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UFC Evades Question of FTC Investigation, focuses on the “crybabies” of Boxing

Posted on 06/13/2011

By Bryanna Fissori
Legal Analyst

The rumors of a Federal Trade Commission (FTC) investigation of the world’s largest Mixed Martial Arts promoter parent company Zuffa, LLC, are picking up momentum as they jump from the print media circuit into the face of Ultimate Fighting Championship (UFC) President Dana White.

Since Zuffa’s acquisition of the Strikeforce promotion in March, fans and industry professionals have begun to speculate as to whether or not the dominant presence of Zuffa in the MMA industry is sufficient to qualify as a monopoly. A monopoly in itself is not illegal, but the use of monopolistic business practices may constitute antitrust violation. That is an actionable offense.

Following the broadcast of the June 11 event, UFC 131 White was questioned by Ariel Helwani of MMA Fighting regarding comments made by Top Rank Boxing Promoter Bob Arum, Showtime Boxing analyst reporter Al Bernstein and promoter Gary Shaw regarding the antitrust speculations.

White began his rebuttal by referring to Shaw as a moron and an idiot. He then stated that both Arum and Shaw are copying everything that he does and Bernstein is “towing the company line.” White then followed up with asserting that the trio sounds like a bunch of crybabies.

“If you look throughout the history of boxing these guys have been crybabies,” said White. “They have always been crybabies. They are the biggest bunch of babies you’ve ever met. Bob Arum, the guy who said “oh, the Fertita’s (Zuffa majority owners) are idiots. They are losing oodles of money on this thing,” now he’s crying antitrust and he’s copying everything we do? You weren’t smart enough to do it Bob. That’s your fault.”

The Federal Trade Commission is the nation’s consumer protection agency, which collects complaints about companies, business practices, and identity theft under the FTC Act and other laws they enforce or administer. Any individual may file a complaint with the FTC through the Consumer Protection branch. The FTC will not resolve individual consumer complaints. Any complaints regarding antitrust would likely be referred to the Bureau of Competition (BC). They can also be filed directly though that department.

Often the terms “merger” and “acquisition” are used synonymously, though there are differences. A merger typically occurs when two companies decide to come together to create a new company. In the Zuffa/Strikeforce situation a large company purchased a smaller company and they are supposedly remaining separate entities. “Business as usual,” according to White. The confusion comes because often when the takeover is not hostile the larger company will compel the smaller one to announce it as a merger.

The BC has four different divisions that deal specifically with merger issues and one division that reviews pre-merger submissions. Pre-merger notification is required for both mergers and acquisitions under the Hart-Scott-Rodino Antitrust Improvements Act if the companies meet the following criteria:

1. One of the companies has to regularly engage in commerce. This applies to virtually all business, promoters included.

2. One company must have annual net sales of at least $100 million, or the group that has a controlling share of the company’s stock (50% or more) has to have more than $100 million in total assets. According to Yahoo Sport, industry sources estimate that the UFC grossed approximately $411 million in 2010 just in pay-per view sales alone.

3. For the other company, it must have annual net sales of at least $10 million, or the group with the controlling share of the company’s stock must have over $100 million in total assets. According the San Jose Business Journal, prior to the acquisition Strikeforce was estimated to gross $30 million in the 2011 fiscal year. There is no public statement on the purchase price of the company, but most estimates range around $40 million.

4. At least $15 million in assets or securities must be being acquired, or 15% of the voting securities are being acquired so that one company is gaining control of a part of a company or a company it did not previously have control over and that acquired entity’s total assets or net sales are worth at least $25 million. It is generally assumed Strikeforce was worth at least $25 million.

5. There is also a thirty-day waiting period after the pre-merger notification is filed in which the BC reviews to ensure there are no antitrust violations. There is no public information available as to whether or not Zuffa completed this process prior to the purchase. If so, it is unlikely that there would be any contest from the FTC.

The BC also has a division specific to anticompetitive practices enforcement, which is where the issue would likely be taken up within the bureau.

With the lack of information verified at this point, it is possible the Strikeforce acquisition is not the focus nor even a part of the supposed investigation as Zuffa has acquired numerous other promotions in its decade or so of existence in the MMA industry. Other aspects rumored to be under investigation assert “tortuous interference” which deals with the method in which contracts were created and voided given the company’s knowledge of their existence and extent.

The UFC is familiar with this specific cause of action due to a case, which arose in August of 2010 brought by Bellator Fighting Championship. Bellator asserted that “The Ultimate Fighter 12” cast member Johnathan Brookins was still under contract with Bellator when he signed on for the Spike TV show.

The question to the UFC President regarding government investigation was framed as being delivered from the boxing world, though it has verifiably surfaced throughout other industries as well and White openly conceded to such.

“I don’t think it is just boxing people,” said White. “There are a lot of people poking around. Let me tell you what, because this thing has been so successful, there are a lot of people who are come after us and are taking shots at us and the reality is we took something that was absolutely dead and turned it around and turned it into this. It was done by investing a ton of money and the Fertitas actually having the balls to do it and to stay behind this thing when it didn’t look like it was going to turn around.”

White was given the opportunity to directly confirm or deny the existence of an FTC investigation during his post-fight interview and even after the question was repeated he managed to slip the issue focusing on the impact the company has had on the MMA industry, which most will argue is well-deserved, though that’s not what was asked.

“All these people that are taking shots at us and coming after us and doing what they’re doing are the people that were laughing at us 9, 10 years ago you know?” said White. “We’re the best at what we do, we’ve changed the fight business forever, we’ve revolutionized it, and, you know, all these other guys that weren’t smart enough to do it and didn’t see it want to cry about it now.”

Is the FTC included in those taking shots and coming after Zuffa or are we still just talking about boxing?

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