Fighters Win Key Ruling in Case That Could Upend U.F.C.’s Business
A judge said he would grant class-action status to a group of fighters arguing that the Ultimate Fighting Championship suppresses pay. If the fighters win, it could force the U.F.C. to pay much, much more.
The U.F.C. has paid less than 20 percent of total revenue to fighters, while major team sports pay around 50 percent.Credit...Isaac Brekken for The New York Times
By Kevin Draper
The lawsuit was filed against the U.F.C.’s parent company, Zuffa, in 2014 by Cung Le and a handful of other former U.F.C. fighters. The ruling by the judge, Richard Boulware, means every fighter who competed in the U.F.C. between late 2010 and 2017 — around 1,200 fighters — will be a part of the lawsuit unless they opt out.
However, in a small victory for the U.F.C., Boulware declined to allow a smaller part of the lawsuit go forward, choosing not to grant class action status to the fighters’ claims that the U.F.C. also suppressed earnings from their image rights.
The U.F.C. could be forced to pay the fighters almost $5 billion. At an evidentiary hearing in 2018, one expert for the plaintiffs said fighters were deprived of $1.6 billion in pay because mixed martial arts lacks a competitive labor market, and in antitrust cases damages are tripled. The $1.6 billion was determined by a formula comparing the U.F.C., where less than 20 percent of total revenue has historically been paid to fighters, to major team sports like the N.B.A. and N.F.L., where the athletes receive around 50 percent of total revenue.
The fighters are also seeking structural remedies, like a ban on long-term contracts, that could make it easier for potential challengers to the U.F.C. to arise. While there are other professional mixed martial arts organizations, like Bellator, the U.F.C.’s dominance has been undisputed since it bought and folded at least five competitors beginning in 2006.
Controlling fighter pay is key to the U.F.C.’s business. It was bought in 2016 by Endeavor, a Hollywood-based entertainment, sports and media conglomerate backed by private equity money, for $4 billion. According to an internal document from the time evaluating the purchase, which was made public as part of the lawsuit, bankers Endeavor spoke with were worried about what would happen if fighters were paid more.
“Fighter comp was the most asked question by financing sources, and it is a critical cost that we must actively manage” read the document.
At a hearing in September, lawyers for the U.F.C. indicated they would appeal any ruling granting class action certification. The U.F.C. has also filed a motion for summary judgment that the judge must rule on, essentially arguing that the fighters have no case and that the suit should be thrown out.
The judge did not publish his written order Thursday, but said he would likely do so by Monday.
Taking six years just to reach a point that is still a long way from a trial is typical of class-action antitrust lawsuits, according to experts. But they also said that there were a handful of unusual factors in this case that could result in it having an outsized impact beyond the world of cage fighting.
This case mostly concerns monopsony power, the lesser known cousin of monopoly power. The fighters say the U.F.C. is a monopsony, which is when there is one dominant buyer of a particular good or service — in this instance, the U.F.C. buying fighting services. So few monopsony cases reach trial that each one is almost by definition precedent-setting.
“This is an entirely novel case as far as I’m aware of,” said Marshall Steinbaum, an economics professor at the University of Utah. Most labor-related antitrust lawsuits concern things like anti-poaching agreements or disputes between companies, not workers suing employers. “There’s no generally accepted precedent about what constitutes damages arising from labor market monopsony,” Steinbaum said.
This case could also hinge on the definition of damages. Rather than look at an individual fighter and argue that illegal conduct by the U.F.C. suppressed his or her wages, the economic experts for the plaintiffs looked at the entire group of fighters and said the U.F.C.’s conduct suppressed their overall share of U.F.C. revenue.
While wage share is commonly used in professional sports, the U.F.C. argues this is because unions representing athletes choose to bargain based on it, not because there is any legal right to a specific share of wages. As the U.F.C. has grown, so has fighter income, the company’s lawyers say, showing that fighters have benefited from the company’s conduct. If the judge allows the plaintiffs to make a wage share argument, it will open the floodgates to class-action lawsuits across the country on this basis, they warn.
“Whether in the sports industry or in other industries, the courts — with good reason — are not in the practice of telling market participants what percentage of revenue they must assign to compensation,” William A. Isaacson, a partner at Paul, Weiss and the lead counsel for the U.F.C., wrote in an email. He added that doing so would “serve as a harmful disincentive to ingenuity, risk-taking, and investment” and that former fighters being unhappy with their compensation “does not equate to an antitrust violation nor is it sufficient to demonstrate antitrust injury.”
Other lawyers disagree. Hiba Hafiz, a professor at Boston College Law School who worked for the plaintiffs earlier in the case, said the U.F.C.’s suggestion that wage share is novel was simply “a litigation strategy.”
Sports labor markets are different from most other labor markets, she said. In sports, “a direct relationship can be measured between athlete performance and revenue generated by the sports organization,” said Hafiz, making wage share an appropriate metric. That isn’t the case with, say, Subway sandwich makers or computer programmers. While their labor has value, it is almost impossible to tie directly to a company’s overall revenue.
The high-profile nature of the lawsuit makes it a prime example in the growing call for more robust antitrust enforcement. On Wednesday, the Federal Trade Commission and more than 40 states sued Facebook over antitrust concerns, and in October the Department of Justice filed an antitrust lawsuit against Google.
“I do agree this case is part of a general reopening of the public discourse about monopoly power, as well as a redirection of that concern more specifically to upstream harms to competition, including in labor markets,” said Steinbaum, the economist.
Jon Fitch, top, is a plaintiff in a lawsuit against the U.F.C. that could upend the business of mixed martial arts.Credit...Jeff Chiu/Associated Press
If the U.F.C.’s expected appeal of class certification fails, and the judge doesn’t grant summary judgment, the U.F.C. will be highly motivated to settle the case, said Brian Fitzpatrick, a professor at Vanderbilt University Law School. “It will be too risky to go to trial,” he said in an email, “the $5B would hang over their head like the Sword of Damocles.”
So would the potential changes to the U.F.C.’s business model. In many antitrust cases, it is only a portion of a company’s conduct that is under scrutiny. In a price fixing case, for instance, a business might have an illegal agreement with a competitor to set prices, but the vast majority of what the company does is not under scrutiny.
Not so in this case. The U.F.C.’s core business model — how it signs fighters, how much it pays them and how it maintains leverage over them — is being challenged in this lawsuit.
What could a settlement cost? According to Fitzpatrick, the best study on antitrust settlements found they average 19 percent of single damages, a little over $300 million here. But many of the included cases were different types of antitrust cases, and it is difficult to determine what each side would agree to in a settlement.
Since taking control of the U.F.C., Endeavor has mitigated risk in other parts of the business. The U.F.C. sold its long-term television rights to ESPN in 2018, and the next year sold ESPN the right to exclusively distribute U.F.C. pay-per-view events domestically. That gave the U.F.C. revenue certainty, but also a ceiling on the financial upside of strong selling pay-per-view events.
A judge said he would grant class-action status to a group of fighters arguing that the Ultimate Fighting Championship suppresses pay. If the fighters win, it could force the U.F.C. to pay much, much more.
The U.F.C. has paid less than 20 percent of total revenue to fighters, while major team sports pay around 50 percent.Credit...Isaac Brekken for The New York Times
By Kevin Draper
- Dec. 10, 2020
The lawsuit was filed against the U.F.C.’s parent company, Zuffa, in 2014 by Cung Le and a handful of other former U.F.C. fighters. The ruling by the judge, Richard Boulware, means every fighter who competed in the U.F.C. between late 2010 and 2017 — around 1,200 fighters — will be a part of the lawsuit unless they opt out.
However, in a small victory for the U.F.C., Boulware declined to allow a smaller part of the lawsuit go forward, choosing not to grant class action status to the fighters’ claims that the U.F.C. also suppressed earnings from their image rights.
The U.F.C. could be forced to pay the fighters almost $5 billion. At an evidentiary hearing in 2018, one expert for the plaintiffs said fighters were deprived of $1.6 billion in pay because mixed martial arts lacks a competitive labor market, and in antitrust cases damages are tripled. The $1.6 billion was determined by a formula comparing the U.F.C., where less than 20 percent of total revenue has historically been paid to fighters, to major team sports like the N.B.A. and N.F.L., where the athletes receive around 50 percent of total revenue.
The fighters are also seeking structural remedies, like a ban on long-term contracts, that could make it easier for potential challengers to the U.F.C. to arise. While there are other professional mixed martial arts organizations, like Bellator, the U.F.C.’s dominance has been undisputed since it bought and folded at least five competitors beginning in 2006.
Controlling fighter pay is key to the U.F.C.’s business. It was bought in 2016 by Endeavor, a Hollywood-based entertainment, sports and media conglomerate backed by private equity money, for $4 billion. According to an internal document from the time evaluating the purchase, which was made public as part of the lawsuit, bankers Endeavor spoke with were worried about what would happen if fighters were paid more.
“Fighter comp was the most asked question by financing sources, and it is a critical cost that we must actively manage” read the document.
At a hearing in September, lawyers for the U.F.C. indicated they would appeal any ruling granting class action certification. The U.F.C. has also filed a motion for summary judgment that the judge must rule on, essentially arguing that the fighters have no case and that the suit should be thrown out.
The judge did not publish his written order Thursday, but said he would likely do so by Monday.
Taking six years just to reach a point that is still a long way from a trial is typical of class-action antitrust lawsuits, according to experts. But they also said that there were a handful of unusual factors in this case that could result in it having an outsized impact beyond the world of cage fighting.
This case mostly concerns monopsony power, the lesser known cousin of monopoly power. The fighters say the U.F.C. is a monopsony, which is when there is one dominant buyer of a particular good or service — in this instance, the U.F.C. buying fighting services. So few monopsony cases reach trial that each one is almost by definition precedent-setting.
“This is an entirely novel case as far as I’m aware of,” said Marshall Steinbaum, an economics professor at the University of Utah. Most labor-related antitrust lawsuits concern things like anti-poaching agreements or disputes between companies, not workers suing employers. “There’s no generally accepted precedent about what constitutes damages arising from labor market monopsony,” Steinbaum said.
This case could also hinge on the definition of damages. Rather than look at an individual fighter and argue that illegal conduct by the U.F.C. suppressed his or her wages, the economic experts for the plaintiffs looked at the entire group of fighters and said the U.F.C.’s conduct suppressed their overall share of U.F.C. revenue.
While wage share is commonly used in professional sports, the U.F.C. argues this is because unions representing athletes choose to bargain based on it, not because there is any legal right to a specific share of wages. As the U.F.C. has grown, so has fighter income, the company’s lawyers say, showing that fighters have benefited from the company’s conduct. If the judge allows the plaintiffs to make a wage share argument, it will open the floodgates to class-action lawsuits across the country on this basis, they warn.
“Whether in the sports industry or in other industries, the courts — with good reason — are not in the practice of telling market participants what percentage of revenue they must assign to compensation,” William A. Isaacson, a partner at Paul, Weiss and the lead counsel for the U.F.C., wrote in an email. He added that doing so would “serve as a harmful disincentive to ingenuity, risk-taking, and investment” and that former fighters being unhappy with their compensation “does not equate to an antitrust violation nor is it sufficient to demonstrate antitrust injury.”
Other lawyers disagree. Hiba Hafiz, a professor at Boston College Law School who worked for the plaintiffs earlier in the case, said the U.F.C.’s suggestion that wage share is novel was simply “a litigation strategy.”
Sports labor markets are different from most other labor markets, she said. In sports, “a direct relationship can be measured between athlete performance and revenue generated by the sports organization,” said Hafiz, making wage share an appropriate metric. That isn’t the case with, say, Subway sandwich makers or computer programmers. While their labor has value, it is almost impossible to tie directly to a company’s overall revenue.
The high-profile nature of the lawsuit makes it a prime example in the growing call for more robust antitrust enforcement. On Wednesday, the Federal Trade Commission and more than 40 states sued Facebook over antitrust concerns, and in October the Department of Justice filed an antitrust lawsuit against Google.
“I do agree this case is part of a general reopening of the public discourse about monopoly power, as well as a redirection of that concern more specifically to upstream harms to competition, including in labor markets,” said Steinbaum, the economist.
Jon Fitch, top, is a plaintiff in a lawsuit against the U.F.C. that could upend the business of mixed martial arts.Credit...Jeff Chiu/Associated Press
If the U.F.C.’s expected appeal of class certification fails, and the judge doesn’t grant summary judgment, the U.F.C. will be highly motivated to settle the case, said Brian Fitzpatrick, a professor at Vanderbilt University Law School. “It will be too risky to go to trial,” he said in an email, “the $5B would hang over their head like the Sword of Damocles.”
So would the potential changes to the U.F.C.’s business model. In many antitrust cases, it is only a portion of a company’s conduct that is under scrutiny. In a price fixing case, for instance, a business might have an illegal agreement with a competitor to set prices, but the vast majority of what the company does is not under scrutiny.
Not so in this case. The U.F.C.’s core business model — how it signs fighters, how much it pays them and how it maintains leverage over them — is being challenged in this lawsuit.
What could a settlement cost? According to Fitzpatrick, the best study on antitrust settlements found they average 19 percent of single damages, a little over $300 million here. But many of the included cases were different types of antitrust cases, and it is difficult to determine what each side would agree to in a settlement.
Since taking control of the U.F.C., Endeavor has mitigated risk in other parts of the business. The U.F.C. sold its long-term television rights to ESPN in 2018, and the next year sold ESPN the right to exclusively distribute U.F.C. pay-per-view events domestically. That gave the U.F.C. revenue certainty, but also a ceiling on the financial upside of strong selling pay-per-view events.
