Key questions in the lawsuit filed against the UFC

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The class-action antitrust lawsuit filed on Tuesday in federal court in San Jose, Calif., seems to come down to a line of what constitutes building a strong business, and what constitutes attempting to crush opposition, which can be argued are at times one and the same thing.

The Ultimate Fighting Championship over the last eight years, with the fall of the Japanese-based rival Pride Fighting Championships, has emerged as the dominant force in the mixed martial arts business. While there have always been dozens, and now hundreds of promotions, including many that have national television exposure, the UFC has in recent years had a dominant market share and controlled most of the sport's top fighters.

During that period, a number of companies attempted to be competition. Almost all failed, many of which then had their intellectual property, which included contracts and videotape libraries, purchased by Zuffa, LLC, the parent company of the UFC.

In doing so, there were less options for the elite-level fighters. And in recent years, with the implement of the sponsor tax, fighters themselves had seen a one-time lucrative market dry up, both from the tax and from market conditions. Some companies found, over time, that it was not economically worthwhile to spend the level of money it had in sponsoring fighters. And with more shows, and smaller audiences, the value of sponsoring a UFC fighter, unless it was a major champion, wasn't as strong as in what some would call the period of the sport's greatest mainstream popularity, from roughly 2006 through 2011.

The lawsuit, filed by current UFC fighter Cung Le, and former UFC fighters Nathan Quarry and Jon Fitch, is being handled on contingency by lawyers representing five major law firms.

Le said that while he is still under contract with the organization, he would not fight for the UFC again. But he said if given a release, he would be open to fighting for another organization.

This will likely be a slow process that the plaintiffs hope will change the structure of the sport, although at a press conference announcing the suit nobody spoke in any specifics of what they wanted or expected the end result to be past creating an environment where there was more competition for fighters' services and likenesses for merchandising endeavors, thus increasing the revenue going to talent.

Le, 42, who was one of the main stars of Strikeforce, has been a UFC headliner since the Zuffa purchased Strikeforce in 2011. He had major recent issues with the promotion concerning an announced drug test failure and suspension for allegedly using human growth hormone in a test taken at his Aug. 23 fight, in Macau, China, where he lost to Michael Bisping.

Due to irregularities in the testing procedure, the results were later ruled invalid, and the UFC rescinded his suspension. Le had publicly asked for an apology, which didn't happen. He then asked to be released from his contract. This coincided with Scott Coker, the former head of Strikeforce, a promoter he had worked for from 1998 to 2010 as both a San Shou fighter and later an MMA fighter, taking a job as the head of Bellator.

Le said his involvement in the suit had nothing to do with the bad publicity stemming from the drug test story.

"Not at all," he said. "My involvement is more for the fighters, past, present and the future. That's why I'm involved in this lawsuit.

"It's about how we were treated, how we're paid, and what we have to go through. If it wasn't for us, there would be no MMA, and there would be no UFC. What's fair is fair."

Quarry, also 42, is a retired fighter who was part of the cast of the first season of The Ultimate Fighter reality show in 2005, a key building block of the modern success of UFC. While he didn't win the show, as he was injured during the competition, he was one of the most popular fighters in the cast. Later in 2005, Quarry had a shot at middleweight champion Rich Franklin, which he lost. He remained with the UFC until his retirement in 2010, due to injuries that resulted in spinal fusion surgery.

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"I think, more than anything, [taking part in the suit] was to see current, former and upcoming fighters recoup some reward for their hard work," said Quarry, who after retirement, hosted the TV show MMA Uncensored on Spike TV. "Now, it's such a monopoly that the fighters have no real options, and that's not the American way."

Quarry, who has always been very popular with his fellow fighters, said fighters who have known about the suit have been quietly behind him. He also noted that for fans who think this will hurt the sport, that historically in major sports when athletes filed suit for free agent rights, that the end result of the enhanced competition for the athletes is that it ended up benefiting both the athletes and the fans, and helped make the sports more popular and lucrative for everyone.

"Competition is good for the sport, good for the fighters, and good for the fans," he said.

Fitch, 36, who just competed on Saturday night for the World Series of Fighting, losing to Rousimar Palhares in a match for their welterweight title, was not at the press conference. While he connected via phone line, he never spoke during the proceedings. He fought for UFC from 2005 to 2013. For almost that entire period, he was considered one of the top 10 welterweights in the sport. In 2008, he faced Georges St-Pierre for the welterweight title, losing via decision.

He was released by UFC in what may have been the most controversial firing in company history, since he was still listed among the company's top-10 contenders.

His career was hurt because he was viewed as not being an exciting fighter, which likely cost him a second shot at the title. He had come off one of the most exciting fights of his career in a win over Erick Silva, but then lost to Demian Maia in a lackluster showing, and was let go. Dana White cited Fitch's salary and that he felt at his age, he was declining as a fighter, as reasons for letting him go. Fitch has since gone 2-2 in the World Series of Fighting, although both fighters who beat him, Josh Burkman and Palhares, were clearly UFC-level competitors.

Fitch's name came up in a dispute years back when Zuffa required its fighters to, with no compensation, assign their likenesses in perpetuity for video-game usage when the company signed a deal with THQ, Inc. Fitch attempted to negotiate a fee for his likeness, as did other fighters under the management of DeWayne Zinkin. UFC President Dana White terminated Fitch, although that termination only lasted a few days.

For a time, White claimed any fighter who appeared in a competing video game produced by EA Sports (which years later acquired the UFC license when THQ had financial problems) would never be allowed in the UFC. However, when top fighters who were in the EA Sports game became available, that provision was quickly forgotten about.

Former UFC welterweight champion Carlos Newton, who is not a plaintiff, was also at the press conference expressing support for the fighters. According to Robert Maysey, a longtime MMA fan and writer, and one of the lawyers involved in the case, Newton had been a strong supporter from day one.

The legal team involved is a strong, heavyweight panel.

Eric Cramer has been listed since 2011 as one of the country's top antitrust lawyers. Michael Dell'Angelo is one of the top lawyers at Berger & Montague, which won a $100 million cash settlement from JP Morgan Chase & Company from the bank's role in the collapse of commodities broker MF Global, which forced MF Global to distribute about $1 billion to former commodities customers, who Dell'Angelo represented in a class action suit. He was also one of the lawyers involved in a $163.5 million settlement in the Titanium Dioxide antitrust litigation. Benjamin Brown is a leading class action antitrust attorney. Joseph Saveri has specialized in antitrust law and class action litigation for more than 25 years, and has been involved in cases in dozens of industries regarding cases that involved monopolistic business practices. Joshua Davis of the Saveri Law Firm has more than 15 years experience in antitrust class action suits. Maysey is the MMA business expert on the panel, a name familiar to most MMA industry insiders from his writing about topics that this lawsuit encompasses for many years.

There is little doubt that more competition is the best thing for the athletes. But the question is whether the UFC's domination of the MMA business comes from having the right name brand, getting on strong television first andbuilding an organization to a level that the others who tried to compete couldn't make it work profitably, or did UFC engage in anti-competitive practices that stifled competition and put rivals out of business?

A key aspect of the suit is that the competition for top fighters ceased when a number of organizations, including Pride, Affliction and Strikeforce were purchased by UFC. But in all three cases, the purchase was because the promotions were looking to get out of the business. Pride and Affliction were about to cease existence anyway. Strikeforce was losing money and its parent company wanted to divest itself of its MMA brand, and Zuffa made the best offer. According to those with Silicon Valley Sports, the Zuffa offer was the only truly serious one made.

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It wasn't a good thing for fighters at the time. But since the Strikeforce purchase, Bellator was purchased by Viacom, a far stronger financial entity than had backed Strikeforce, and has television on Spike TV, the network UFC itself was built on. While nobody would argue that Bellator is equal to UFC, nor from a quality of fighters standpoint even equal to Strikeforce at the time of the purchase, it appears to be very much a competitor.

On Nov. 15, when the two companies went head-to-head, with Bellator on Spike TV and UFC on Fox Sports 1 and pay-per-view with its first show ever in Mexico, Bellator captured the lion's share of viewers and seemed to generate more public interest.

However, the lawsuit dismisses Bellator as competition, even though there were two very public examples, Gilbert Melendez and Eddie Alvarez, where the competition between the two sides led to each fighter getting far more lucrative and beneficial deals, including potential title shots specifically written into their deals, based on using the other side as leverage. But those incidents are the exception rather than the rule.

"Another potential competitor, Bellator, is viewed within the MMA Industry - and by the UFC itself - as a minor league, a training ground for future UFC fighters, or as a place for former UFC fighters to compete after they have been released by the UFC," stated the lawsuit. "Bellator athletes lack significant public notoriety, in part because it is a `minor league,.' and in part because UFC refuses to co-promote with any of Bellator's fighters regardless of talent or merit, leaving Bellator unable to promote MMA events of relative significance. Bellator's bout purses, gate revenues, attendance figures, merchandise sales, television licensing fees and ad rates are minimal compared to those obtained by the UFC."

The question becomes whether vigorous competition crossed over into anti-competitive practices. This is one of those struggles that is expected to take years to play out, and little in the way of details past the basics of what the key arguments will be, were talked about in the press conference.

The lawsuit addresses issues of exclusive fighter contracts, UFC decisions that they claim have restrained fighters from making as much as they could from both the sponsorship market and the merchandise and licensing market, as well as UFC's ability to use the likeness of the fighters, per their contract, even after the fighter is no longer with the organization.

Dell'Angelo said that the domination of the market by UFC and ability to extend the contracts indefinitely, since the UFC has the rights to match outside offers when the contracts expire, prevents rival promotions from garnering the best talent and makes real competition in the marketplace virtually impossible.

"That gives UFC all the leverage to drive fighter compensation down and its own profit margins up," said Dell'Angelo.

There are fundamental issues here regarding what share of revenue the athletes deserve. While the major team sports' athletes can get 50 percent of total revenues, largely due to unions and collective bargaining, neither of which MMA has, nobody really knows exactly what the UFC percentage truly is. The UFC, from the late 90s through probably 2005 or 2006, was losing significant money on virtually every event. Zuffa went $44 million in the hole before starting to turn things around.

In its fiscal year that ended on September 30, 2013, Zuffa grossed $483 million and had EBITDA in the $110 million range. The 2014 number, as least as far as EBITDA goes, is estimated at being down 40 percent due to all the injuries that have lead to weaker pay-per-view main events and a huge drop in buys from the previous years. But even during a year that was almost a disaster, devoid of any truly huge fights and some of the weakest marquee pay-per-view main events in company history, the company is still profitable. And, barring another catastrophic year of injuries, the company would be expected to be significantly more profitable in 2015.

The lawsuits states that the fighters are paid a fraction of what they would make in a competitive marketplace.

Lawyers and fighters were generally vague on questions, stating they didn't want to get into details or other aspects, such as if other fighters have talked about joining in, or more specific complaints about UFC business practices. They either referred to the suit itself, or said the information would play out in the future. Lawyers involved noted this will likely be a lengthy process. Zuffa will likely respond in some form to the suit and it will go into discovery. Cases like this with other major sports took years to reach their conclusion.

Cramer detailed what is likely to happen next.

"Zuffa will be served formally, and they will have an opportunity to respond," he said. "They can either answer, or move to dismiss. We don't know what they will do. If they answer it, we begin a period of discovery. We expect it to move forward."

The end of the line, in the event there isn't a settlement, would be a jury trial in San Jose.

Maysey said the difference between this and the major sports leagues, which also control virtually all the top talent and have the stadium and television deals to where it would be a virtual impassability to compete with them, is that the leagues have teams with individual owners, and the teams are in competition, plus the biggest leagues have players associations. Even in individual sports, like golf, he argued that each tournament is not owned by the same owner, even if the major league tournaments for the most part fit into the same organizational banner.

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The lawyers said that they are not filing a lawsuit about the fairness or unfairness of the Zuffa contracts.

However, points made in the suit mention the exclusivity clause, which prohibit fighters from plying their trade with rival promotions, and UFC's decision to not co-promote events with other organizations. It also mentions the champion's clause, which allows the UFC the right to extend a fighter's contract as long as they hold a UFC championship. This blocks rival promotions from bidding for the person generally considered best in the world in their specific weight classes. They also bring up UFC's right to match any outside offer given to a fighter whose contract expires, making it difficult to sign up a fighter whose deal has ended.

They also note that UFC has the ability to merchandise fighters in perpetuity worldwide, which would lower the fighter's leverage to garner merchandising or video game deals for the fighters themselves after leaving the organization, since the company negotiating with them wouldn't even get exclusivity on their rights. They also note that if a fighter loses and is cut, the UFC still can merchandise the fighter when no longer with the organization, or even after retirement. It also notes a fighter can't even sit out the terms of his contract, because if a fighter refuses to fight, like Randy Couture did years back, the UFC can freeze the contract length and essentially either force the end of his career or force him to return.

They also note that UFC not allowing certain sponsors on its broadcasts cuts back on potential income for fighters.

They note that sponsors not only have to pay sponsorship tax, but the UFC bans a number of companies from sponsoring if they compete with companies the UFC has existing deals with.

Also mentioned was that in or about January 2014, the UFC had added in contracts a provision that allowed them to lower the pay of fighters during the contract period if they lose fights.

It claimed the UFC had exclusive deals with key venues on the Las Vegas strip, which wouldn't allow rival promotions to run in those key arenas. It also noted that Quinton "Rampage" Jackson had negotiated an action figure deal with Round 5 and a Reebok deal, but the UFC blocked both deals and entered into deals of its own with both companies.

There was also a claim that UFC had threatened sponsors that if they work with rival promotions, the UFC would ban them from being part of UFC events or sponsoring UFC fighters. The suit mentioned that Fedor Emelianenko, according to his manager, Vadim Finkelchstein, had a potential seven-figure one-year sponsorship deal with Tapout that fell through with Finkelchstein claiming they were told to either dump Emelianenko or lose access to UFC events.

Mentioned also in the suit was a claim that UFC embarked on a campaign to monopolize or monopsonize the industry, claiming the purchase of WEC in 2006 was to block rivals from getting television on Versus (now NBC Sports). Versus at the time was negotiating with the IFL, which later got television on MyNetwork TV, which ended up being a stronger distribution platform. But the IFL's TV show ended up canceled due to declining ratings. The purchase of WFA was of a promotion that was essentially done, and the UFC got the videotape rights and contracts with some key fighters, notably Jackson and Lyoto Machida, who eventually both became UFC light heavyweight champions.

Pride was essentially done when the UFC purchased it. Affliction had also lost millions of dollars and was looking for a way out. They claimed the UFC forced Mark Cuban to shut down HDNet Fights, but that was more a business decision with them feeling it was more cost-effecitve to pay fees to broadcast shows other promoters did, and they have aired events regularly for years, first on HDNet, and to this day after the name change to AXS TV.

The claim was that UFC regularly counter programmed against Strikeforce, claiming it as a means to prevent Strikeforce, due to UFC being the stronger company, from promoting successful events and pressured sponsors to withdraw from Strikeforce by threatening to ban them from UFC fighters and broadcasts if they didn't.

But counter programming has been part and parcel of competitive sports businesses since the beginning of time, and given most major shows are on Saturday nights, as UFC and Strikeforce each expanded their schedules, it was a given there would be Saturdays with both companies running.

And ultimately, that's what this case will come down to, the line between natural competition in an industry, and anti-competitive practices, and if it ever gets to a trial, how a jury will view those points.