Lawsuit: Plaintiffs claim UFC became 'major leagues' of MMA through 'restrictive contracts' and 'buying out rivals'
Written by John S. Nash
Last Friday the Plaintiffs in the Zuffa class action antitrust lawsuit filed their Opposition to UFC's Motion for Summary Judgement. The Defense's (Zuffa) motion was requesting the court to rule that the other party has no case, claiming no reasonable jury could return a verdict for the former fighters. This was the plaintiffs last chance to make their case before the judge either issues a ruling or orders a hearing. Zuffa will get their chance when they file in Support in November.
Having read the 47 page Opposition as well as some of the attached exhibits (of the 140 exhibits, roughly half were sealed and many of the others had large portions that were redacted) here are a few things that caught my attention.
The Plaintiffs have sharpened their complaint
Viewers of "Show Money" will know Paul Gift is fond of saying that what is important in an antitrust case is to "tell your story." As anyone who has every had to pitch a script or story idea knows, how you tell it is often much more important than the actual content of the story. Well, the Plaintiffs have fine tuned their story since the original complaint was filed. Here is their current pitch:
“Extensive evidence satisfies each of the three elements. The record shows: (1) Zuffa had monopoly and monopsony power as the dominant MMA promoter-that is, Zuffa was the only promoter that could sell “major league” live MMA events broadcast in North America and the only promoter that could hire MMA fighters (“Fighters”) to compete in “major league” MMA events; (2) Zuffa willfully acquired and maintained monopoly and monopsony power through exclusionary conduct, including locking Fighters into long-term, exclusive contracts (the “Exclusive Contracts”), coercing Fighters to enter and extend those Exclusive Contracts, and acquiring other MMA promoters that threatened the UFC’s dominance (together, the “Scheme”); and (3) Zuffa used its monopsony power to suppress
the compensation it paid its Fighters below competitive levels (and its monopoly power to decrease the supply and inflate the prices of MMA events ).”
If you’ve been following the case you’ll have noticed that while the Plaintiff’s basic claim against Zuffa has remained pretty much the same — that Zuffa attained a monopoly over MMA which gave them monopsony power with regards to fighter pay — what is different now is a more narrowly defined “Scheme.” Gone is the “Carlos Newton,” as Paul Gift referred to it, a wider reaching Scheme that involved preventing competitors from accessing key sponsors, TV networks and venues. In its place is a far easier to follow story, one where the UFC’s anticompetitive scheme is based upon the retention of top “Marquee” fighters through exclusive contracts, that looks something like this:
Marquess fighters are the principal driver of MMA promoters revenues.
MMA Promoters require a critical mass of marquee fighters in order to compete with Zuffa.
Zuffa’s anticompetitive scheme was designed to lock current and potential top fighters into contracts for the most valuable parts of their careers (thereby denying other promoter the necessary marque fighters.)
Cornering the market on Elite MMA Fighters Marquee Fighters
Mentioned only once in the Opposition is the term “elite professional mma fighters.” Identified in the original complaint as the key input necessary to compete, they have since been replaced with “marquee fighters,” or “headliners” as the Plaintiffs economic expert, Hal Singer, refers to them in his report. Where before there seemed to be plenty of argument as to what an “elite professional mma fighter” was, “headliners” are clearly defined by Singer as a fighter ranked in the top 15 of their weight class. Why were “marquee” or “headliner” fighters so important to Zuffa’s Scheme to monopolize elite level MMA? According to the Plaintiffs:
“In MMA, athletes obtain fame by competing against ranked opponents, ascending the rankings, and vying for titles. By acquiring all potential competitors and signing virtually all top Fighters to Exclusive Contracts, Zuffa left the top Fighters and aspiring top Fighters with nowhere else to go. Lorenzo Fertitta, Zuffa’s former CEO, explained, “When you look at the top 10 in every division, we’ve got every fighter under our umbrella. All the fighters want to be with us because they want to fight the best competition. So from that standpoint . . . the competition isn’t really relevant.””
What is described here is almost identical to what Gift, David Dudley, and I discussed when asking “Is the UFC a Monopoly?” The economic term for this phenomenon is called ‘network effects,’ and as Dudley explained:
“The idea behind network effects is that a particular good or service becomes more valuable with more people using it, either because of economies of scale (larger demand allows production in larger volumes, which may be cheaper) or the growth of complimentary goods.”
So by acquiring more and more top fighters, other top fighters would see it is in their interest to also sign with the UFC, thereby creating a network effect. Network effects can be used as evidence of monopoly power, but of course being a monopoly is also not illegal. What is illegal though is attaining monopoly power or abusing it through anticompetitive behavior. This is exactly what the Plaintiffs claim Zuffa did, mainly by leveraging their market power, locking up a large number of top fighters in exclusive and restrictive contracts, and buying and shuttering rivals.
"No one forced them to sign that contract"
The Plaintiffs claim that Zuffa’s contracts serve as a barrier to enter, restricting Fighter mobility through specific contractual provisions, such as:
The Exclusivity Clause prevents UFC Fighters from appearing for other promoters.
Exclusive Negotiation Clause gives Zuffa the exclusive right to negotiate with the fighter after the “term,” typically for 3 months.
The Right to Match Clause give Zuffa the right to match any offer made to a fighter for a specified time frame after the Exclusive Contract “term” and after any Exclusive Negotiation period.
The Champions Clause gives Zuffa the right to extend the contract of a fighter is the champion of any weight class at the end of the term.
The result was that “the effective term of Zuffa’s Exclusive Contracts was longer than the average Fighter career.” According to the Plaintiffs experts, the average Zuffa Fighters career with Zuffa was 24 moths, while the standard 4-fight contract could be expected to cover the fighter for 30 months.
The Plaintiffs also allege that Zuffa leveraged its market power (AKA monopoly power) to force Fighters to renegotiate before the end of the existing contract’s terms, preventing the Fighters from ever becoming free agents. Amongst the practices they accuse Zuffa of engaging in that prevented Fighters from reaching free agency:
Moving Fighters to unfavorable placement on the fight card for an event or imposing unfavorable match-ups.
Controlling the timing of a bout (i.e., refusing to offer Fighters bouts) for Fighters on the last bout of their contract.
Delaying a Fighter from competing for another promoter through the Right to Match and Exclusive Negotiation clauses.
Depriving Fighters of title opportunities.
(Worth noting that within the last couple years Zuffa has apparently stopped engaging in some of the actions the Plaintiffs call anticompetive. Fighters and managers have informed me that Zuffa has curtailed practices like automatically extending toll provisions past the original contract date, exercising their right to match clause, or freezing contracts on retirement.)
Also of note is that the Plaintiffs apparently had offered an “alternative to Zuffa’s Exclusive Contracts”:
“Contracts that are limited to twelve months, and do not have a right to match, exclusive negotiation rights, or a champion’s clause, and involve no coercion to re-sign could provide Zuffa with equivalent protection against injuries, but without the anticompetitive effects.”
“I Killed PRIDE"
The Plaintiffs spend a great deal of space detailing how the UFC is the “major leagues” and other promoter are either “feeder”, “fringe” or “minor leagues.” In support of this allegation, the Plaintiffs liberally quote Zuffa’s executives, via public statements in interviews and tweets, and via private emails and texts. They also highlight the fact that some promoters that Zuffa claim are competitors “receive substantial revenue from Zuffa” and provide “out clauses” for their Fighters if they are offered a chance to fight in the UFC.
As for those other promoters that could be classified as “major league,” such as Strikeforce and PRIDE, the Plaintiffs argue that part of Zuffa’s Scheme was to buy them out, and then absorb their contracted fighters into the UFC before shutting them down. They allege that Zuffa’s intent was to shutter potential rivals and gain a greater share of marquee fighters.
To support this accusation the Plaintiffs use some of Scott Coker’s deposition where he quotes Lorenzo Fertitta as telling him that “Strikeforce [was] building a great brand, but we feel there should only be one brand, so we would like to buy your company.” Coker also testified that Fertitta stated that his plan was to “close [Strikeforce] down, and we would take all the Fighters and bring them to the UFC.”
An email from outside attorney Thomas Paschall to Frank and Lorenzo Fertitta also allegedly shows that Zuffa’s primary reason for purchasing PRIDE was to suppress the worldwide market. While the excerpt from the email has been redacted, an earlier Court ruling summarized its contents, which “relates Zuffa’s business purpose for the acquisition - to stop others from buying Pride and to acquire Pride to shut the business down and acquire its fighters for the UFC.”
In addition to the email from Thomas Paschall, a large amount of the filing has been redacted. Hilariously, or perhaps more accurately annoyingly, many of these redactions fail because the quoted material is available elsewhere in the filings.
For example, the Opposition to the Motion of Summary Judgement includes the following sentence:
“Silva bragged to White, “[REDACTED]” listing the consensus rankings and showing that Zuffa controlled a high ratio of top-ranked Fighters in each weight class.”
We know that what is redacted is Joe Silva writing “We Own MMA” because that was not redacted in a previously filed expert report.
In another example, Joe Silva is asked to read the last sentence of the first paragraph under “Zuffa business overview” of a memorandum from May 2007 by Deutsche Bank. Thankfully, this memorandum is available to several members of the media, including myself. The redacted sentence should read:
“The UFC and PRIDE are the top two MMA brands in the world by most metrics, and management believes that WEC will be the third by 2008.”
A Monopoly and a Monopsony
According to the Plaintiffs, since this is a monopsony case, they need not demonstrate monopoly power at all - “[M]onopsony power alone suffices for a Section 2 [of the Sherman Act] claim.” Still, they do include it in their allegation, claiming that thanks to the Scheme:
“Zuffa’s resulting monopsony power allowed it to decrease the purchase of Fighter services and suppress Fighter compensation. Zuffa’s monopoly power similarly enabled it to decrease the sale of MMA events and inflate prices to consumers.”
The monopoly charges appear as if they were included to guarantee meeting the consumer welfare standard, which is focused on damages to consumers and not for workers or competitors. Overall though, as Dudley and Gift both pointed out years ago, the UFC’s primary concern is not with a monopoly of the output market but with monopsony concerns of the labor market.
Perhaps the Plaintiffs attorneys read Gift’s statements, because as he presciently stated in that discussion, “The best chance for making a credible argument for the UFC having and abusing monopsony power is in fighter sponsorships.” The Plaintiffs now contend that “Zuffa’s “Sponsorship Tax” Confirms It Suppressed Wages.”
What's Next?
The Defense will get a chance to file in November in Support to Motion for Summary Judgement. After that, there is a long list of subjects waiting for either Judge Boulware to make a ruling on or order a hearing. This includes:
Summary judgement
Partial motion of summary judgement for Nate Quarry
Motion for class certification
Motions to Unseal
Daubert motions to exclude the Plaintiffs experts — Hal Singer, Guy Davis, and Andrew Zimbalist
No date for any of this has been set, so things could start moving fast or we might be stuck in a holding pattern for some time.
*This article originally appeared on Bloody Elbow. It was written by John Nash on Sept. 26, 2018
