MMA: Rumors Surge Regarding an FTC Investigation of Zuffa/UFC

Do Not Pass Go, Do Not Collect $200

By Bryanna Fissori
Legal Analyst

So the rumor has hit the streets and all the MMA community anxiously awaits confirmation or denial of what many thought to be inevitable: Is Zuffa LLC, being investigated by the Federal Trade Commission (FTC) for antitrust violations?

As a prelude readers should know that if the FTC is in fact conducting an investigation it is private and we are not going to hear much from their end until they have finished doing what they do and decide whether or not they have a valid case.

ZUFFA, LLC. OVERVIEW

Here are the facts we do know: Zuffa is a Nevada corporation owned by brothers Lorenzo and Frank Fertitta and operated primarily by company president Dana White. Since their $2 million purchase of the UFC intellectual property rights in 2001 Zuffa has expanded to become, amongst other things, unarguably the largest Mixed Martial Arts promotion in the world. The company owns and operates both the Ultimate Fighting Championship (UFC) and Strikeforce promotion, which was acquired in March of this year. Other promotions obtained by Zuffa include World Fighting Alliance (2006), Word Extreme Cage Fighting (2006), Pride Fighting Championship (2007), International Fight League (2008) and though they did not acquire the Affliction promotion (2009) Zuffa was a key player in its rise and fall.

MONOPOLY

As the uncontested champion of MMA promotions, the word that quickly rushes to the tip of everyone’s tongue is “monopoly”. According to its basic definition, a monopoly is established when only one economic entity produces a particular product or provides a particular service. Prior to the acquisition of Strikeforce the word would have probably been “oligopoly” which exists when a few firms possess the market share. Strikeforce was without a doubt the next largest promotion behind the UFC, but without its presence as a separately owned corporation, it would be a stretch to contend that in general the market shares of the remaining professional promotions are large enough to be considered competitive.

“There’s always gonna be competition,” said UFC president Dana White. “There’s tons of shows that happen every weekend all over the world.”

White is correct in his statement. There are tons of shows happening every weekend all over the world. Whether or not those promotions are any sort of competition for the UFC and Strikeforce is not so clear.

There are several ways investigations can be initiated by the FTC which include response to issues raised by reports from consumers and businesses, pre-merger notification filings, congressional inquiries or reports in the media. According to Article 3 of the Enforcement Rules of the Fair Trade Law, the FTC will take into account several factors in determining if a monopoly exists.

The first factor is the market share of the enterprise in a particular market. If one was to look at individual market sectors such as pay-per-view sales for MMA or event sales than it would be tough to say that there is another actual competitor. With 300 or so fighters on their roster it may also be said that they have the market share of competitors, but this all depends on how the numerous smaller professional promotions fit in the picture. Most fans and industry personnel will agree that the next largest promotion is Bellator which still trails significantly behind the UFC and Strikeforce even as separate entities.

If the particular markets are broken down, they may not all be viewed consistently. For example, there are many areas where Zuffa is undoubtedly dominant, but one area which they may not override, for example, is televised MMA fights. Bellator can be viewed on MTV2, Shark Fights are on Fuse, HDNet shows several promotions such as Dream and Titan, and there are numerous others which stand to decrease Zuffa’s market share in this specific area. There is no speculation to the gossip regarding which markets are included in the rumored investigation.

Other factors listed in Article 3 include the possibility of substitution of the goods or services in a particular market, giving regard to consideration of time and place. Could another promotion come in to Las Vegas and hold a successful event at Mandalay Bay without interference from Zuffa? One would assume there is a contract or two that says no, as well as a couple of handshakes that will agree. Of course Vegas is home turf for the UFC, but in other parts of the world there must be a possibility of successful substitution in order to satisfy this factor. It may be taken into account that Bellator, Cage Fury Fighting Championship (CFFC) and the UFC have all been able to successfully host MMA events in places like Atlantic City, New Jersey.

The ability of the enterprise to influence prices in a particular market is another factor that has to be taken into consideration as well as whether formidable difficulties exist restricting other enterprises in entering a particular market.

“There’s plenty of competition and there’s really no barrier to entry,” said Lorenzo Fertitta. “Anybody that wants to get in this business, they can go file for a promoter’s license, put up some capitol, go sign some fighters, and go get a television contract. It’s a wide open market for anyone who wants to get involved.”

Though Fetitta’s statements are true it is not to be forgotten that Zuffa has around 300 fighters, all of whom are now covered by accident insurance which is one of the many perks aside from pay that comes from working for Zuffa. Those are big shoes to fill for an up and coming promotion. Not only is the price of fighters a consideration, but as far as price setting goes if Zuffa was to lower the gate tickets to ten dollars a head they will likely still make enough in pay-per-view sales to not sweat it. Are there any other professional promotions that could do that?

The last factor is the import and export status of the goods or services. As announced before every event, the UFC can be viewed in over 130 countries in 20 different languages. There is not much more to say about that.

“We wouldn’t have done the transaction if we felt that we were (unfairly controlling the market),” said Fertitta. “There’s literally thousands of promotions and thousands of options for the fighters, it just so happens that with the groundwork that we’ve put in place over the last 10, 11 years, we happen to be the most successful.”

TORTUOUS INTERFERENCE

The unverified rumor also coveys that the FTC has some focus placed on the possibility of cause of action for “tortuous interference”. The charge of tortuous interference is broken into two broad categories with one specific to contractual relationships and one specific to business relationships or activities. To succeed on the claim of interference with contract the FTC would have to prove that the UFC convinced a party to breach a contract or prevented them from fulfilling their contractual obligations. Zuffa must have also had knowledge the party’s existing contract. The interference with business relationships claim is only available when the tortfeasor (Zuffa) does something to prevent parties from establishing or maintaining business relationships.

Each of Zuffa’s business transactions stand on their own as a separate negotiation, but as for the company’s most recent purchase there has been no assertion of hostility.

“I’ve always had respect for them (Zuffa),” said Strikeforce Executive V.P and General Manager Scott Coker. “I know how hard it is to do what we do, so I can only imagine how hard it is to do what they do. They operate all over the world and have all of these television deals. We’ve always been cordial. I’ve never had an issue with Dana, and I think he feels the same way. It’s a mutual respect. What he’s done is quite remarkable, and now we’re all on the same team and we’re working together.”

This hasn’t been true of all of Zuffa’s acquisitions. One particularly bumpy merger occurred when Pride was purchased, followed by claims of misrepresentation and breach of contract when Zuffa failed to maintain the Pride brand.

VIOLATION OF ANTITRUST

So how likely is it that the FTC would find Zuffa in violation of antitrust laws? Precedent case United States v Syufy Entertainment (1990) says it’s doubtful. Syufy Enterprises was a motion picture company in Zuffa’s home town of Las Vegas which bought out virtually all of the theaters in the city with the exception of one cinema which showed primarily second run films. The eight and a half day trial was heard by the Ninth Circuit Court of Appeals which found for Syufy for reasons that any theater had the ability to open up without barriers. The case is similar to Zuffa’s situation in that patrons of the theaters suffered no direct injury as a result of the transactions nor did the bought out competitors complain, as the prices were fair. To this point, viewers of UFC and Strikeforce events continue to receive the same quality as prior to the merger and former Strikeforce President and Owner Scott Coker has nothing but positive remarks about Zuffa.

One difference is that the Syufy case was brought by the Department of Justice while the rumored Zuffa investigation falls under FTC jurisdiction. The FTC shares enforcement of antitrust laws with the Department of Justice. However, while the FTC is responsible for civil enforcement of antitrust laws, the Antitrust Division of the Department of Justice has the power to bring both civil and criminal action in antitrust matters. The rumored investigation refers to FTC enforcement, though results would like be unaffected by which bureau brings the case.

Whether or not the rumors of the FTC investigation prove to have any validity, it can be affirmed that Zuffa currently has no plans of slowing their momentum.

“What we’re doing is we continue to expand, grow this sport, grow this business,” said White. “We need more fighters. As we continue to do all the shows that we’re doing here in the United States – we start pushing into these new markets – we need more guys. This isn’t a thing about competition, it’s about growing the sport.”