The Ultimate Fighting Championship on Dec. 16 found itself in unfamiliar water when a group of law firms filed suit alleging two main antitrust violations against the Las Vegas-based MMA promotion.
First, the lawsuit alleges the UFC used anticompetitive methods to maintain an illegal monopoly over the promotion of mixed martial arts. Second, the lawsuit alleges the UFC used anticompetitive methods to obtain monopsony power in the market of MMA -- meaning the Ultimate Fighting Championship has engaged in illegal efforts to protect its position as the only option for fighters looking to sell their MMA skills.
The lawsuit is filed under Section 2 of the Sherman Act. Federal antitrust laws like the Sherman Act aim to protect competition, which benefits consumers by ensuring lower prices, higher quality and innovative products. Section 1 of the Sherman Act prohibits agreement between competitors that harm competition, such as agreements to fix prices, restrain output or not compete. Section 2, the section under which the UFC is being sued, addresses single-organization conduct that harms competition. It protects consumers from organizations engaging in certain conduct to create or maintain a monopoly position. By maintaining an illegal monopoly, an organization can charge higher prices, spend less money on research and development and supply less of a product.
One of the most important questions for the court to resolve is whether to certify the lawsuit as a class action. Class-action lawsuits are powerful in that they allow plaintiffs to aggregate separate claims into a single, unified lawsuit against a party, creating the potential for huge liability.
The court will initially consider four prerequisites under Rule 23(a) of the Federal Rules of Civil Procedure on whether to certify this case as a class action: The class is so numerous that joinder of all members is impracticable; there are questions of law or fact common to the class; the claims or defenses of the representative parties are typical of the claims or defenses of the class; and the representative parties will fairly and adequately protect the interests of the class. These four prerequisites can be explained more simply as requiring numerosity, commonality, typicality and adequacy of representation among the class. If the plaintiffs are able to satisfy these four factors, the court will then look at whether questions of law and fact predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The lawsuit against the UFC states the exact number of members projected to join the suit is currently unknown but that the plaintiffs believe that the number is in the hundreds.
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Moving from the procedural to the substantive, the lawsuit really boils down to two main issues: that the UFC obtained its MMA monopoly through anticompetitive conduct and that the UFC enjoys monopsony power in mixed martial arts. Monopolies, in and of themselves, are not illegal. The question for the courts to answer will be whether or not the UFC has a monopoly and also whether this monopoly was obtained through anticompetitive, and thus illegal, methods.
The lawsuit alleges numerous examples of anticompetitive conduct against the UFC, in furtherance of its alleged monopoly and monopsony power on MMA. There are even pictures in the lawsuit of alleged anticompetitive conduct, such as screen shots of UFC President Dana White’s tweets and a photo of White holding a tombstone containing the names of former MMA promotions that have either gone out of business or been acquired by the UFC. The lawsuit also highlights the alleged restrictive nature of the UFC’s contracts with its fighters and other vendors and its relationship with rival promoters and competitors.
The court will look to similar case precedent in analyzing these allegations against the UFC. The most analogous case to the current situation is Fraser v. Major League Soccer, an antitrust lawsuit filed by eight soccer players against MLS and decided in 2002. This case is relevant because the UFC and MLS contain many similarities already. Both have similar revenues when compared to the other major sports leagues. MLS also operates as a single entity in which each team is owned and controlled by the league’s investors. This makes MLS a much more appropriate analogy of a sports league to the UFC than the NFL, NBA or NHL, in which each team is separately owned and operated.
In Fraser, the plaintiffs alleged that MLS violated Section 1 of the Sherman Act by monopolizing the market for professional soccer in the United States. The plaintiffs in Frasier claimed MLS prevented other entities from engaging in the U.S. market for professional soccer players and that MLS salaries were artificially low due to this anticompetitive conduct.
The court in Fraser granted summary judgment for MLS, meaning the court dismissed the case before a full trial because there were no genuine issues of material fact to be tried. A material fact is one that tends to prove or disprove an element of the claim. Fraser appealed this ruling, and the appellate court held that Section 1 of the Sherman Act only applies to cases where there is more than one economic actor. The court further held that a parent company and its wholly owned subsidiaries are still a single business enterprise and are not subject to a claim against Section 1 of the Sherman Act for agreements made between them. The fact that the plaintiffs in Fraser lost a case claiming a Section 1 violation of the Sherman Act could be one of the reasons that the plaintiffs in the current case against the UFC are alleging only a Section 2 claim.
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Ultimately, we are in the very early stages of this potentially large antitrust fight against the UFC. The most important takeaways are as follows:
• The real compelling effect of this lawsuit may come during the discovery phase of the case. During discovery, the UFC may have to share internal emails, confidential payout information and other internal documents. The internal practices of the UFC could be given daylight, and a clear picture of the UFC’s income and expenditures would be revealed. This could still have a profound impact on the UFC’s business practices, regardless of outcome.
• This may be a difficult case for the plaintiffs to win. Certain Section 1 claims under the Sherman Act involve “per se” violations. That is, if the conduct such as price fixing is proven under Section 1, there is no further inquiry into the conduct’s anticompetitive effect on the market. Section 2 claims, such as the case before the court, may involve a “rule of reason” analysis in which the plaintiff must prove there is actual harm to competition. This means that it would not be enough to simply prove the UFC is a monopoly or has monopsony power. Anticompetitive effects to the market based on that monopoly or monopsony power must be demonstrated.
• Bellator MMA’s latest rating success is the UFC’s best friend. Bellator, the UFC’s largest domestic MMA competitor, recently achieved two million views for Bellator 131 on Nov. 15 -- a number that is oftentimes higher than the UFC’s cable TV offerings. The event was headlined by former UFC fighters Tito Ortiz and Stephan Bonnar, potentially hurting the argument that fighters are unable to achieve meaningful MMA work outside the UFC or the notion that fighters are tied to the UFC in perpetuity.
• This lawsuit involves competent and seasoned antitrust counsel. The UFC has been sued before by fighters such as Ken Shamrock, but this current situation is entirely different. This case contains a multitude of lawyers and law firms as signatories. Cohen Milstein, one of the firms joining the case, successfully obtained an e-book pricing settlement from Apple for $450 million dollars in November.
• How many fighters ultimately endorse and join the case will be critical for its success. While Cung Le is touted as a “current” UFC fighter, he has previously asked for his release and does not appear to have a good relationship with the UFC after his recent drug testing dispute with the company. The question will be whether any fighters actively competing for the UFC will join on.
• The Federal Trade Commission and the Department of Justice are the federal government agencies tasked with monitoring antitrust violations on behalf of consumers. The FTC previously assessed whether the UFC’s 2011 purchase of Strikeforce created any antitrust issues. The FTC declined to pursue any further action against the UFC; and it is unlikely that the UFC is ill-prepared for this lawsuit having had to retain antitrust counsel with regards to an FTC investigation.
Jeffrey Aris is an attorney at the global law firm Hogan Lovells and is experienced in matters relating to the business of MMA. This article does not provide legal advice, and any opinions expressed in this article are solely those of the author and do not reflect the views of his law firm or Sherdog.com. He can be contacted at [email protected] Douglas Litvack contributed to this piece.