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Competition in mixed martial arts Ultimate trust-busting championship

    Tue, 2011-10-11 11:47 — News

    From the Economist

    IN 2000 the United States Congress passed the Muhammad Ali Boxing Reform Act, a law that sought to protect boxers from unscrupulous promoters and sanctioning bodies. Because boxing has no single governing organisation and its fighters are not unionised, promoters used to wield inordinate market power. As the industry’s “matchmakers”, they could refuse to arrange a fight, venue or broadcast deal unless boxers surrendered a disproportionate share of the proceeds and signed a long-term promotion agreement. The act tried to crack down on “coercive contracts” and level the field between fighters and promoters in negotiations. The law has rarely been invoked, but has occasionally provided some redress. Last month Fernando Guerrero, a rising middleweight boxer, filed suit against Prize Fight Promotions, alleging that the company failed to disclose proceeds of two of his televised bouts as the law requires.

    However, the law only applied to boxing. In the decade since its passage, boxing’s primacy among combat sports in America has been challenged by the rise of mixed martial arts (MMA), formerly known as cage fighting. A Brazilian import, it incorporates a range of techniques, including boxing, jujitsu, wrestling and kickboxing, and originally had few regulations. In the 1990s its American promoters rebranded it and formalised its rules in an effort to fend off accusations of barbarity. MMA has since grown in popularity in both the United States and Europe, and has moved from fringe venues and the outer reaches of the cable television dial to snazzier sports arenas (usually attached to Las Vegas casinos) and broadcast networks.

    When MMA was first brought to America, a number of promotion companies vied to organise events. But in recent years the industry has consolidated under the aegis of Ultimate Fighting Championship (UFC), which has bought up most of its rivals, including Strikeforce this March. In August UFC inked a $100m-a-year deal with the Fox network in the United States to begin broadcasting its fights in November.

    As UFC has cleared out most competition within the MMA field, it has become a commercial threat to boxing itself. Boxing’s popularity has suffered because of poor marketing and perennial accusations of sleaze. The sport is trying to repair its image by forming a promoters’ association, which has emphasised the protections granted to boxers under the Muhammad Ali act. But that will not be enough to fend off UFC, which effectively declared war on boxing by scheduling its debut fight on Fox for November 12th—the same night that Manny Pacquiao, one of the world’s most popular boxers, will take on Juan Manuel Márquez, whom he has beaten twice before. Top Rank, the company promoting the fight, has signed a deal with HBO to charge viewers about $60 each to watch the Pacquiao-Márquez bout. Fight fans will now have the option to watch UFC at the same time for free.

    As UFC has grown, it has increasingly found itself under the same scrutiny that boxing promoters once attracted. Much of the unwanted attention has come from the boxing world. Last week Bob Arum, Top Rank’s CEO, reiterated his accusation that UFC abuses its power over its fighters. “Because of the monopoly that UFC has,” he said, “they pay their fighters maybe 20% of the proceeds that come in on a UFC fight, and we pay fighters over 80%.” Although those figures are debatable, the best-known boxers certainly still command higher fees than do UFC’s biggest names. UFC has been known to “lock out” fighters over contractual disputes. In 2008, for example, UFC cut Jon Fitch, an MMA welterweight, who complained about having to sign a lifetime contract for the use of his likeness in video games. He was only brought back into the UFC fold after accepting the company’s terms. Dana White, UFC’s truculent CEO—whose appetite for a fight may well exceed that of his employees—has dismissed Mr Arum’s allegations. “Bob, you weren’t smart enough...to buy a company like [Strikeforce] and basically change the fight industry forever,” he said recently, “and now you’re crying antitrust? You guys sound like a bunch of crybabies.”

    A less expected source of criticism has been Culinary Workers Union Local 226, a Las Vegas-based trade union that represents about 60,000 hotel and casino employees. In late August the union wrote to Richard Feinstein, the director of the Federal Trade Commission’s (FTC) Bureau of Competition, asking him to investigate UFC for what it alleges are widespread anti-competitive practices, including contractual restraints that unfairly limit fighters’ freedom of movement. The union does not claim that UFC has harmed it directly. But it is embroiled in a longstanding dispute with Station Casinos—a company whose controlling shareholders, Frank and Lorenzo Fertitta, also own UFC’s parent company. The union freely admits that its campaign against UFC is intended to gain leverage against Station Casinos—particularly by disrupting UFC’s efforts to be allowed to stage events in New York, where it is not yet sanctioned. But the government is taking the union seriously. On September 22nd an administrative judge at the National Labour Relations Board allowed more than 80 charges of unfair labour practices against Station Casinos to proceed to a full hearing.

    In fact, UFC may already be the subject of an FTC antitrust investigation. Although the commission does not acknowledge its investigations until they have been completed, rival fight promoters say they have answered requests from the FTC for information about UFC. The $40m Strikeforce deal fell below the $66m threshold for an FTC investigation. But the commission could have launched one retroactively if it found evidence of abuse of monopoly power. Mr White has ducked questions about antitrust concerns, saying only that “there are a lot of people coming after us and taking shots at us.” (If he were to admit publicly that UFC was being investigated, the FTC would then be able to discuss the case as well). The FTC will issue a statement, usually after about six months, if it has investigated a company and not found grounds to proceed.

    If UFC’s many rivals fail to weaken it through the executive branch, they can always turn to the legislature. It would take just a slight tweaking of the Muhammad Ali act to expand it to MMA as well, which would give fighters like Mr Fitch more leverage in dealing with the company. John McCain, the senator who sponsored the Muhammad Ali act, remains in office. He should probably expect a call from anti-UFC lobbyists sometime soon.

    http://www.economist.com/blogs/gametheory/2011/10/competition-mixed-mart...

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