On March 13, Ultimate Fighting Championship settled several lawsuits, including Kung Le v. Zuffa, which was scheduled to go to trial in April. The Kunle plaintiffs had accused the mixed martial arts organization of several anticompetitive practices that led to suppressing fighters’ wages. Stephen F. Ross and his Gurtej Grewal detail the facts of the case and what the settlement means for the industry.
The Ultimate Fighting Championship (UFC) recently settled a series of antitrust lawsuits that accused the mixed martial arts (MMA) organization of monopolizing the industry to the detriment of fighters. This article provides the background to these complaints, specifically Cung Le v. Zuffa, and what the recent settlement means for the industry.
The UFC was launched as a professional mixed martial arts (MMA) organization in 1993 and has revolutionized the combat sports business ever since. Currently, UFC is the world’s largest pay-per-view (PPV) event provider. The brand hosts more than 40 live events annually in famous arenas around the world. UFC programming is broadcast to more than 1.1 billion television households in more than 165 countries and territories through more than 60 global broadcast partners.
The UFC has established itself as the premier MMA fighting organization, as reflected in viewership, revenue, and profits. According to its latest financial report, the company is on track to generate a record $1.3 billion in revenue in 2023, a 13% increase from 2022. But the company’s athletes aren’t seeing an increasing share of its revenue. In fact, the company reduced player costs last year, increasing the player’s total revenue share in 2022 from his 16% to around 13-15%. By comparison, players in other U.S.-based sports leagues (such as National Football League, National Basketball Association, and National Hockey League) receive approximately 50% of their league revenue under collective bargaining agreements, and European ‘s soccer league gives 70% of its revenue to the players.
In December 2014, three former UFC fighters (Kung Lee, Nate Qualley, and Jon Fitch) sued the UFC, claiming the company’s anti-competitive practices made the UFC the only viable option for fighters who wanted to pursue mixed martial arts. It was argued that it became (and remained) a viable option. Career in the profession. Specifically, plaintiffs alleged that the UFC: (a) Used exclusive contracts with specific clauses to retain fighters. (b) used market power in both the input market (purchasing the labor of MMA fighters) and the output market (facilitating live MMA bouts between MMA fighters), effectively making the contracts of fighters permanent; (c) acquire or displace a rival promoter; The effect of the UFC’s actions, the plaintiffs say, was that it established overwhelming market power and was able to pay athletes significantly lower salaries than they would receive for their services in a competitive market.
Essentially, Plaintiffs’ claims boil down to one important, multifaceted inquiry: whether the UFC’s anticompetitive conduct created an illegal monopoly. Monopsony is an economic term that describes a market involving buyers who have sufficient market power to exclude competitors and influence the price paid for a product. It is equivalent to a monopoly that has influence over the selling price of a product. . As a result of a monopoly, only one buyer has the power to set the price they pay for their services, in this case the labor of MMA fighters, and suppliers have no other market for their products, so they sell at a price will be forced to. Price set by the buyer.
To grant class certification and prove violation of exclusivity under Section 2 of the Sherman Act, plaintiffs must demonstrate by a preponderance of the evidence that UFC (1) “possesses a monopoly in the relevant market;” 2) It was necessary to prove that it was “intentional.” “Obtained or maintained exclusive rights through exclusive conduct” and (3) through such conduct “caused a violation of antitrust laws.” Last August, a U.S. district court upheld the plaintiffs’ claims on each issue of the class certification order.
With respect to the first element, the court found that the plaintiffs provided sufficient circumstantial evidence that the UFC maintained dominant power in both input and output markets. The court heard from the plaintiff’s expert witness on this issue (economist Hal J. Singer) that between December 2010 and June 2017, UFC’s share of the relevant input market was between 71 and 99. Hearing testimony about whether the change occurred between 200 and 300%, the court rejected the UFC’s claims to the contrary.
To reach his conclusion, Singer uses a database of MMA fighters to find that from December 2010 to June 2017, the UFC’s share of the relevant input market was between 94% and 99% (using one industry metric) and 71%. -91% (using another industry indicator). industry measures). The UFC attempted to counter this analysis with two points: (1) Singer’s analysis was “drawn from a metrics database that does not include all participants in the competition” and (2) this analysis was They don’t consider how to help players grow. Determining that the UFC’s arguments were factually unpersuasive, the court ruled that Singer used Fightmetric, a database business that provides information about fighters to third parties, as evidenced by their popularity and career prospects. He pointed out that it correctly included only those athletes who were commercially attractive to promoters. Second, the court was unable to establish reliable indicators, so-called “promoter acumen,” to explain how the UFC meritoriously gained market power (e.g., through innovation or efficiency). It was confirmed that there was no such thing. Accordingly, the court determined, through statistical analysis, that the plaintiffs had overwhelming evidence that the UFC had anticompetitive market power.
Indeed, the court found that the plaintiffs established that UFC intentionally engaged in anticompetitive conduct in order to maintain or increase its market power. Specifically, the court found that the UFC: (a) Exclusive contracts with specific clauses were used to “lock up” fighters in an anticompetitive manner and negate their ability to negotiate with rivals. (b) used extra-contractual methods to make the fighter’s contract effectively permanent, including controlling the timing of bouts, fighter-opponent pairings, and determining whether bouts would be televised; (c) acquire or displace a rival promoter; This evidence showed that the UFC was unable to “prove a clear intent to obtain and maintain exclusivity” and provide “sufficient evidence of these exclusive agreements and coercive tactics,” leading to antitrust violations. proved. [and horizontal acquisition of competitors] It increased competitiveness and contributed to the development of the sport as a whole. ”
The court specifically criticized certain provisions in fighters’ contracts that restrict competition. For example, an exclusion clause requires a UFC fighter to fight only for the UFC and not his rival MMA promoter. Other provisions that caught the court’s attention include a “right to compete” clause that allows the UFC to match contracts with competitors, and an “exclusive negotiation” clause that gives the UFC 30- to 90-day contracts. There is. An exclusive negotiating window and a “Champion Clause” that gives the UFC the power to unilaterally extend a fighter’s contract by 12 months if the fighter becomes a title-holding champion.
Finally, regarding the third element, the court agreed with plaintiffs that both the “exclusive agreements” and “coercive tactics” used by the UFC applied universally to all class members. It also reached agreements with fighters regarding the impact of the UFC’s horizontal acquisition of other promoters, further limiting a fighter’s options for exit. The court found Singer’s expert testimony reliable and rejected the UFC’s efforts to challenge his statistical model.
Ultimately, the court granted class certification, representing a “fight class” of current and former UFC fighters who allege that the UFC illegally monopolized the MMA promotional market by locking up fighters with exclusive rights, among other things. allowed the lawsuit to proceed. By signing contracts and acquiring rival promotions, they eliminated other potential tournament organizers who might bid on the fighters’ services, leading to suppression of fighters’ compensation. Notably, in order for a class action to proceed, courts require that the claims brought by a former combatant must not be “substantially the same” but “reasonably the same” as other former or current combatants. What I wrote is that it only needs to be within the range. Because both former and current combatants share the overarching goal of obtaining more pay, the court found that this common goal was sufficient to group the ranks. I decided that. Therefore, this finding means that both former and current fighters who fought during the December 2010 to January 2017 class period will be eligible to receive a portion of the damages if the plaintiffs prevail. means.
When it comes to those rival promoters, the UFC has a long history of buying up competitors and eliminating other organizations. The court found the UFC superior to other MMA promotions in providing fighters with the opportunity to pursue a professional career. The court noted that aside from Bellator and the current Professional Fighters League, other MMA options for fighters tend to be “small regional organizations” that “consider themselves to be minor leagues” to the UFC. , even noted that they sometimes even offer “UFC.” “Out” clause for regional fighters. Ultimately, the court agreed with the plaintiffs’ argument, using data provided by expert witnesses to show that the UFC has near-total control over the relevant market for professional MMA fighters.
Rejecting UFC’s argument to summarily dismiss the case, the court clearly found that plaintiffs raised genuine factual disputes as to each element of the Article 2 exclusivity claim. The court’s reasoning suggests that it found the plaintiffs’ claims to be far more persuasive in their explanation. Whether certain UFC practices were illegally exclusive and prevented fighters from pursuing MMA careers in other promotions. The class certification order marked an important pretrial victory for plaintiffs. Trial is scheduled for April 15, 2024, and the parties have reached a significant settlement. Details have not been disclosed at the time of this article’s publication, but public reporting indicates that the plaintiff (and his attorney) is seeking compensation for damages suffered by the plaintiff under market conditions due to UFC exclusivity. and will receive $335 million.
Following the settlement, public speculation remains as to whether the proposed settlement includes a remedy against the use of long-term exclusivity agreements to deter new entry, a key antitrust weapon in plaintiffs’ arsenal. There were hardly any. In a competitive market, long-term contracts provide stability and security for both parties. As a lawsuit over a new rival in the National Hockey League recognized more than 50 years ago, active rivalries have the potential for new entrants to compete by signing enough players to keep the competition alive. I need sex. If the Department of Justice’s Antitrust Division had filed a complaint against the UFC, they would likely have created a multi-year, phased-in plan that would allow 25% to 35% of fighters in any given year to choose to participate in rival competitions. He would have advocated a system of contracts. Based on the theory articulated by the plaintiffs in their pretrial motions, if the only outcome of this case is compensation for the victimized combatants, the expected outcome is that new The plaintiffs will be back in court, but the consumers will probably not be there. Profit from business competition between rival MMA promoters.
Articles represent the opinions of the authors and do not necessarily represent the opinions of the University of Chicago, the Booth School of Business, or their faculty.
