Legal Analysis: The Heavyweight Battle of Fighters v UFC
by Bryanna Fissori
Anyone who spends any significant amount of time around Mixed Martial Arts competitors, eventually will hear one say that he would sell his or her soul for a chance to compete in the UFC (Ultimate Fighting Championship). While that is not yet an expressed requirement it is certainly implied, and after over 20 years of industry dominance, the promotion is finally being hit with an antitrust class action lawsuit.
On Tuesday, December 16 a group of prominent fighters filed an antitrust complaint in the U.S. District Court in San Jose seeking certification to also represent other similarly situated fighters who have been affected by supposed monopolistic business practices of the UFC. The fighters include;
Cung Lee: Current UFC fighter who has recently been attempting to be released from the promotion following controversy with a drug testing incident earlier in the year.
Jon Fitch: Former UFC fighter who was released in 2008 after refusing to sign a lifetime contract for the use of his name and likeness by THQ for the UFC Undisputed game. He currently fights for World Series of Fighting.
Nate Quarry: Retired UFC fighter, “The Ultimate Fighter” reality show alumni and co-host of MMA Uncensored Live on Spike TV.
The Plaintiffs also reserve the right to add additional fighters to the class action.
“We are currently being approached by an number of UFC fighters,” said Ben Brown, attorney for the Plaintiffs. “We don’t need to have additional fighters to maintain the class action, but we are making decisions on a case by case basis. You may see additional complaints filled over the next couple of weeks.”
The general contention of the complaint is that the UFC is an illegal monopoly and monopsony power under federal antitrust law. The difference between a monopoly and an a monopsony is that a monopoly is generally a market condition that exists when there is only one producer of a good or service in a particular industry and consumers have no other option but to use that producer. A monopsony is when there are many sellers of a good or service, but only a single buyer.
The plaintiffs also assert that the UFC maintains an anticompetitive scheme to acquire and maintain monopoly and monopsony power and that this power causes injuries to members in the class action.
In 2012 the Federal Trade Commission (FTC) officially closed their investigation of the UFC, though the investigation can be re-opened if information warrants such action.
Brown previously worked for the Department of Justice which is closely tied to the FTC. In response to questions over whether the complaint could spark an investigation Brown feels that is unlikely.
“Bottom line is there is not that strong of a correlation between private and government investigations,” he says.
One does not generally impact the other, so we don’t expect it to have much relevance. The reasons for an FTC investigation are usually not public. We don’t know what was looked at or why so it is not likely to have any legal significance.”
The complaint requests treble damages and injunctive relief under the Sherman Act, 15 U.S.C § 2. The Act states, “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.”
The language of the complaint document is filled with examples of the UFC boasting its dominance in the industry such as a statement from a 2010 interview with UFC President Dana White in which white stated, “There was a time when it [competition in the MMA industry] was neck-and-neck. That time is over. There were times when we were in dogfights, but everybody needs to just conceded and realize we’re the [expletive] NFL. Period. End of story.”
The reference to being the NFL stems from the heavily controversial acquisition of a number of promotions by the UFC. These include Pride, the IFL, WEC, WFA and Strikeforce. The company also has an agreement with the all-female promotion, Invicta, Legacy Fighting Championship and Titan Fighting. According to the complaint, this leaves only a handful of promotions to chase after the MMA giant, and they are generally considered by the UFC to be the “minor leagues.”
Bellator Fighting Championship is generally considered the second largest promotion after the UFC. The Complaint states that in November of last year Dana White said of Bellator, “I feel sorry for the kids that fight there. I do. I truly feel sorry for the kids that have to be stuck that s**thole.”
Anticompetitive Scheme Affects Fighters
According to the complaint, “As a result of the anticompetitive scheme herein, the UFC has foreclosed competition and gained, maintained, and enhanced its position as the dominant promoter of MMA and one of the most powerful organizations in professional sports. The UFC now generated over half a billion dollars in annual revenues and has profit margins higher than all or nearly all other major professional sports.
This anticompetitive scheme, which has afforded the UFC dominance in the Relevant Markets, allowed it to exploit the MMA Fighters on whose backs the business rests. All UFC Fighters are paid a mere fraction of what they would make in a competitive market. Rather than earning paydays comparable to boxers, a sport with many natural parallels, Elite Professional MMA Fighters go substantially undercompensated despite the punishing-and popular-nature of their profession.”
Ancillary Rights Agreement
It is difficult to completely understand how broad the UFC’s Exclusive Promotional and Ancillary Rights Agreement grant of rights extends. Encompassing nearly every aspect of the competitor’s identity, it allows the UFC complete control of rights which also includes sublicensing them to others. It provides the UFC with exclusivity throughout the world, and it lasts eternally. According to the language of the Rights Agreement, even termination of the contract does not allow for the fighter to re-obtain his persona.
According to the agreement, “The termination or expiration of either or both of the Promotional Agreements shall not affect or terminate the grant of the Merchandise Rights or any of the general or specific provisions of this Agreement, which shall survive any such expiration or termination.”
Given the magnitude of this forfeiture of control it would be easy to question why an agent or attorney of a fighter would allow for the inclusion of this agreement in their clients contract. The contract is non-negotiable per the UFC, and is structured to allow fighters to sign with full acceptance or walk away and hope for better luck elsewhere.
Jon Fitch Ancillary Rights Debacle
In 2009 THQ, the developer and publisher of the video game UFC Undisputed 2009, which features the likenesses of 80 actual UFC fighters, grossed over $6.4 million in profit according to THQ’s 10-K tax form and sold over 1,000,000 copies in the first month alone. Zuffa, LLC currently has a contract with THQ for the game which extends through 2018. According to the agreement, UFC fighters receive no royalties or licensing fees from being featured in the game.
In 2008, UFC competitor Jon Fitch refused to sign over lifetime rights to use his image in video games and DVDs as stipulated in the contract and he was immediately cut by the UFC. Fitch had just lost to competitor Georges St. Pierre, therefore the UFC could legally terminate him pursuant to the terms of his contract, though it was understood that the loss was not the real reason for his termination. In November 10, 2008 interview with Yahoo! Sports, Fitch stated, “We tried to negotiate five-or-10-year deals with them, but it wasn’t good enough. It was all or nothing. He wanted our lifetime. He wanted our souls forever.” The “he” that Fitch references in his statement is UFC President Dana White, who handles all fighter contracts.
Fitch eventually relented, as it was his only choice if he wished to continue fighting at the sports peak professional level and in his next fight earned $90,000 for his win over Paulo Thiago at UFC 100. Professional Fighters Josh Koscheck and Cain Velasquez were also nearly exiled from the UFC for the same reason, before also submitting to the terms of the Rights Agreement.
Jon Fitch was already an established name in MMA at the time of his controversy over the Rights Agreement, but for those making their UFC debut on the untelevised undercard, a single loss may put that fighter out of the promotion. If that happens, the competitor has essentially sold his or her lifetime merchandising rights for somewhere in the neighborhood of $3,000 to $5,000.
Along with the “Ancillary Rights Clause,” fighter are also subject to the “Exclusivity Clause,” “Champion’s Clause,” “First Right to Offer,” “Promotion Clause,” Sponsorship and Endorsement Clause,” “Retirement Clause,” and “Right to Match” Clauses.
It is no secret that MMA fighters are paid significantly less than other professional athletes. The highest paid athletes on the “Forbes 100-highest paid athlete list,” are boxers Floyd Mayweather Jr. and Manny Pacquiao. Each of these athletes earn upwards of $40 million for one single bout before pay per view profits are added into the equation. Mayweather has reported as high as $90 million for a single bout. In 2013 Forbes noted Georges St. Pierre as the UFC’s highest paid fighter, with a total income of $12 million in a 12-month period.
The class action complaint states, “. . . due to the anticompetitive scheme alleged herein, the UFC has been able to suppress Elite Professional MMA Fighter’s compensation to a very low percentage of the revenues generated from bouts. On information and belief, UFC Fighters are paid approximately 10-17% of total UFC revenues generated from bouts. As alleged further below, all UFC Fighters – from the highest paid to the lowest-have had their compensation artificially reduced due to the anticompetitive scheme challenged in this Complaint.”
For reference, the complaint also informs that sports such as football, baseball and hockey generally allow their athletes more than 50% of the league revenue.
How the UFC World Domination Scheme Works
The basic premise to ruling the MMA world is easy and has been surprisingly accomplishable for the UFC. Their superpower has been their deep pockets and creative business strategy in securing the best of everything that the fight world has to offer, including fighters, venues, networks, sponsors and more. This has made the promotion easily identifiable to the masses and the ultimate goal of virtually all professional MMA fighters regardless of the other promotions that may be jockeying for attention.
According to the Complaint, “To achieve Elite status in the MMA Industry, Professional MMA Fighters must register wins in widely-viewed MMA events that build public notoriety, reputation, fan base and earnings potential. Without big-ticket MMA cards with Elite Professional MMA Fighters, MMA Promoters are unable to generate sufficient public demand to lock down sponsors and venues large enough revenues to be able to offer sufficient bout purses that would enable them to attract Elite Professional MMA Fighters. The UFC, knowing this, has engaged in a scheme to deny its actual or potential rival MMA Promoters (and any potential future rivals) the access to inputs necessary to promote successful MMA events (e.g., Elite Professional MMA Fighters, major sponsors, key venues.)”
The plaintiffs are requesting money damages from Zuffa, LLC (the UFC). According to the Complaint, “ . . . these damages represent the additional compensation Plaintiffs and other member of the Bout Class would have received for their Elite Professional MMA Fighter services absent the anticompetitive scheme alleged herein. For the Identity Class, these damages represent the additional compensation Plaintiffs and other members of the Identity Class would have received for the exploitation of their Identities in the absence of the violations alleged.”
In for the Long Haul
With the complaint having been served the waiting game is now underway.
“The ball is now in the court of the UFC to dismiss or answer,” said Brown.
It is most likely that the UFC will file to dismiss the complaint. There will then be a host of paperwork to assert the validity of the case before going into discovery.
“It is unlikely that we will get to trail within two years,” said Brown. “But it is also unlikely to take a decade. Probably somewhere in between and hopefully closer to the two year mark, but you never can say.”
The legal team representing the fighters is gearing up for a fight of their own, but do not appear to be intimidated. “Our law firm is known in the industry for taking on giants,” said Brown. “We sue fortune 500 companies.”
This is going to be a heavyweight match up you won’t want to miss.