the suits call it. Yup, same thing Washington Mutual and Lehman Brothers just did. Wiki says: “Debt restructuring is a process that allows a private or public to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its operations.” In other words the executives are going to sit down with the other people that have money in the company and renegotiate how much they owe – with promises to be better.

The whole deal gets laid out:

The prepackaged bankruptcy plan is designed to reduce Station’s debt burden and involves buying back $850 million of senior notes and $1.4 billion in subordinated notes at a discount from bondholders. At the time of the announcement, it was assumed that many of Station’s major lenders had already been consulted and were in support of the plan. If approved, the plan would allow the company to continue operating under bankruptcy protection and would require Station Casino executives Frank and Lorenzo Fertitta and private equity partner Colony Capital to contribute $244 million in cash.

There are a lot of legitimate criticisms about filing for chapter 11. Some see it like a trap door that can be used if things get too hairy, partly because it doesn’t require for management to be fired after failing hardcore. In reality there’s nothing wrong with doing something like this. K-Mart did it and they’re doing just fine; any place you can buy a can of soup in one aisle and underwear by the pound in another will always have a place. And so do casinos. There’s a reason they’ve been around so long: the papes get raked in. Casinos feed on people who bow down to their vices and there will never be a short supply of people who gamble. In the 1800’s people like Wild Bill were getting executed because of it. That famous guy even gambled, what’s his name-.oh yeah: Jeebus. Jeebus Cripes. What’s happening right now is a just a lull. In fact, when things start picking up economically I wouldn’t doubt if casinos are the first to start re-profiting.

The Fertittas going “bankrupt” is a complete non-issue to the sport of MMA. If there is one, it’s the Fertittas having spend more time on the cash cow casino chain rather than Zuffa. Colony Capital is helping the brothers pay up some money. Nothing says robbing Peter to pay Paul more than taking a loan out to pay debt. Not quite a Ponzie Scheme but pretty close. Doing so, though, means they can then worry about paying a firm rather than a bunch of their friends; won’t be a problem either since the casinos will be making bank pretty soon anyway.

JUST TO REITERATE, Cofield mentions the Fertittas (and in turn Zuffa) are in no financial danger because of the situation:

It’s also important to note that the “bankrupt” Fertitta Brothers were each listed as billionaires recently by Fortune and along with their sister made a combined $493 million dollars when the company went private last year.

We need to bring out the big guns to explain why. Dave Mustiane of Megadeth ” target=”_blank”>points out that the fact that people who are actually struggling with debtors / creditors / payments don’t make 430,000,000,000 pennies in a year:

“And what do you mean I don’t pay my bills?
Why do you think I’m broke?”

Nothing like a Bay Area drunk when it comes to layman’s terms.