Archive for December, 2014

If you’ve ever attended to or listened to a live athletic commission administrative hearing you will note a lot of factual statements are provided without deep scrutiny  (how did those steroids end up in your system?  Uhhh, I think I took some bad supplements..).  We now have a perfect litmus test to see how much deception athletic commissions are prepared to tolerate and it comes courtesy of UFC light heavyweight champion Jon Jones.

Earlier this year Jones was brought before the NSAC to answer for a pre-fight brawl he engaged in with Daniel Cormier while promoting their upcoming UFC light heavyweight championship bout.  Jones admitted to wrongdoing and in asking for leniency in punishment noted that he already faced steep repercussions from the brawl leading the commission to believe he lost his lucrative Nike sponsorship due to this event.  Referring to the Nike sponsorship Jones declared, after being sworn to tell the truth, as follows to the Government commission:

I’ve faced some punishment already.  I’ve lost a very big endorsement of mine.  One of my biggest.

When asked about the value of the lost endorsement Jones confirmed its “my Nike deal”.

Jones’ lawyer, who confirmed at the outset that the purpose of attending the hearing was to ask for leniency, noted as follows as to the value of the lost deal “its over six figures…its pretty damaging if you really consider it“.

Jones now confesses he “worded it wrong“.  In other words, the commission was deceived if they ‘considered’ that Jones lost an ‘over six figure’ Nike sponsorship due to the Cormier brawl. MMA Fighting has the story noting:

When I was in front of the commission, I definitely worded it wrong,” Jones said on a UFC 182 media conference call. “Nike did not drop me because of that fight and I kind of owe an apology to Nike for saying they dropped me because of the fight. They actually didn’t. Nike has been known to support its athletes through much worse things than a brawl in the middle of MGM [Grand]…

“It was already official,” said Jones…”Everybody at headquarters knew. My team knew that I wasn’t gonna do my third year with Nike. And then we got into the brawl.”…

“The truth of the matter is, I did not get dropped by Nike,” Jones said. “It was a mutual thing, something we had discussed months before the actual fight.”

Perhaps most importantly, during the deliberations the Commission noted Jones’s ‘contriteness’ in not suspending him but instead imposing community service as a punishment.

Jones apologized to Nike but its the Commission he should be worried about.  This deception should not be taken lightly as it effects the integrity of their decision making process. NSAC Rule 467.885(3) specifically allows the commission to “suspend or revoke the license of, otherwise discipline” a combatant who “Provided false or misleading information to the Commission or a representative of the Commission“.

Now lets see how this unfolds.

Reasons for judgement were released today by the BC Supreme Court, Vancouver Registry, finding that a fee charging martial arts school is no different than any other business and is required to purchase a business licence.

In today’s case (City of Burnaby v. Gildemeester dba Master Gee’s Black Belt Academy) the Respondent failed to pay its renewal fee from 2010-2014.  When the City asked for these payments to be made the Respondent replied arguing he was not required to purchase a business licence.  The Respondent argued that “he is exercising private rights with other private persons and is not “operating” in the public.  He asserts that a private person need not obtain a business licence to do private activities.“.

The BC Supreme Court disagreed and granted a permanent and mandatory injunction preventing the business from operating in the City of Burnaby unless it obtained a valid licence.

Not quite an earth shattering development, just a quick judicial reminder that there is nothing special about for profit martial arts academies exempting them from the requirements other businesses must comply with

BloodyElbow has provided coverage of the UFC Anti Trust lawsuit that is second to none.  In their ongoing coverage economist Paul Gift, who is experienced as an expert witness in anti trust lawsuits, dissected the claims and provided a unique breakdown.

One point Gift addressed was the fighters challenge to UFC’s exclusivity requirement in their contracts.  He pointed out that contracts generally need to exceed 8 years before courts consider them to be long term and therefore problematic.  He opines that UFC contracts, which may average around three years, may not be met with judicial criticism.  He notes as follows:

The fighters’ strategy has just been clarified. If a credible economic argument is to be made about raising rivals’ costs with exclusive contracts, they must be long term. This is an absolutely essential component to the story. In my experience, exclusive contracts in the range of three years or less are usually viewed as short term. 4-8 years is debatable and 8-10 years or more is generally viewed as long term. This is because contracts don’t expire all at once. They’re generally staggered.

I once worked on a case where a company foreclosed 100 percent of a critical resource from its competitors with exclusive contracts. That foreclosure rate is insane, but the length of the contracts was the critical component. They averaged about five years which meant around 20 percent would expire and become available for free and open competition every year. The defendant won the case partly because the contracts weren’t long enough to put its rivals at a sustainable competitive disadvantage.

In what follows, I’m going to use the Eddie Alvarez contract as a baseline. The term of Alvarez’s contract was the earlier of 40 months or 8 bouts. So the worst-case scenario is a length of 3 years 4 months as long as he’s reasonably active. This puts the plaintiffs in a real bind as they’re going to have a hell of a time showing that 3 years 4 months is long term. The complaint reveals that they likely know this and their strategy will be to downplay the contractual term (“Regardless of the term of the agreement”) and focus on the extension clauses (“thereby effectively extending the exclusivity provisions indefinitely”).

I don’t take anything away from Gift’s expertise and perspective, however, context is always important.  While three years may not be a long time in the labour market generally, in the realm of ‘elite professional MMA’, three years may be a lifetime.

If the Court finds that the average UFC contract length mirrors the average professional athlete’s time in the elite league the exclusive time period will be all the more problematic considering the crux of the Plaintiff’s allegations is that the UFC prevents fighters from enjoying reasonable access to true free agency during their short careers.  If you are following this lawsuit you can expect this topic to be acutely studied.

I have reached out to several people for statistics on the average tenure of a fighter in the UFC in the Zuffa era.  I don’t have an answer but if one is provided to me I will update this article to help add context to the issue of fighter exclusivity in the face of this anti trust lawsuit.

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Update December 30, 2014 – Paul Gift was kind enough to reply to this article and provide the requested statistics.  I encourage anyone following this story to read Paul’s article along with the comments that follow (including John Nash’s comments citing USA v. International Boxing Club of New York which is likely one of the template’s for the Plaintiffs claim).

In any event, here are the statistics showing “the average length of a fighter’s career in major MMA is about 1 ½ years or 3.3 bouts.”

Statistics Average Carrer Length in Elite MMA

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Earlier this week I had the pleasure to appear on The Fight Network’s MMA Meltdown radio with the always entertaining Gabriel Morency.  We covered many of the current legal headlines in MMA including the UFC Anti Trust Class Action lawsuit, the recent Quinton Jackson legal tug of war and the possibility of concussion lawsuits hitting the sport.

You can find the full interview here, with my segment starting at the 19:00 mark.

For those of you visiting for the first time, welcome!  If you are looking for more information on some the topics covered you can click the below links

1. The UFC Anti Trust litigation

2. Safety Studies in MMA

3. Concussion litigation and MMA

Recently the Journal of Athletic Enhancement released a first of its kind study examining the cognitive performance on neuropsychological testing of MMA athletes.

The study, authored by Christopher Heath and Jennifer Callahan, conducted a series of cognitive performance tests on 28 MMA athletes and a control group of 28 non MMA athletes.

The MMA athletes “reported training an average of 2.6 days per week”.   The participants sparred “approximately 109 minutes each week“. 29% of these participants reported previously experiencing a knockout with almost half of the group reporting a previous TKO.  The mean age for the athletes was 28.9 years.

The control athletes were non MMA fighters who “participate in exercise regimens that do not involve repeated head trauma” such as submission wrestling or high intensity interval training.

The study sought to see if the MMA athletes would differ in neuropsycholigical functioning compared to the control group.  No meaningful differences were found with the authors concluding that “the neurocognitive performance of MMA athletes was indistinguishable from control athletes not regularly exposed to repeated head trauma“.

The risk of head trauma in MMA, as with any full contact sport, remains real and studies such as this should not be misinterpreted to suggest that MMA is not without real risks.  The study points out its limitations noting that additional research is warranted particularly focusing on a larger sample and breaking down further factors such as intensity and frequency of sparring.  That said, the study’s conclusion that “participation in the growing sport of MMA by a typical athlete may not pose significant – or at least unique – neuropsychological risk” compared to other contact sports is worth noting by stakeholders studying these issues.

Findings such as this must be tempered by other studies such as the Cleveland Clinic’s ongoing longitudinal “Professional Fighters Brain Health Study” which has released the following initial findings:

  • Across an average of all data collected, there is a relationship between number of fights and decline in the volume of certain areas of the brain
  • Changes in brain volume are not seen until after approximately five years of professional fighting and not all fighters exhibit such changes
  • The number of professional fights and knock outs are correlated with loss of fibers that course across the brain, as well as the connectivity between different areas of the brain as seen on MRI brain imaging. The implications of these findings are currently unknown; only long-term follow-up will determine if they predict neurological decline.

The full article can be found here – Assessment of Cognitive Functioning in Mixed Martial Arts Athletes

Update December 23, 2014 – Yesterday a second lawsuit has now been filed making similar allegations against Zuffa.  The second lawsuit was filed by Luis Vazquez and Dennis Hallman and also seeks class action status.  The Court filing can be found here: Vazquez and Hallman v. Zuffa Complaint

Update December 24, 2014 Today Brandon Vera and Pablo Garza filed a third proposed class action.

Update February 5, 2015 – Today a fourth proposed class action as filed by Mac Danzig and Gabe Ruediger.

Update March 21, 2015Today Kyle Kingsbury and Darren Uyenoyama filed a fifth proposed class action against Zuffa.

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Today Cung Le, Nathan Quarry and Jon Fitch filed a lawsuit against the UFC alleging anti-competitive practices.  The lawsuit was filed in US Federal Court and seeks Class Action status.  I have obtained a copy of the filed Complaint and it can be found here: Le v. Zuffa Anti Trust Class Action Complaint

I’ve reviewed this and here are my initial thoughts –

1. The lawyers involved are perhaps as important as the fighters named.  The team of lawyers include class action and anti-trust lawsuit specialists who have taken on high profile defendants before such as Apple, Google, Intel, Adobe Systems, Pixar, Lucasfilm.  The idea of staring Zuffa down in a drawn out, expensive legal battle will not be a barrier to this legal team. (You can click here to read the Biography of the Plaintiffs and Lawyers involved in the suit)

2.  There are three named Plaintiffs but this list will undoubtedly grow as this litigation continues to receive press.  Whether or not other fighters come forward the claim seeks to be certified as a class action and with the Courts permission will represent two broad classes.  A “Bout” Class which is defined as follows:

All persons who competed in one or more live professional UFC promoted
MMA bouts taking place or broadcast in the United States
during the Class Period. The Bout Class excludes all persons who are not
residents or citizens of the United States unless the UFC paid such
persons for competing in a bout fought in the United States.

and a “Identity” Class which is defined as follows:

Each and every UFC Fighter whose Identity was expropriated or
exploited by the UFC, including in UFC Licensed Merchandise and/or
UFC Promotional Materials, during the Class Period in the United States.

3.  The lawsuit labels the UFC as a monopoly and monopsony of MMA.  The lawsuit is clever and does not claim that the UFC enjoys monopoly and monopsony power over all MMA, rather only over “Elite Professional MMA“.  The lawsuit goes on to acknowledge that there are other players in the industry but only the UFC is “elite” and that they have no competition, either as the buyer of MMA services or the vendor of the MMA product to the public at this level.

4.  The lawsuit paints a damaging picture of the UFC alleging they obtained their market position through a series of anti-competitive practices and have secured approximately 90% of the global share of all MMA revenue.   The lawsuit alleges that fighters are only paid 10-17% of total UFC revenues generated from Bouts.

5.  The alleged anti-competitive practices include

  • artificially reducing compensation for elite professional MMA fighters
  • tying down their roster to long term exclusive contracts with little access to true free agency
  • further tying down their most valued fighters through a “champion’s clause”
  • artificially suppressing open market bidding through “right of first offer” and “right to match” clauses
  • preventing fighters from financially benefiting from their reputations by obtaining Identity Rights in perpetuity
  • imposing promotional obligations on their fighters with no additional compensation
  • obtaining the rights of retired fighters in perpetuity
  • tolling provisions which extend fighter contracts during periods of injury and retirement
  • blocking sponsors from working with fighters through a “sponsorship and endorsement clause”
  • eliminating actual or potential rivals
  • relegating all remaining MMA promoters to ‘minor league’ status
  • adding contractual ‘unilateral demotion in pay’ clauses
  • unfairly threaten, intimidate and retaliate against MMA fighters who work with or for would be rivals
  • Using exclusive contracts with fight venues and sponsors that “impair and foreclose would be rival MMA promoters”

6.  The lawsuit seeks to avoid choice of law and arbitration clauses in Zuffa fighter contracts by arguing that the lawsuit is not seeking to enforce any contractual rights, but rather that the contracts, taken as a whole, “form part of the UFC’s anticompetitive scheme to impair actual or potential rivals” from fairly competing in the industry.

7.  The lawsuit seeks significant damages and further seeks court orders prohibiting the UFC from engaging in further alleged anti competitive practices

The UFC has yet to provide a substantive response to the lawsuit.  When they do you can expect then to argue that

  • they are not a monopoly and point to the higher profile rival promotions such as Bellator, the World Series of Fighting and One FC
  • that fighting is a choice, not a requirement and fighters are free to not sign these contracts
  • that while they are the most prestigious MMA organization, that they gained this position through business acumen and hard work, not anti competitive practices
  • that the FTC investigated alleged anti competitive practices a few years back and closed their investigation without charges

This lawsuit, whether successful or not, will create a prolonged and focused audit of Zuffa’s business practices. As previously discussed, when a sporting organization obtains the market power of the UFC they gain a significant bargaining advantage over the talent.  Eventually this creates a critical inequality in contract rights.  This is a reality and the stronger the UFC’s market position becomes the more important it will be to balance this with collective bargaining rights through some sort of MMA fighters association.

Zuffa wants the UFC to be the NFL of MMA, a quote which is thrown back at them multiple times in the lawsuit.  They can achieve this status and enjoy the benefits that come from market dominance but not without embracing athlete collective bargaining rights that also come at this elite level.  This lawsuit is a powerful accelerant in this direction.

In 2012 the US Federal Trade Commission closed their investigation into the UFC for alleged anti competitive practices.  The investigation ended with the vagueness that only the executive branch of government can give noting “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.“.

In short, as organizations grow, the threat of anti-trust lawsuits are an open ended possibility.

Since the FTC closed their investigation the UFC has continued to consolidate their power as the premier MMA organization in the world.  In the latest demonstration of their influence over the MMA landscape, the UFC announced an exclusive apparel deal with Reebok which impacted fighter sponsorship opportunities and was met with mixed reviews by the MMA community.

The UFC now is rumoured to be on the receiving end of an ‘imminent‘ class action anti trust lawsuit.  Bloody Elbow broke the story reporting as follows:

We have been able to confirm that the suit will be based on accusations that the UFC has violated antitrust laws by abusing their “market power” to intentionally and systematically cripple the free market. Several of the individuals we spoke to compared it to the recent San Jose hi-tech employee and NCAA antitrust cases. The manager of one high profile fighter who wished to remain anonymous has informed Bloody Elbow that the plaintiffs will be seeking damages for potentially hundreds of millions of dollars due to reduced fight purses, video game rights fees, and other sources of income.  The final amount could even be greater, with statutes awarding “treble damages” in antitrust cases.

Few details are publicly known about this rumoured litigation.  What is known is lawsuits such as this are the major force influencing change in major league sports creating a balance between owners and athletes.

With any sports league the market ultimately demands that there be one and only one truly elite league.  Think NHL, NFL, PGA MLB etc.  Yes these leagues are not immune from competition in the broadest sense of the word but in reality these leagues are the unrivaled pinnacle of their respective sports.

When an organization obtains this market position they gain significant bargaining advantage over the talent.

There comes a time of critical inequality in contract rights.  This eventually gets balanced by collective bargaining rights or a powerful athletes association.

This is an eventuality for top level MMA.   Lawsuits like this are usually the triggering events to such change.  Whatever your thoughts are on the UFC and their current position in the market, the reality is the stronger it becomes the more likely a lawsuit like this will succeed in creating greater athlete rights.

This week the UFC announced a 6 year deal designating Reebok as “the exclusive outfitter and apparel provider” for the UFC.

The deal requires Reebok apparel to be worn and prohibits athletes from having “outside sponsor logos on athletic apparel during UFC fight week official events, including fight night, UFC-produced content or other official UFC events.
And individual sponsor banners will no longer be permitted for the walkout or inside the Octagon beginning with the UFC event on July 11, 2015“. In exchange for this fighters are to be compensated based on a formula determined by Zuffa.

Professional fighters had mixed reactions to the announcement.  I’ve reviewed a Zuffa fighter contract to determine if a fighter currently under contract can be forced to comply with this requirement.  The short answer is probably.  Here’s the breakdown.

Zuffa contracts contain standard “entire agreement” provisions meaning that if the contract does not specifically address the above neither side can impose such terms on the other.  The clause reads as follows “This Agreement sets forth and integrates the entire understanding between Fighter and ZUFFA, and supersedes any and all prior or contemporaneous written or oral agreements or representations between the parties with respect to the subject matter hereof…This Agreement may not be altered, amended or discharged, except by a subsequent writing signed by the parties hereto“.

In short this means if the fighter did not agree to wear clothing selected by Zuffa, Zuffa cannot force them to do so.

The next question is does the contact contain such a clause?  Sort of.  The contract reviewed had no clause expressly granting Zuffa the power to dictate an athlete’s apparel, however, the “Fighter Conduct” provision reads as follows:

Fighter agrees that during a Bout, or while training for a Bout, as well as during any Pre-Bout Events or Post Bout Events, neither Fighter or any of his managers, trainers and assistants shall wear any clothing…which conflicts with a ZUFFA sponsor“.

Any non Reebok brand would likely conflict with this exclusive sponsorship.  Arguably a fighter can protest by refusing their share of the Reebok money and wear a no-label brand however even this may run afoul of the above broad language.