Antitrust Class Action Suit Threatens to Put UFC in Choke Hold
When people talk about mixed martial arts ("MMA"), it is likely within the octagonal context of the Ultimate Fighting Championship ("UFC"). UFC exploded onto the domestic sports scene over 20 years ago and has since firmly established itself as the premier MMA league in the United States with an estimated value between $2 and $4 billion. UFC's parent company, Zuffa, LLC, rakes in nearly $500 million in annual revenue through the promotion of live events, merchandising, licensing fees, sponsorships, advertising fees, video game fees, and digital media revenue streams.
One way that UFC has maintained its industry dominance is by absorbing its competitors. The MMA behemoth successfully tag-teamed its way to capturing approximately 85-90% of the total revenue derived from live elite professional MMA bouts. Unfortunately for UFC, the league's dominance has prompted several disgruntled MMA fighters to punch back.
In a complaint filed on December 16, 2014 in the United States District Court in San Jose, California, three former UFC fighters contested the legality of UFC's business practices, which allegedly contributed to the league's dominance in MMA. The plaintiffs, Jon Fitch, Nate Quarry, and Cung Le (the "Plaintiffs"), claim that UFC violated Section 2 of the Sherman Antitrust Act by using overarching anticompetitive schemes to maintain and enhance its monopoly and monopsony power in the market for live elite professional MMA fighter services. (Le, et al. v. Zuffa, No. 14-05484 (N.D. Cal. filed Dec. 16, 2014)).
The complaint identifies UFC's alleged monopoly and monopsony power – a veritable double leg takedown – as the driving forces behind fighter compensation suppression and the inappropriate expropriation of UFC fighters' identities and likenesses. According to the complaint, UFC's industry dominance enables the league to pay fighters a mere fraction of what they would make in a competitive market. The Plaintiffs claim that UFC fighters earn approximately 10-17% of the revenue generated from a bout, compared to the nearly 50% revenue earned by athletes in the four major sports leagues.
The Plaintiffs highlight UFC's exclusivity contracts with several major physical venues for their MMA bouts as additional evidence of the league's illegal monopoly power. As a result of these contracts, the Plaintiffs claim that other MMA leagues are precluded from hosting their events in these venues, which purportedly suppresses revenue and prevents growth by eliminating channels for international exposure. The Plaintiffs further claim that UFC forces prospective UFC fighters to sign contracts that bar them from working with would-be rival MMA promotion companies.
The case against UFC might have some traction, at least in part, due to the league's social media presence. In 2012, UFC president Dana White delivered a below-the-belt blow to the industry by uploading a video of himself to YouTube holding a tombstone with the names of former MMA competitors along with their "dates of death." White refers to himself as the 'Grim Reaper' in the video, which has since been taken down. White has also made comments on Twitter and in interviews boasting about the lack of competition in MMA.
The legal battle between the Plaintiffs and UFC is only in the first round, but the stage has been set for a potentially long and brutal fight. UFC has not yet filed an answer to the complaint, but affirms that it will "vigorously defend itself and its business practices." While the Plaintiffs have been waiting for class certification for their suit, two similar lawsuits have been filed (an undercard of sorts) on behalf of four different MMA fighters.
Fighters and enthusiasts alike are sitting ringside, popcorn in hand, anxious to see how this lawsuit will affect the future of MMA. Until then, the industry eagerly awaits the judge's scorecard.