A brand veteran bets big on the rough-and-tumble cage sport
Financier James "Jamie" Salter has prospered over the years snapping up brands, including well-known names like Linens 'n Things and Polaroid. Now he hopes to do the same selling cage-fighting T-shirts and "An Expression of Combat" school folders. Salter, 47, has agreed to buy three brands that cater to fans of Ultimate Fighting Championship, the mixed martial arts league that attracts millions of viewers each year to pay-per-view bouts that take place in a cage called the Octagon.
Salter's Toronto-based Authentic Brands Group is betting the three labels—TapouT, Silver Star Casting, and Hitman Fight Gear—are ripe for expansion as mixed martial arts continues to gain mainstream acceptance. Retailers J.C. Penney (JCP), Kohl's (KSS), and Macy's (M) already sell some of the goods, and the new owners and founders are looking to add sales both at home and in overseas markets such as Brazil. "These are some of the most exciting brands I've seen in years," Salter says. "The popularity of mixed martial arts and the UFC is soaring around the world. The last time I saw a sport with this much potential was 20 years ago with snowboarding."
Grand Terrace (Calif.)-based TapouT, the largest of the three brands, was founded in 1997 by three mixed martial arts fighters. (A tap out is a surrender sign.) It sells a range of merchandise, from $24 logo T-shirts to a $950 bed with its signature cage design. TapouT generated almost $200 million in sales last year, according to President Dan "Punkass" Caldwell. He says he can't count how many suitors he turned away before Salter came calling. "We love this brand so much," Caldwell says. "I have it tattooed on the back of my neck." (He does, literally.) Caldwell, 39, says he agreed to the deal in part because Salter knows the clothing industry and welcomes the founders' involvement.
Ultimate fighting, which combines Far Eastern martial arts styles with elements of boxing, wrestling, and the Brazilian form of jujitsu, was once considered so violent that in 1998 Arizona Senator John McCain tried to ban what he called "human cockfighting." Since then the UFC has added some restrictions, including "no knees to the head of a downed opponent" and "no groin or throat strikes." Says Tim Pogue, Authentic Brands' chief marketing officer: "People are starting to respect these athletes as athletes, not just street brawlers."
Amid signs of mixed martial arts' growing cachet, apparel maker Under Armour (UA) last year signed a multiyear endorsement deal with UFC welterweight champ Georges St-Pierre. In January, Flash Entertainment, a unit of Mubadala Development, Abu Dhabi's investment arm, announced it had bought a 10 percent stake in Las Vegas-based Zuffa, which owns the UFC and World Extreme Cagefighting. Behind all the interest: a growing fan base. Mixed martial arts fans are younger and more affluent than the general population, according to researcher Scarborough Sports Marketing. More than 75 percent of fans, it says, are male.
Salter's history with extreme sports dates back to Ride Snowboards, which he co-founded; it went public in 1994. Later, at Toronto private equity shop Hilco Consumer Capital, he helped oversee the purchase of Sharper Image and brands associated with the estate of Bob Marley. Earlier this year, Salter left Hilco and started Authentic Brands with backing from Leonard Green & Partners, the investment firm with stakes in Sports Authority and Whole Foods Market (WFMI). The mixed martial arts acquisitions are the company's first. Salter wouldn't say how much he's paying for the brands.
Because the UFC has "done such an extraordinary job of building their brand, retailers—and others—will want a piece of the action, especially as global opportunities increase," says David Carter, principal at the Sports Business Group consulting firm. Last year TapouT introduced a midpriced line, TapouT MPS, to expand beyond department store sales. It's also weighing a discount line that could sell at mass chains such as Wal-Mart Stores (WMT), Caldwell says. The Hitman brand sells at Sears Holdings' (SHLD) Kmart stores. Salter predicts he'll double revenues in the next two years.
The founders had already branched out, with plans for more TapouT gyms, an energy drink in Canada, and a unit that makes movies about the sport. They're selling combat cages similar to those used in UFC bouts to fitness centers and others, including a Saudi prince who flew the founders to the Middle East earlier this year, Caldwell says.
He'll remain TapoutT's president, while co-founder Timm "SkySkrape" Katz will stay on as creative director. They'll be joined at Authentic Brands by Luke Burrett, who started rival apparel maker Silver Star Casting in 1993 after detailing cars in Southern California. Burrett, who runs the company with his wife, Charis, a former Playboy model, met Salter at a UFC party earlier this year. "We've been fierce competitors with TapouT, and now that we're under the same roof we'll be unstoppable," Burrett says.
Ira Mayer, publisher of The Licensing Letter, doesn't think recent controversy around the safety of the sport will hurt the brands' sales. "Look what's going on with football," he says. "They're finally acknowledging these guys are getting concussions. Is that going to stop anybody from carrying the [gridiron] merchandise? No."
The bottom line: Brand buyout veteran Jamie Salter is betting on future growth of clothing brands tied to the ultimate fighting league.