Opinion: The Costs of Control

By Eric Stinton May 2, 2016

Editor’s note: The views and opinions expressed below are those of the author and do not necessarily reflect the views of Sherdog.com, its affiliates and sponsors or its parent company, Evolve Media.

Over the weekend, a video surfaced of UFC President Dana White giving a business seminar at Stanford University. In the clip, White discussed why he believed boxing is declining while MMA is on the rise. To him, it’s simple: “[Boxing] has become so greedy. Nobody was ever thinking about the future of the sport. It’s about how much money we can we all put in our pocket right here right now.”

White expounded by posing a hypothetical scenario in which everyone in the room was guaranteed to earn $37 million that year, no matter what: “Guess what you’re gonna do? Not much.” In contrast, the Ultimate Fighting Championship incentivizes its fighters with bonuses, which in turn encourage fighters to perform better. For most fighters, the pay structure is a mixture of a guaranteed fight purse, a bonus for winning and potential bonuses for finishes and performances of the night. This, according to White, is the secret behind the UFC’s success.

Let’s investigate that. Incentivization breaks down most simply into factors of intrinsic motivation -- you do something because you want to -- and extrinsic motivation -- you do something because you get rewarded for doing it. It is both intuitive and evidence-based to say that intrinsic motivation is the stronger of the two, especially when it comes to long-term behavior. Think about it in terms of soldiers who fight for pride and patriotism versus hired mercenaries; after enough time spent in combat, the soldiers fighting for what they believe in will have a lot more desire to continue. The question, then, involves how extrinsic incentives affect intrinsic motivation.

I’d be remiss not to clarify terms here, as they are commonly misunderstood. In social sciences, the word “positive” means something is added to the equation, whereas “negative” means something is removed. “Reinforcement” means it motivates you to do something again, whereas “punishment” means it motivates you to not do something in the future. Thus, there are positive and negative reinforcements and positive and negative punishments.

The UFC’s pay structure is a system of positive reinforcements. If you do something the promotion wants you to repeat -- win, put on a great fight or finish a fight spectacularly -- you are given more money. This is as cut-and-dry an example of extrinsic motivation as there is. You’d be a fool to suggest that there is no place for such incentives; in many situations, they promote greater effort and improve performance. However, the long-term effects that they have on a person’s intrinsic motivation can often be detrimental. In many school and work settings, subjects said that contingency rewards made them feel alienated, manipulated and dehumanized. Furthermore, these incentives often made people perceive their work as less valuable, which ended up hurting performance in the long run.

It is safe to say that virtually every professional fighter has a great deal of intrinsic desire to compete in this sport. Almost everyone in the UFC has had to cut their teeth in local promotions where they made pennies -- or less -- before making it to the big leagues. Even then, entry-level pay in the UFC is laughably low. Those driven purely by extrinsic rewards would not go through such rigors for long.

So let’s go back to White’s $37 million question. Let me first say that I will gladly take him up on that offer. I’d guess that, while some people would validate White’s suspicion of laziness, most of us would probably be just as productive -- if not more -- than usual, because we would be allotting our time to doing things we actually want to do. Even in the UFC this holds true. Did Nate Diaz, who did not have any win bonus in his contract for UFC 196, perform worse because of it? Did Conor McGregor, who was also promised a cool million for showing up to fight Diaz, look any less motivated to win than he did making $8,000 to show and $8,000 to win when he first entered the UFC? No, because they are both intrinsically motivated. Paying them more or less money won’t necessarily make them want to win any more or less; that competitive drive is essential to who they are. The same thing can be said for basically everyone on the UFC roster.

The UFC knows that and manipulates it by paying fighters less than what they deserve. Underpaying fighters has been a profitable gambit for the UFC, because it is the premier brand in the sport and fighters are both prideful and stubbornly competitive. That’s the soft power that prestige carries. What makes this whole McGregor situation interesting is that he may be the first fighter who could bring a substantial amount of casual fans with him were he to fight elsewhere, which gives him unprecedented leverage. To put his drawing power in perspective, the two pay-per-view cards he headlined last year were responsible for 27 percent of the UFC’s total PPV sales in the entire year. Only Ronda Rousey accounted for more of that total (34 percent), but she needed an extra event to do so; her top two headlining spots sold slightly less than McGregor’s.

Though he used some wonky math, ESPN’s Darren Rovell estimated that UFC 200 would earn about $45 million less without McGregor. The UFC brass is not stupid, so why are they willfully forfeiting millions of dollars? Let’s defer to Princeton University economics professor Roland Bénabou and Nobel Prize recipient Jean Tirole, who asserted in a 2003 study that “… such ‘ego bashing’ may reflect battles for dominance: by lowering the other’s self-confidence, an individual may gain real authority within the relationship, enabling her to steer joint decisions or projects in a preferred direction. This generally comes at a cost, however, namely the risk of demotivating the partner from seeking good projects, or from exerting effort …”

Thus, the irony of White’s cocksure comments on the functional brilliance of incentive schemes is that they come with proven long-term adverse effects. In the same study, Bénabou and Tirole conclude that individuals who receive extrinsic motivators “showed better compliance at the beginning, but worse compliance in the long run” and that such rewards have “a limited impact on ‘engagement’ (current activity) and a negative one on ‘re-engagement’ (persistence).”

So yes, it is true that these kinds of fight bonuses are effective in a myopic vacuum, but in the big picture of a fighter’s career -- keep in mind, McGregor is only 27 -- they have adverse effects. On the other hand, some things have proven to reliably improve performance, namely financial stability and managerial support. Conversely, the anxiety of financial uncertainty and the perception of management as adversarial are surefire ways to obstruct intrinsic motivation and hurt performance. McGregor is already financially stable, but his relationship with the powers that be is publicly fraying, and other fighters who are not as well-to-do are taking notice. All this for a press conference that nobody but White seemed to care about.

Removing McGregor from UFC 200 was an obvious power play to assert dominance, but even the staunchest behaviorist will concede that extinction -- a complete removal of something desired -- is a surefire way to demotivate.

It’s estimated that White’s annual salary is around $20 million. Is his presence right now really as profitable to the company as McGregor fighting 20 times in one year? The answer is obvious, but the UFC’s attitude towards its fighters begins and ends at the fact that they are not even considered employees. To the UFC, they’re all lowly independent contractors, some more fungible than others.

Hailing from Kailua, Hawai’i, Eric Stinton has been contributing to Sherdog since 2014. He received his BFA in Creative Writing from Chapman University and graduate degree in Special Education from University of Hawai’i. He is an occasional columnist for Honolulu Civil Beat, and his work has also appeared in The Classical. You can find his writing at ericstinton.com. He currently lives in Seoul with his fiancé and dachshund.

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