On Tuesday, Dec. 16, a group consisting of three current and former UFC fighters announced a multi-million-dollar class-action lawsuit accusing the UFC of “illegally maintaining monopoly and monopsony power by systematically eliminating competition from rival promoters, artificially suppressing fighters’ earnings from bouts and merchandising and marketing activities through restrictive contracting and other exclusionary practices.”

“The lawsuit alleges that the UFC has engaged in an illegal scheme to eliminate competition from rival MMA promoters by systematically preventing rivals from gaining access to ingredients critical to successful MMA promotions, including by imposing extreme restrictions on UFC fighters’ ability to fight for rivals during and after their tenure with the UFC,” said plaintiffs’ co-counsel Michael Dell’Angelo, of Berger & Montague, P.C. “The UFC also takes the rights to fighters’ names and likenesses in perpetuity. As a result of the UFC’s scheme, we allege that UFC fighters are paid a fraction of what they would earn in a competitive marketplace.”

The action, known as Cung Le, et al. v. Zuffa, LLC, d/b/a Ultimate Fighting Championship and UFC, was filed on Dec. 16 in the U.S. District Court for the Northern District of California in San Jose. The plaintiffs, who consist of Cung Le, Jon Fitch and Nathan Quarry, seek treble damages and injunctive orders under Section 2 of the Sherman Antitrust Act. Le is currently under contract to the UFC and fought Michael Bisping in Macau earlier this year, but was unlikely to fight for the promotion again even before this suit was filed. Both Fitch and Quarry are former UFC stars. Fitch is under contract to the World Series of Fighting. Quarry, meanwhile, is retired.

Former UFC welterweight champion Carlos Newton also attended the press conference announcing the lawsuit.

“The UFC is the fastest growing monopoly in the world, and I’m here to fix that and address that,” said Newton, who is not a plaintiff, but a supporter of the suit.

The plaintiffs are represented by antitrust litigation firms Cohen Milstein Sellers and Toll PLLC, Berger & Montague, P.C., Joseph Saveri Law Firm, Inc. and Warner Angle Hallam Jackson & Formanek PLC.

The suit comes a little more than two weeks after the UFC announced that Reebok would be the sole sponsor of UFC fighters, and that beginning on July 6, 2015, UFC fighters would no longer be allowed to be sponsored by other companies on UFC broadcasts.

“This lawsuit is about fundamental fairness,” said an emotional Robert Maysey at the press conference announcing the lawsuit. Maysey is an attorney from Arizona who is a chief architect of the lawsuit and has worked in the past for fighter’s rights as part of the Mixed Martial Arts Fighters Association. “The antitrust laws of the United States were designed to prevent a firm from dominating a market, artificially stifling competition, and hoarding super-competitive profits for themselves, and that’s exactly what happened in this market.”

A Matter of Definitions

The lawsuit contains legal verbiage that might be typical for an antitrust suit, but might also be unclear to people without a legal education. Let’s try to clarify.

Most people know generally what the terms antitrust and monopoly mean. But to be clear, antitrust refers to the “prohibited trade, marketplace or merchant activities as defined in a relevant anti-trust or such other restraint of trade statute.” The statute that defines antitrust for the lawsuit is the Sherman Antitrust Act, passed by Congress in 1890. The Sherman Antitrust Act is a statute that imposes standards on the practice of competition law. The goal of the act is to maintain fairness and transparency in the marketplace. Section 2 of the Act prevents every person from monopolizing or attempting to monopolize any part of trade or commerce in the United States.

The suit is divided into two separate parts. The suit is alleging that the UFC has monopoly power in the relevant output market and monopsony power in the relevant input market.

Most people know what a monopoly is. To be clear, a monopoly is a “commercial advantage enjoyed by only one or a select few companies in which only those companies can trade in a certain area.”

There are two elements for the offense of a monopoly under Section 2 of the Sherman Act. First is the possession of a monopoly in the relevant market. Second is “the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”

The definition of a monopsony is less well known. A monopsony is defined as “market conditions in which there exists only one buyer for a commodity or service.”

“Monopsony is the mirror reflection of monopoly except that in a monopsonistic market there exists only one buyer,” wrote Facey and Assaf in their text, Competition and Antitrust Laws.

The suit is alleging that the UFC has illegally acquired and maintained dominance in both the relevant output and input markets. The relevant output market refers to the promotion of elite professional MMA events. The relevant input market refers to the acquisition of elite professional MMA fighters.

It is unclear what relief the plaintiffs would receive if the case was found their favor. They are asking for treble damages and injunctive relief. Treble damages simply refer to the court awarding three times the amount of actual damages determined by a jury. The point of treble damages is to encourage people to sue for violations harmful to society.

The plaintiffs are also asking for injunctive relief. The suit asks for the court to order “such equitable relief as is necessary to correct for the anticompetitive market effects caused by the unlawful conduct of Defendant.”

What that means is anyone’s guess. When the attorneys for the plaintiffs were questioned about injunctive relief at their press conference, they were unable to give a concrete answer and said that the lawsuit will likely take years to unfold. The goal of the suit, though, is clearly to change the way that business is conducted in the mixed martial arts industry.

The Relevant Output Market

The suit argues that as part of an anticompetitive scheme to dominate the marketplace, the UFC has “acquired, driven out of business, foreclosed the entry of, and/or substantially impaired the competitiveness of multiple actual and potential MMA promotion rivals.” The suit alleges the UFC’s anticompetitive scheme included blocking other promoters’ access to the sport’s biggest stars, most important venues and valuable sponsorships.

The suit goes on to say that the only remaining promoters of MMA are fringe competitors, or act as minor leagues for the UFC by developing talent for the UFC without directly competing against the UFC for market share.

The Relevant Input Market

The suit argues that UFC’s domination of the relevant output market is in conjunction with the company’s domination of the relevant input market. The suit alleges that such domination of both markets has substantially and artificially suppressed the compensation of UFC fighters for both bouts as well as the expropriation and commercial exploitation of the likenesses and identities of these fighters.

The suit refers to two different classes of plaintiffs. Fitch and Le are listed as “Bout Class Plaintiffs” and represent themselves and MMA fighters who have fought in bouts in the UFC during the class period. The class period refers to the period from Dec. 16, 2010, until the end of what the suit refers to as the UFC’s illicit scheme.

Quarry, on the other hand, is listed as an “Identity Class Plaintiff,” which the suit proposes is a class of fighters “whose identities were exploited or expropriated for use by the UFC, including in UFC Licensed Merchandise and/or UFC Promotional Materials”.

Class Action

The suit is being brought as a class action. The suit states that the reason it is being brought forth as a class action is because “the number of members of the Identity Class is so numerous and geographically dispersed that joinder of all members is impracticable.”

The suit goes on to claim that “the Identity Class Plaintiffs’ claims are typical of those of the Identity Class they seek to represent. The Identity Class Plaintiffs, like all other members of the Identity Class, have been injured by the UFC’s illegally obtained monopoly and monopsony power, resulting in Plaintiffs’ suppressed earnings from the UFC’s exploitation of their Identities.”

The suit also claims that the “plaintiffs allege here that all of the UFC’s contracts with Fighters — and the exclusionary provisions therein — taken together form part of the UFC’s anticompetitive scheme to impair actual or potential rivals and enhance its monopoly power in the Relevant Output Market and monopsony power in the Relevant Input Market. Cumulatively, the exclusionary contractual provisions deprive the UFC’s would-be rivals of all or virtually all of the critical input necessary to compete in the MMA Industry, that is, Elite Professional MMA Fighter services.”

In other words, the plaintiffs believe that they fairly represent the hundreds of fighters who have competed in the UFC during the class period. Also, it is the combination of all of these fighter contracts, and not just each contract considered individually, that prevents promotional competitors from entering the MMA marketplace and helps the UFC maintain its dominance in the relevant output market.

UFC Buying Out the Competition

One of the main focal points of the suit is that the UFC has achieved monopoly and monopsony power over the relevant output and input markets by buying out its competition and then using its dominant market position to prevent legitimate competition from entering the market. The suit claims that the UFC’s rivals “were forced to sell to the UFC because they found it impossible to compete profitably due to the UFC’s anticompetitive scheme.”

The suit goes through the history of UFC’s market competition. The suit claims that EliteXC, Affliction Entertainment and the International Fight League “had been put out of business by the UFC’s anticompetitive conduct.”

The suit claims that the UFC “forced Affliction, a niche apparel provider, to exit the MMA promotion business by raising its costs and blocking Affliction from continuing to sponsor any UFC Fighters.”

The suit also implies that the UFC shuttered Pride, reprinting a tweet from UFC President Dana White in 2012 where White responded to a fan saying that “pride is dead dummy! I killed em!!!”

The suit also claims that the UFC forced “[HDNet Fights] to shut down and, instead, [HDNet owner Mark Cuban] become a bondholder in Zuffa.” The suit claims that the UFC accomplished this by its “persistent refusal to co-promote, and its blocking of the ability of Elite Professional MMA Fighters to self-promote, even after the terms of their contracts had expired, [which] prevented Cuban’s promotion company from promoting potentially lucrative fights, including a proposed mega fight between Randy Couture and Russian superstar Fedor Emelianenko.”

Regarding Strikeforce, the suit claims that the UFC “purposely staged UFC events on the same nights as Strikeforce events to prevent Strikeforce from gaining adequate ticket sales, television viewers or public notoriety for its events.” The suit alleges that “the UFC counter-programmed against Strikeforce not because it was profitable in the short-run, but rather because it was a means of using the UFC’s dominance in the Relevant Markets to prevent Strikeforce from successfully promoting MMA events and thereby gaining adequate economies of scale or scope.”

The suit also claims that “the UFC used its market power to pressure sponsors of Strikeforce’s MMA fighters to withdraw their sponsorships by threatening to ban them from sponsoring UFC Fighters or otherwise appearing in UFC broadcasts.”

There are problems with the claims being made by the suit in regards to the UFC forcing its competition out of business. As Dave Meltzer notes at MMAFighting.com, “A key aspect of the suit is that the competition for top fighters ceased when a number of organizations, including Pride, Affliction and Strikeforce were purchased by UFC. But in all three cases, the purchase was because the promotions were looking to get out of the business. Pride and Affliction were about to cease existence anyway. Strikeforce was losing money and its parent company wanted to divest itself of its MMA brand, and Zuffa made the best offer.”

The suit doesn’t explain how the UFC allegedly put Strikeforce, EliteXC, Affliction and the IFL out of business. The suit simply refers generally to what the plaintiffs claim is an anticompetitive scheme put together by the UFC and claim that this scheme is what eliminated the UFC’s competition in the market.

The suit claims that aspects of the UFC’s anticompetitive scheme included blocking access to top talent, sponsors and venues, plus counterprogramming on television. All of these competitors had star fighters of their own, particularly Strikeforce and EliteXC, so it is difficult to argue that the UFC blocked access to talent. The UFC certainly blocked access to its own talent, but the same can be said in reverse for Strikeforce or EliteXC, which certainly did not allow their contracted fighters to compete in the UFC.

The UFC banning Affliction as a sponsor because the company ran a rival promotion is less defensible. So is blocking access to major venues, particularly along the Las Vegas strip. But there is a difference between the UFC engaging in anticompetitive practices compared to those anticompetitive practices being the reason UFC’s competition went out of business. Affliction didn’t go out of business because the UFC blocked it from sponsoring UFC fighters, and Strikeforce didn’t go out of business because the UFC counterprogrammed against it on television. The UFC may have engaged in anticompetitive practices with regards to its competition, but even if that is the case it is difficult to argue that those anticompetitive practices had as much effect on the UFC’s competition as the lawsuit claims.

The implication that the UFC drove Pride out of business is particularly ahistorical. The suit doesn’t exactly say the UFC put Pride out of business, but implies as much by quoting Dana White on Twitter in reference to White killing Pride.

White did not kill Pride. Pride went out of business because of a yakuza scandal, losing national television in Japan, and failing to create new stars when its top native fighters could no longer compete at a high level. Pride likely would have gone out of business in the exact same way even if White was never born. Zuffa just happened to be in the right place at the right time to purchase Pride’s intellectual property and video library when the collapse happened.

It’s actually somewhat ironic that the plaintiffs are arguing for higher wages for UFC fighters. It’s not that UFC fighters don’t deserve higher wages. Yet, it is well documented in the case of the IFL, for instance, that one of the key factors that drove the promotion out of business was overspending on talent.

Furthermore, the suit claims that “during the Class Period, no would-be rival MMA Promoter has staged a profitable PPV event featuring Professional MMA Fighters.” This may be true, but it is a strong claim to make when no one has access to actual pay-per-view revenues except for the promotions that stage pay-per-views. For instance, Bellator held its first pay-per-view earlier this year. Was it profitable? Nobody knows except for Bellator. This isn’t public information and to pass a claim that no MMA promoter has staged a profitable pay-per-view other than the UFC since Zuffa purchased Strikeforce isn’t something the plaintiffs can prove.

It also misses the point. Bellator’s business model, for instance, isn’t based on pay-per-view revenue. Bellator is owned by Viacom, the parent company of Spike, the channel that broadcasts Bellator. The goal of Bellator is to draw television ratings in order to sell ad time. The bigger the ratings, the more ad revenue the promotion receives.

With this business model, is Bellator profitable? Only Bellator knows. And if Bellator isn’t profitable now, does it have a reasonable chance of being profitable in the future? Viacom seems to think so, considering how much money it is clearly sinking into the Bellator franchise. Thus, for the suit to claim that no MMA promotion has held a profitable pay-per-view since the demise of Strikeforce may be factually inaccurate and is misleading anyway.

The claim that the UFC’s alleged anticompetitive business practices drove its competition out of business is probably the weakest part of the suit. It seems to be the case that the reason the UFC has thrived and its rival promotions have died is due to Zuffa’s business acumen relative to the lack of business acumen in UFC’s competitors.

Bellator and the UFC’s Current Market Competition

The suit claims that after Zuffa purchased Strikeforce in 2011, any remaining MMA promotions functioned as minor leagues for the UFC and that the UFC subsequently dominated both the relevant input and output markets.

The suit mentions a number of MMA promotions by name, including the Resurrection Fighting Alliance, Titan FC, Legacy FC and Invicta FC. The suit states that all of these promotions include a Zuffa-out clause in their contracts with fighters, which allows fighters to sign with the UFC if they receive an offer.

“’Rival’ promoters survive and attract Professional MMA Fighters by serving as a minor league training ground for the UFC and guaranteeing their release to the UFC — and only the UFC — should the Professional MMA Fighter achieve success and earn enough notoriety to elevate them to elite status, and thus potentially obtain an offer from the UFC,” claim the plaintiffs.

The plaintiffs include Bellator MMA as one of the current minor league promotions. They argue that Bellator is viewed by both the UFC and the MMA industry in general “as a minor league, a training ground for future UFC Fighters, or as a place for former UFC Fighters to compete after they have been released by the UFC.”

“Bellator athletes lack significant public notoriety, in part, because it is a ‘minor league,’ and in part because the UFC refuses to co-promote with any of Bellator’s fighters regardless of talent or merit, leaving Bellator unable to promote MMA events of relative significance,” claims the lawsuit. “Bellator’s bout purses, gate revenues, attendance figures, merchandise sales, television licensing fees and ad rates are minimal compared to those obtained by the UFC.”

The suit gives an example of the UFC attempting to counterprogram against Bellator in similar fashion to how the UFC counterprogrammed against Strikeforce. “Bellator held a PPV event on September 5, 2014, at the Mohegan Sun in Uncasville, Connecticut [note: it was not a PPV event, but actually a live event on Spike TV]. In response, as part of the exclusionary scheme alleged herein, the UFC held ‘UFC Fight Night 50’ at Foxwoods Resort Casino in Ledyard, Connecticut, on the same night, just ten miles away from Bellator’s event.”

The problem with the logic here is that when the UFC counterprogrammed against Bellator on Sept. 5, Bellator’s television ratings were actually above expectations. The UFC’s counterprogramming had minimal effect on the drawing power of Bellator. That UFC ran a show so close to Bellator’s venue was obviously a strategic move by the UFC. Whether it was competitive or anticompetitive can be debated. But Bellator’s business model is based on television ratings more so than ticket sales, and UFC’s counterprogramming Bellator on Sept. 5 had little impact on Bellator’s ratings.

The suit also leaves out Bellator’s success on Nov. 15 with its Spike TV special, headlined by Tito Ortiz and Stephan Bonnar, going against UFC 180, which aired prelims on Fox Sports 1 and its main card on pay-per-view. The show ended up being the highest rated Bellator show in company history.

With Bellator’s recent success, it is difficult to argue that the UFC has a monopoly. When going head-to-head with the UFC on television, Bellator can at least compete, or even defeat, the UFC in television ratings. Ad rates based on television ratings are Bellator’s main source of revenue.

Yet, even if the UFC isn’t a monopoly and Bellator is legitimate competition, that doesn’t mean the UFC isn’t engaged in anticompetitive business practices with the purpose of injuring Bellator. The plaintiff’s arguments regarding the current state of the input market in MMA are interesting here. The UFC has over 500 fighters currently under contract. If the top development promotions (such as RFA, Legacy, Invicta, etc.) have exclusive agreements with fighters that prevent them from competing with Bellator, that’s one thing. But if nearly all of the top development promotions have exclusive agreements with fighters and these promotions allow fighters to leave for the UFC and not Bellator, then that severely limits Bellator’s market for fighters.

For instance, if a fighter has a three-fight contract with the RFA that prevents him from fighting anywhere the RFA doesn’t want him to fight and that contract includes a Zuffa-out clause, then that fighter is de facto under contract to the UFC. The RFA isn’t going to allow a fighter to compete in Bellator if it damages the RFA’s relationship with the UFC. The only way a fighter contracted with the RFA could compete in Bellator would be if the RFA contract were non-exclusive, so that the fighter could compete anywhere he wanted.

The UFC’s control over the developmental leagues of MMA makes it difficult for Bellator to sign new fighters. Signing new fighters is important for the future of the promotion because obviously the current fighters aren’t going to last forever. So, if the UFC has over 500 fighters currently under contract (significantly more than the UFC needs, and obviously done on purpose to block fighters from leaving) and de facto controls the top talent in the minor leagues, Bellator is unable to get access to the top current talent, nor can the promotion get access to the top talent of the future.

What this means is that the UFC may not currently have a monopoly over the output market, but it may have a monopsony over the current input market. How the difference between monopoly and monopsony plays out during the lawsuit will be interesting.

Restrictive Agreements in Contracts of UFC Fighters

The suit claims that the UFC’s dominance of the relevant input and output markets has allowed the company to include restrictive agreements in its fighter contracts. The suit alleges that, due to the UFC’s market dominance, “Elite Professional MMA Fighters have little choice but to accept the UFC’s exclusionary terms if they want to try to earn a living as Elite Professional MMA Fighters.”

The suit gives a long and comprehensive list of examples of restrictive agreements used in various UFC fighter contracts. These include:

Exclusivity clause: which prohibits UFC fighters from competing for rival promotions unless approved by the UFC and includes various termination and extension clauses that can be triggered at the sole discretion of the UFC, extending the exclusivity provisions indefinitely.

Champion’s clause: which extends the contract as long as a fighter is a UFC champion, preventing the fighter from soliciting bids from rival promotions even after the end of the fighter’s original UFC contract term. The suit claims that this clause denies UFC fighters free agency.

Right-to-first-offer and right-to-match clauses: which grants the UFC the right to match the financial terms and conditions of any offer made to a UFC fighter for an MMA bout even after the fighter’s UFC contract has expired. The suit claims that because UFC contracts typically force fighters to divest their ancillary rights in regards to the sale of their likenesses and identities, offers from rival promotions would not include compensation for rights associated with fighters’ likenesses and identities.

Ancillary rights clause: which, according to the lawsuit, “grants the UFC exclusive and perpetual worldwide personality and Identity rights not only of the UFC Fighter, but of ‘all persons associated with’ the athlete, in any medium, including merchandising, video games and broadcasts, and for all other commercial purposes, thus preventing MMA Fighters from financially benefiting from the reputations that they built during their MMA careers even after death, and locking UFC Fighters out of revenues generated by the exploitation of their Identities, including after the term of the contract.” The suit claims this clause prevents a fighter from promoting himself for profit even after his UFC career ends. A separate clause also prevents the fighter from promoting himself as a “UFC fighter” or using the term UFC without written permission from the company. This prevents former UFC champions from advertising themselves as such for a rival promotion.

Promotion clause: requires fighters assist in the promotion of UFC bouts as required by the company for no additional compensation. However, no obligation exists for the UFC to promote the fighter. The suit also claims that the UFC punishes fighters who do not do what they say when it comes to promotions. They use the example of Jon Jones refusing to take a short-notice fight to compete at UFC 151 and being publicly denigrated for it by Dana White.

Retirement clause: which the suit claims gives the UFC the rights to a retired fighter in perpetuity.

Tolling provisions: extends the term of a fighter’s UFC contract if he is injured or unwilling to fight, which prevents a fighter from sitting out the term of his UFC contract and signing with a rival promotion.

Sponsorship and endorsement clause: which grants the UFC sole discretion over approvals for sponsorships and endorsements. This means the UFC can block sponsors that it doesn’t want, for reasons such as boycotting sponsors for supporting non-UFC fighters, or the sponsor’s refusal to pay the UFC’s sponsorship tax, or the sponsor’s involvement in ancillary business that competes with the UFC.

Unilateral demotion in pay provision: the suit alleges that “in or about January 2014, [the UFC] added provisions — such as, e.g., the ‘unilateral demotion-in-pay’ provision which resets a Fighter’s pay to lower purse levels if a given UFC Fighter loses a bout, and additional restrictions on sponsorship rights — that further enhanced the UFC’s control over its Fighters.”

Some of these covenants are appalling. The covenants for unilateral demotion in pay, the tolling provisions, the ancillary rights clause, the promotion clause and the retirement clause all seem like something a fighter wouldn’t want to sign if given a better choice. The ancillary rights clause seems particularly demeaning since it features a fighter signing his likeness away in perpetuity.

Some of the other covenants aren’t as bad as they appear. The exclusivity clause seems typical for the entertainment or sports industry. Same with the champion’s clause, as well as the right-to-first-offer clause. Having exclusive access to fighters is really the only way the UFC can generate revenue. If fighters could compete for rival promotions anytime they wanted, it would fracture the MMA industry and destroy the UFC’s profit margin. If the UFC invested money into promoting a fighter as champion and the champ leaves for a better offer elsewhere, there would no point in having championship titles.

The various termination and extension clauses that can be triggered at the sole discretion of the UFC is a different issue than simple exclusivity, though. This is similar to the tolling provision in that it gives the UFC full control over when a fighter’s contract ends.

The restrictive covenants of UFC fighter contracts are one of the strongest aspects of this suit, even if some of these covenants appear more unfair compared to others. This is an area where it seems that the plaintiffs have a legitimate grievance that ought to be figured out through the legal process. What the end result will be is anyone’s guess.

UFC’s Retaliatory Practices Against Fighters and Sponsors

The lawsuit claims that the UFC uses its market dominance to retaliate against fighters and sponsors who act against the UFC’s wishes. The suit claims the possibility of retaliation by the UFC has caused fighters to reject contract offers from rival promotions and has caused sponsors to reject sponsoring with fighters that the UFC doesn’t want them to sponsor.

The suit uses the example of Jon Fitch being fired from the UFC for a day for refusing to sign his likeness over for a UFC video game being developed by THQ. Fitch was to receive no additional compensation for his likeness being in the game. Dana White also threatened fighters with being permanently banned from the UFC if a fighter chose to sign with EA Sports, which at the time was developing a rival game to the UFC’s THQ game.

The suit also claims that the UFC has contracted more fighters than it needs in order to block other promotions from having access to quality fighters. For example, as of January 2013, the UFC staged an average of 1.66 MMA bouts per UFC Fighter per year, well under the three bouts per year the UFC claims it is obligated to make available to UFC Fighters,” claims the suit. “The UFC has approximately 500 Elite Professional MMA Fighters under contract, but only has plans for 45 events in 2015; each UFC event typically has 11 bouts. Each bout has slots for two UFC Fighters or a total of 990 slots across the planned 45 events — far below the 1,500 slots necessary to provide each UFC Fighter under contract with three bouts per year.”

Regarding sponsors, the suit claims that the UFC implemented a sponsorship tax in June 2009 that requires sponsors to pay a fee to the UFC for the fight to sponsor a contracted UFC fighter and prevents sponsors from sponsoring fighters from rival promotions. The tax ranges from $50,000 to $250,000. The suit claims that the tax was “implemented to enable the UFC to obtain lucrative licensing fees (‘tax’) and event sponsorships for itself as well as to move into and dominate MMA Industry segments unrelated to the promotion of live events.”

The suit also claims that the UFC controls the contracts its fighters enter into regarding sponsorship, identity and likeness rights. The suit uses the example of Quinton “Rampage” Jackson attempting to develop an action figure with a company called Round 5, which was blocked by the UFC. Another example by the suit was Jackson’s attempt to sign a sponsorship agreement with Reebok, which was also blocked by the UFC.

The suit further alleges that the UFC coerces sponsors from sponsoring non-UFC fighters. The lawsuit gives the example of Tapout attempting to sponsor Fedor Emelianenko. The suit quotes Vadim Finkelstein, Emelianenko’s manager, that the UFC told Tapout to “dump [Emelianenko] or lose access to UFC events.”

Comparison of UFC’s Business Practices with Boxing and Pro Wrestling

The suit claims that UFC fighters are paid about 10 to 17 percent of total UFC revenues generated from bouts. In comparison with boxing, the suit alleges that “famed boxing promoter Bob Arum, for example, pays his fighters approximately 80% of the proceeds generated by a Card.”

The suit goes on to say that “comparing the fighter compensation between boxing and the UFC, Arum accurately described the disparity between the UFC and boxing as follows: ‘Because of the monopoly that the UFC has, they [the UFC] pay[s] their fighters maybe 20% of the proceeds that come in on a UFC fight.’”

“Unlike boxing, where promoters frequently advance funds to cover the costs of medical tests, training camps, coaches, food and nutrition, sparring partners, and living expenses, UFC Fighters bear their own costs,” argues the plaintiffs. “UFC Fighters typically pay out approximately 15 to 25% of their MMA earnings to cover the costs of gym memberships and management fees and must pay the costs of any necessary sparring partners brought into the athlete’s training camp in preparation for a bout.”

The suit also argues that MMA fighters are unable to transition to other sports such as boxing, kickboxing, judo, Brazilian Jiu-Jitsu, Muay Thai or karate, or to pro-wrestling organizations like the WWE, because they are not reasonable alternatives for MMA fighters.

The figures of 10 to 17 percent of UFC revenue going to fighters is probably going to be strongly debated by the UFC. Different sources have that figure at wildly different places, anywhere from 10 to 50 percent or higher. And that percentage is difficult to ascertain because only the UFC knows the true numbers. As a comparison, the WWE is believed to pay out 13 to 15 percent of its revenue to talent.

For instance, of the state athletic commissions that report fighter salary, those commissions only include what a fighter got paid for a particular fighter. That frequently is only a part of the pay a fighter receives from the UFC. A 2011 lawsuit between Alistair Overem and Knock Out Investments, Overeem’s former manager, revealed a marked difference between Overeem’s salary listed by state athletic commissions and what Overeem was actually paid by the UFC at the time.

When Overeem fought Brock Lesnar in Las Vegas in December 2011, Overeem’s pay was listed by the Nevada State Athletic Commission as $264,285.71 plus another $121,428.57 for winning. But Overeem’s lawsuit with Knock Out Investments revealed that Overeem received a $1 million signing bonus with the UFC, paid out over Overeem’s first three fights. Overeem also received $2 per pay-per-view buy after Zuffa company revenue for the pay-per-view topped $500,000. That is the equivalent of about 23,000 buys. That show drew 535,000 buys. That would have put Overeem’s take from the pay-per-view over $1 million. His total pay for the Lesnar fight, not including sponsorship money or any other unknown bonuses, would have been at least $1.7 million and probably higher.

Of course, Overeem was at the time one of the company’s biggest stars and he was matched against Lesnar, one of the biggest stars in UFC history. The stars in the UFC are going to be paid well because their star power increases revenue for the UFC. That is an obvious bargaining chip for star fighters. But for most of the 500 or so fighters under contract to the UFC, they don’t have that bargaining chip and have to accept whatever the UFC is willing to pay.

In January 2012, Lorenzo Fertitta appeared on ESPN’s Outside the Lines to discuss fighter pay. Fertitta claimed that from 2005 through the end of 2011 the UFC paid out $250 million in fighter salaries. He also claimed UFC paid close to 50 percent of revenues to the fighters. Of course, $250 million from 2005 through 2011 is not 50 percent of the UFC’s revenues during that period of time.

In a report from this past October, Moody’s, a bond rating agency, claimed that the UFC’s total revenue for the company’s fiscal year from Oct. 1, 2012, to Sept. 30, 2013, was $483 million. 2013 wasn’t a particularly strong year for UFC revenues relative to years in the past. But using that number as a rough guide and ignoring inflation, from the beginning of 2006 through the end of 2011, that would equal $2.898 billion in revenue. $250 million of $2.898 billion is 8.62 percent.

But the key point here isn’t so much what fighters make, even though the guys at the bottom of the ladder probably feel they could be paid a lot more. The key point is that all these numbers are just a guessing game by anyone except the UFC, since the UFC is the only entity with complete access to the numbers. If the suit is successful with anything, it could be that it brings transparency to fighter pay. The sport and its athletes would greatly benefit from the totality of fighter pay, including all signing and so-called locker-room bonuses, being made public as a legal requirement for doing business as an MMA promotion.

Comparison of UFC’s Business Practices with Professional Sports Leagues

The suit claims that athletes in the big four sports — football, baseball, basketball, and hockey — earn more than 50 percent of league revenue. But that unlike the NFL, for example, the UFC has total market domination due to what the suit alleges as its scheme to monopolize and monopsonize the relevant markets. The NFL has multiple teams owned by different entities bidding on the contracts of elite athletes, whereas the UFC is a singular entity.

FTC Investigation into the UFC

The FTC did indeed look into the business practices of the UFC, with its investigation concluding in 2012. The FTC conducted a non-public investigation into the UFC beginning in 2011 after Zuffa acquired Explosion Entertainment, the former parent company of Strikeforce.

The FTC investigation looked into whether the UFC violated Section 5 of the Federal Trade Commission Act or Section 7 of the Clayton Act. Section 5 of the FTC Act deals with deceptive or unfair business practices, and Section 7 of the Clayton Act deals with monopolies.

“Upon further review of this matter, it now appears that no further action is warranted by the Commission at this time. Accordingly, the investigation has been closed,” wrote FTC Secretary Donald S. Clark. “This action is not to be construed as a determination that a violation may not have occurred, just as the pendency of an investigation should not be construed as a determination that a violation has occurred. The Commission reserves the right to take such further action as the public interest may require.”

Potential Responses by the UFC

The UFC released a statement after the press conference, stating that “the UFC is aware of the action filed today but has not been served, nor has it had the opportunity to review the document. The UFC will vigorously defend itself and its business practices.”

Michael McCann of Sports Illustrated outlined a number of possible defenses by the UFC. McCann argues that the UFC could claim that fighters voluntarily sign their contracts and are not forced to compete as MMA athletes and that these contracts include substantial economic benefits; that the UFC’s market dominance is due to superior business acumen; that changes to the UFC’s business model would damage the entirety of the MMA industry; and, that the UFC was investigated by the Federal Trade Commission in 2011 and 2012 and that the FTC found no unlawful conduct by the UFC.

McCann also notes that one of the most interesting aspects of the lawsuit will be discovery. If the UFC chooses not to try to dismiss the case, or a motion for dismissal is overruled, the suit will enter into discovery. Discovery is when both sides make available relevant documents and evidence related to the lawsuit. The discovery process could lead to some fascinating information revealed by the UFC in regards to the way it conducts business.

More transparency is needed in the MMA industry. It is really impossible for fighters to negotiate equitable contracts when the matter of fair market value is a guessing game because one side of the table does not know who is getting paid what and when. To borrow an old adage, information is power, and the UFC is the only entity with complete knowledge of what all of its fighters get paid. That gives the company great power at the bargaining table. Even if this lawsuit fails in its goal to bring redress to the plaintiffs and drastically change the way in which the UFC does business, if it helps bring transparency to the negotiating process between fighters and promotions, then it may in fact be a small success.

About The Author

Jeremy Wall
Staff Writer

Jeremy Wall has been covering combat sports since 2002. He is the author of UFC’s Ultimate Warriors: The Top 10, released in 2005. From 2004 through 2006 he was the lead reporter for MaxFighting. After stepping away from MMA for a few years, he returned in 2013, launching the combat sports industry blog MMAChronicle.com. Jeremy holds an Honors Bachelor of Arts from Western University and attended law school at Dalhousie University. He also holds the Series 7, Series 63, and Canadian Securities Course investment designations.

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