An Overview and Analysis of the UFC Anti Trust Lawsuit

Posted: December 16, 2014 in Uncategorized

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.

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Comments
  1. D Mack says:

    What if the judge, upon Zuffa’s response, dismisses a number of the claims.

    For example, the SF purchase is mentioned several times as being forced by the UFC’s anti-competitive practices, yet the details of the SF purchase, both publicly known and covered by the DOJ investigation, don’t match the complaint.

    SF lost CBS with the Nashville show, 3 boring fights and a brawl. Silicon Valley Sports Entertainment, owners of the San Jose Sharks and other sports properties, as a result, wanted out of MMA and that forced Coker to look for a buyer.

    According to Coker and numerous others involved at the time, Zuffa’s was the only serious offer and he took it.

    And that’s just one of the points raised by the suit that doesn’t seem to fit the historical record. In fact, a fair number seem to be rather revisionist.

    It seems to me a lot of the allegations would be quite easily rebutted.

    What are your thoughts, Erik?

  2. EMagraken says:

    Thanks for your comment. It is a very safe bet that Zuffa will review all the factual allegations, to borrow a phrase from the plaintiff lawyers, on a ‘granular’ basis and point out any perceived flaws.

  3. D Mack says:

    Oh, I had no doubt they would. I mean, I’m not a lawyer, but I stayed at a Holiday Inn Express last night and if I’m able to spot a number of seeming inaccuracies, surely to Betsy, they’d see it.

    My question, if the judge does dismiss some of the allegations, allowing for altering the complaint for other claims, is it possible this thing doesnt hit discovery if it ends up more hyperbole than fact?

    I’m not anti fighter or a Zuffa fan boy and the hand writing is on the wall with some sort of trade association/labour organization, but what am I missing because this doesn’t seem an overly strong case.

  4. EMagraken says:

    Allegations in pleadings are often fluid and amendments are permissible. The more factual allegations Zuffa can dispute the better chance they have in defeating this claim. Zuffa will undoubtedly try to derail this before entering the discovery phase of litigation with record disclosure and other obligations. That is when facts are no longer advanced ‘on information and belief’, instead the real facts come to light.

  5. Matt says:

    Great blog, enjoyed reading this article. I’m a life long fight fan and have literally been watching mma since UFC 1.

    Not sure how it plays out and I’m conflicted about it. One the one hand I think the UFC should pay the fighters a greater share if the live gate and ppv revenues, the other side of me says the lawsuit should be tossed because they invested many millions in the company, with no guarantee of making a profit and for a long time they didn’t and if they went under no one would cry for them. Plus, Pride, EliteXC, et al. ran themselves into the ground, own their own by not being consistent, especially Pride.

    I think in the end the scales of justice should tip in favor of the UFC, without them mma wouldn’t be where it is today. Not that they are saints but they have done more for mma than any organization. I don’t like some if the things they do but having been around boxing my whole life, I know that being the best doesn’t make you the most money necessarily, fight game is about Q rating, example my fav boxer was Pernell Whitaker, great fighter on level with De La Hoya, but he could never sell a ppv. Like I said, great analysis! Thanks

  6. EMagraken says:

    Thanks Matt, appreciate the feedback. Cheers!

  7. D Mack says:

    Forgive me. I neglected to express my gratitude for the article, blog and responses in a timely manner. I genuflect in your direction.

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