At a fan expo for UFC 100, the chairman and CEO of UFC, Lorenzo Fertitta made a few comments about UFC Undisputed 2009 and responded to a question about Electronic Arts’s imminent foray into the MMA space. Here is what he said in response to the question “If a fighter signs with EA Sports, will they be banned from the UFC?”:

“There is no such thing as banned, but this is something that does get under my skin and Dana’s skin because when we had the opportunity to go out and build a video game who do you think the first people we called was? EA Sports… We sat in the room with them and I would have cut a worse deal just to be with EA Sports. I wanted them so bad. They looked at them and they told us they didn’t think MMA was a sport. This was three years ago. They said the UFC was irrelevant and that we were wasting their time. So we went down the street and did a deal with THQ and they thought MMA was a sport. So we stick with the guys who stick with us. Now the UFC video game has been a massive success with three million copies sold. And guess what EA wants to do? They want to do an MMA game now… If you are young fighter coming up, it just makes sense to stay under the umbrella of UFC companies, sponsors and marketing to ensure yourself a cut of the action for the rest of your life.”

You can find the entire keynote address and Q&A here.

As we argued in our original post on THQI, the company is realistically the only way to play the explosive growth in Mixed Martial Arts (MMA) and in particular the Ultimate Fighting Championship (UFC) in the public equity markets. Here are a few key takeaways from Mr. Fertitta’s comments:

First, street estimates for THQI still remain too low. It’s not clear whether Mr. Fertitta was talking about “sell-in” or “sell-through” when he stated that UFC Undisputed 2009 had already sold 3 million units. Our guess is he’s talking about sell-in. Our checks with retailers suggest there is no sizeable inventory build in the channel, so we would expect sell-through to keep up with sell-in for the foreseeable future. Consensus revenue and EPS estimates for THQI for Fy10 stand at $829.5 million and $0.08, which appear to be way too low. We think it’s more than likely now that UFC Undisputed sales could approach 4.5-5.0 million units this year. THQI set their initial guidance based on sales of $800-$825 million. We think our FY10 revenue estimate of $950 million appears more and more achievable given the strong sales results for UFC Undisputed and solid sell through for Red Faction: Guerilla thus far.

Second, Electronic Arts will have a very difficult time making a successful foray into the MMA genre. Clearly, based on the comments from Mr. Fertitta, the management of UFC (Zuffa Entertainment) feel that they have been snubbed by EA Sports. It appears they will do everything in their power to ensure that EA’s initial video game venture in MMA in 2010 does not go well. UFC is THE brand in MMA and management is focused on preventing Electronic Arts from succeeding. This should allay investor concerns considerably about the impact of EA’s entry into the MMA genre. It appears THQI is well positioned to generate sizeable profits from their license with UFC for years to come.

Taking a step back, based on our FY10 revenue estimate for THQI, the stock still trades at a meager 0.5x revenue. We think the company will generate more than $70 million in free cash flow this year. A 10% yield would imply a stock price of $10 for THQI shares by year end, that’s 40% upside from friday’s close. At 1.0x revenue, THQI would trade at $14/share, or a double from here.

As always, please act accordingly….

Disclaimer: The author of this post owns shares of THQI, positions can change at anytime without notice.