UFC Strikeforce Merger Aftermath: No Union, No Competition, No Monopoly?

From the UFC Insider.

The business thinkers of the MMA world, such as it is, are continuing to analyze the ramifications and implications and possible defenestrations coming out of the UFC's purchase of Strikeforce. In the United States we have a vestigial memory (and a lot of still nominally enforced laws) of once having attempted to restrain corporate monopoly power so there has been a lot of concern over whether or not Zuffa, the corporate parent, will run afoul of the feds over all this. 

Dave Meltzer, the sage of the business has some very salient points in the Wrestling Observer (subscription required):

Two days later, when White was joined by UFC Chairman and CEO Lorenzo Fertitta and Scott Coker, who will remain in charge of the Strikeforce division, the theme seemed twofold.

The first was that the deal, which had been in negotiations since early December and was finalized on 3/11, is right now a work in progress. The second was pushing that the new deal does not create a monopoly in the sport.
But the reality is different, at least at the present time. Every major star and potential legitimate championship level fighter in the sport is now locked up and under contract with Zuffa, aside from a few with Bellator. The only exceptions are featherweights Bibiano Fernandes and Hatsu Hioki, both of whom have no name value outside of Japan, where the sport is struggling for survival past the grassroots level.

"There is no getting in," said one person who in the past had interest of getting into MMA in a big way. "One of the networks will have to say, `let's teach `em a lesson,' but that was (Doug) Herzog's mentality in taking TNA in 2005. Even though Spike didn't own TNA, he went with them in order to build someone up against Vince."

This next point from Meltzer is very very important:

For a top fighter, there is nobody out there who can afford the kind of money the elite fighters can get. Putting the two leading companies that were competing under the same umbrella removes any leverage fighters had when it came to getting better deals.

That's called a monopsony and it was once frowned upon both as a matter of practice, a matter of preference, a manner of custom and a matter of law rather than being part of a window-dressing of rarely enforced laws. 

Zuffa_purchases_strikeforce_medium

MMA Junkie legal counselor David Nelmark answers the monopoly question:

If the market is "entertainment," Zuffa definitely is not a monopoly due to other entertainment options such as video games and movies. If it's narrowed to "sports entertainment," Zuffa still competes with other big-time professional sports such the NFL.

Even if it's narrowed to "combat-sports entertainment," there are lots of other options out there, especially boxing.

If the market is defined as "mixed martial arts," it starts to become a closer question. But Zuffa still can point to the hundreds of regional MMA promotions around the country. Restricting the market even further to "televised MMA" still would include Bellator Fighting Championships, MFC and others.

Thus, for Zuffa clearly to have a monopoly, the market probably has to be defined as "pay-per-view MMA." In that arena, Zuffa does have a truly dominant market share, notwithstanding the internet PPV offerings of companies such as Shark Fights and the occasional televised PPV from companies such as Shine Fights.

Zach Arnold answers Nelmark's open question, what is the market?

UFC is in the PPV business and a heavy portion of their viewer demographics crosses over from the pro-wrestling field. They know what the formula is to make money. For an outsider wanting to get in, the barriers are now extremely high. A lot of money, a lot of resources, and a need for office talent that understands the business. It's not something you learn in a textbook. And yet, in many situations when new money marks come into the fold, it's always the sleazy retreads who should never have gainful employment who somehow attract the marks in order to draw a few paychecks before the next failure happens.

 

And that's just the climate in the States. Try Japan. Sumo's falling apart. The wrestling scene has limited power now. K-1 has had financial difficulties. The yakuza problems still exist. Now, the big Tohoku earthquake, tsunami, and nuclear problems. Want to be a promoter in Japan and spend a lot of money only to have to cancel a show? Several promoters have had to deal with that fate this week, including Dragon Gate which announced a cancellation of their big March 20th event in Tokyo at Ryogoku Kokugikan. All Japan has a show scheduled for the 21st at the same building. Their show may get postponed as well. Between the politics, resources, and crime, how will the Japanese scene look in the future?

MMA Payout looked at the situation from the perspective of a would be investor in a competing MMA promotion and where some opportunities may be:

If we look back at some of those figures, it took an investment of $3 million dollars from SVSE and Explosion entertainment back in February of 2009 to cash out on March of 2011, span of 2 years, to be bought by Zuffa for above $40 million dollars. Being the #2 promotion or the "next competitor to the UFC" paid off for Strikeforce, and I think many other promotion are looking at their model to try and accomplish the same.

...If Zuffa ends up deciding that they do not want female MMA in the UFC, another promotion could build a solid stable of female fighters and scoop whatever talent is left out there not under the UFC umbrella (see Bellator) to start the process all over again. FX, Fuel TV, G4, FSN, and other networks have shown recent interest in MMA programming, and all it takes is the right deal to present itself to a promotion for a shot at the #2 spot. With that being said, the risk in the market has grown exponentially high this time around, as UFC has taken a dominant share of the market and has the majority of the top fighters in MMA.

Strikeforce is said to have roughly 140 fighters under contract in addition to UFC's current 260 fighters, which is a whopping 400 fighters under the Zuffa banner at the moment. It is expected that a good portion of those fighters will be cut and out of the UFC by 2012, since Zuffa has said before that they feel comfortable with a roster of around 200-220 fighters. The UFC will also have to sign many foreign fighters as they keep reaching new international markets (trying to find the GSP of each country they visit), which only guarantees that many domestic fighters will be getting cut in the next 12 months. This bodes well for the promotions such as Bellator, MFC, Shark Fights, Titan FC, & Tachi Palace Fights in the States, BAMMA, and Cage Warriors in the UK, and KSW in Poland to name a few. It also bodes well for a station like HDNet who has TV contracts with MFC, Shark Fights, and Titan FC. These promotions have shown a great deal of potential in the last couple of years and the talent pool quality of MMA fighters should be increasing in the next year. One of those could make the next step up or it could be an investment group, like the ones behind ProElite to assume the #2 spot in the market. It will definitely be a risk for any investor to jump into the current state of the market, but fans and investors seem eager to give it another go.

In sum, I'd say there is no current competition for the UFC as a buyer in the market for top end male MMA fighters, for fans willing to buy MMA PPVs there is no competition in the PPV but there may be opportunities to compete financially for live gates and cable TV for competitors.

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