Feb 77 min read

These Fighters May Have Retired, But Their Fight Is Still On-Going: How a $1.6 Billion Lawsuit May Change the UFC Forever.

Starting in 1993 as a professional mixed martial arts (MMA) organization, the Ultimate Fighting Championship (UFC) has since revolutionized the fight business and today stands as a premium global sports brand, media content company, and the largest Pay-Per-View (PPV) event provider in the world.[i] In January 2001, Zuffa, LLC., under the leadership of owners Frank Fertitta III, Lorenzo Fertitta, and Dana White, purchased UFC. Headquartered in Las Vegas, NV with a network of employees around the world, the brand produces more than 40 live events annually in some of the most prestigious arenas around the globe. UFC programming is broadcast in over 165 countries and territories, via more than 60 global broadcast partners, to more than 1.1 billion TV households worldwide in over 40 different languages.[ii]

The UFC has established itself as the leading premier MMA fighting organization in the world today. In addition to dominating viewership, the UFC has also been the industry leader in terms of both revenue and profit. According to their latest financial report, the company raked in a record high of $1.140 billion in revenues—more than every other combat sports promotion combined—and reached $387 million in profit in 2022, a margin of 34%.[iii] However, despite the company’s increase in revenues, its athletes have not seen an increase in their share of that revenue. In fact, over the last year the company reduced athlete costs, driving total revenue share for its athletes to approximately 13-15%.[iv] In comparison, athletes in other U.S.-based sports leagues (such as the NFL, NBA, and NHL) receive approximately 50% of league revenues based on collective bargaining agreements, and European soccer leagues offer as much as 70% of revenues to players.

However, a recent court victory threatens the company’s business model of athlete wage suppression. An antitrust class action, originally filed in December 2014 by three former UFC fighters (Cung Le, Nate Quarry, and Jon Fitch), specifically alleges that Zuffa’s (d/b/a UFC) alleged anti-competitive acts have made (and maintained) the UFC as the only viable option for MMA fighters who want to pursue a career in the profession.[v] Specifically, Plaintiffs allege that Zuffa did the following: (a) used exclusive contracts with specific provisions to retain fighters within the UFC; (b) used its market power in both the input and output markets to render fighter contracts effectively perpetual; and (c) acquired or drove out rival promoters.[vi] According to Plaintiffs, the alleged effect of Zuffa’s conduct was to establish such overwhelming market dominance that it could pay its fighters substantially less than what they would have been paid in a competitive market for their services.[vii]

After the initial complaint was filed, in February 2015, Zuffa filed a motion to dismiss, asking the Court to throw out the fighters’ claim under Rule 12b(6) by arguing that even if the allegations were true, together they would still not be enough to support a claim under antitrust laws.[viii] In October 2016, the Court issued a formal written opinion denying the motion and allowing the fighters’ claim to move forward to discovery.[ix] The Plaintiffs’ lawyers were subsequently able to cause Zuffa to produce nearly 2.5 million documents, and questioned 50 witnesses under oath in depositions, including top UFC officials like Dana White and Lorenzo Fertitta.[x] On January 18, 2024, the district judge denied Zuffa’s motion for summary judgment and reaffirmed the findings in its August 9, 2023 order, which granted Plaintiff’s motion for class certification.[xi]

Monopsony is an economic term used to describe a market involving a buyer with sufficient market power to exclude competitors and affect the price paid for its product—it is the counterpart to a monopoly, which exists in the supplier’s market.[xii] As a result of a monopsony, a sole purchaser has the power to set the price it pays for a service, and since the supplier has no other market for its product, it is forced to sell at the price the purchaser has set.[xiii]

To grant class certification and prove violation of monopsony power under Section 2 of the Sherman Antitrust Act, Plaintiffs had to show, by a preponderance of evidence, that Zuffa: (1) “possessed monopsony power in the relevant markets,” (2) “willfully acquired or maintained its monopsony power through exclusionary conduct,” and (3) “caused antitrust injury” through such conduct.[xiv] In the Court’s August 9 class certification order, it sided with Plaintiff’s arguments on each issue.

As the first element, the Court found that Plaintiffs provided sufficient evidence through circumstantial evidence that Zuffa maintained dominant power in both the input market (“the market for Elite Professional MMA Fighter services”) and output market (“promotion of live Elite Professional MMA bouts between Professional MMA fighters who compete in one-on-one fights.”[xv] The Court heard Plaintiff’s expert witness on the issue (Dr. Hal J. Singer) testify as to how from December 2010 through June 2017, Zuffa’s share of the Relevant Input Market fluctuated between 71 and 99% and rejected Zuffa’s arguments to the contrary.[xvi] By statistical analysis, the Court held that Plaintiffs presented, by.a preponderance of evidence, that Zuffa had market dominance.

Further, to the second element, the Court found that Plaintiffs established that Zuffa willfully engaged in anticompetitive conduct to maintain or increase their market power. Specifically, the Court agreed with Plaintiffs’ specific allegations, that Zuffa: (a) used exclusive contracts with specific provisions keep fighters “locked up” in an anticompetitive manner; (b) used extracontractual methods to make fighter contracts effectively perpetual; and (c) acquired or drove out rival promoters.[xvii] The Court found, for the purposes of class certification, that Plaintiffs had set forth compelling evidence that these business practices amount to a violation of antitrust law. Notably, the Court stated “[Zuffa] evinced a clear intent to acquire and maintain monopsony power,’ additionally, “[Zuffa] has not presented sufficient evidence that these exclusionary contracts and coercive tactics [and horizontal acquisition of competitors] were procompetitive or contributed to the overall development of the sport.”[xviii]

Finally, to the third element, the Court agreed with Plaintiffs that Zuffa’s anticompetitive business practices were commonly applied to all members of the class.[xix] The Court found that both the “exclusive contracts” and “coercive tactics” used by Zuffa were commonly applied to all class members, as well as the impact of the horizontal acquisitions, which further limited exit options for fighters. Plaintiffs, by relying on Dr. Singer’s expert testimony, argue that Zuffa’s monopsony power artificially suppressed the fighters’ wages.[xx] The Court concluded that Dr. Singer’s reports and testimony are reliable sources of proof as to Zuffa’s anticompetitive conduct.[xxi] In response, the Court noted Zuffa attempted to create a straw man by “augmenting the fundamental assumptions of [Dr. Singer’s regression analysis] and running the regression again to show that if the model is rerun using different assumptions, it fails.”[xxii] However, the Court disregarded this argument as it “fail[ed] to actually grapple with the underlying assumptions of Plaintiffs’ model” and found that Plaintiffs established by a preponderance of the evidence that Zuffa’s antitrust violations resulted in both an impact and injury commonly felt by the class members.[xxiii]

Ultimately, the Court granted Plaintiffs Motion to Certify as a Class Action in part. This decision allows the case to proceed on behalf of a “Bout Class” of current and former UFC fighters who allege that the UFC unlawfully monopolized the market for MMA promotion by, among other things, locking up fighters with exclusive contracts and acquiring its rival promotions, eliminating other potential competition organizers who could bid for the fighters’ services and leading to suppressed compensation for the fighters.[xxiv] Specifically, the Court granted class certification concerning UFC’s “unlawful use of its monopsony power in the relevant input market of fighter services for live UFC promoted MMA bouts taking place or broadcast in the U.S. from December 16, 2010, to June 30, 2017.”[xxv]

The case Cung Lee v. Zuffa, LLC. will now move to trial by jury, scheduled for April 8, 2024. This author suspects that, if the case does not settle, the Plaintiffs’ will be awarded a significant portion of the $5 billion they could potentially receive in damages. In its brief, 12-page January 18 decision, the Court quickly disposed of each of Zuffa’s arguments for summary judgment and stated, “Plaintiffs have raised genuine factual disputes as to each element of Section 2 [of the Sherman Antitrust Act].”[xxvi] Thus far in the litigation, the Court has found Plaintiffs’ arguments compelling and have largely denied Zuffa’s counterarguments. Zuffa has been unable to show that its exclusionary and coercive business tactics have been pro-competitive. Meanwhile, the class certification order marks a key win for Plaintiffs. Although the legal battles are far from over, this development is a significant milestone for Plaintiffs, and not a very good sign for Zuffa.

Gurtej Grewal is a 2L at Penn State Law. In addition to pursuing a career in sports law, Gurtej has a passion for antitrust and business litigation, intellectual property law, and arbitration. Gurtej is involved at PSL as the Managing Editor and Events Coordinator of their Sports and Entertainment Law Society and competes on the Vis Moot and Alternative Dispute Resolution teams.

Sources:

[i] UFC, History of the UFC, https://www.ufc.com/history-ufc.

[ii] Id.

[iii] Craig Pekios, Report – UFC Generated More Revenue Than Any Other Promotion Combined, Fighter Pay Continued To Plummet, Low Kick MMA, May 23, 2023, https://www.lowkickmma.com/ufc-generated-revenue-fighter-pay-dana-white.

[iv] Id.

[v] Cung Le, et al. v. Zuffa, LLC, et al., 2023 U.S. Dist. LEXIS 138702*, 6* (D. Nev. 2023)

[vi] Id.

[vii] Id.

[viii] Id.

[ix] Id.

[x] UFC Antitrust Lawsuit, Key Developments, August 9, 2023, https://www.ufcclassaction.com/key-developments

[xi] Cohen Milstein, Current Cases – Mixed Martial Arts Antitrust Litigation, January 18, 2024, https://www.cohenmilstein.com/case-study/mixed-martial-arts-antitrust-litigation/

[xii] Susan E. Foster, Monopsony and Backward Integration: Section 2 Violations in the Buyer’s Market, 11 U. Puget Sound L. Rev. 687

[xiii] Id.

[xiv] Am. Pro. Testing Serv., Inc. V. Harcourt Brace Jovanovich Legal & Pro. Publications, Inc., 108 F.3d 1147, 1151 (9th Cir. 1997)

[xv] Cung Le, et al. v. Zuffa, LLC, et al., 2023 U.S. Dist. LEXIS 138702*, 42* (D. Nev. 2023)