Judge's Summary in M-1 vs Affliction Case Lifts the Veil On Doing Business with Fedor

To fans of the UFC and mixed martial arts the business-side of the sport can seem  downright mystifying. Any and all dealings are apparently performed in the shadows: pay is rarely discussed, locker room bonuses are left unreported, and contracts are treated as state secrets. Negotiations between the major players is often kept shrouded in secrecy, only revealed - if they are ever revealed - as brief and cryptic missives. Rarely is the curtain lifted, to allow us a glimpse into the inner workings of this multi-million dollar business and when it is, more often than not, it seems to only come about through compliance with the court system. Thanks to the Central District Court of California that curtain has been briefly lifted again.

On June 7th, Judge Margaret M. Morrow denied all the parties involved in the Fedor Emelianenko/ M-1 vs Affliction litigations (case 2:09-cv-MMM-MLG) cross motions for summary judgment. Her ruling means that the case will be sent to mediation and if the parties are unable to resolve this through a third party mediator it will then progress to trial. A 55-page document of Judge Morrow’s decision was released [To read the full decision click on the link] and it provides a fascinating glimpse into the behind-the scenes business dealings of some of the biggest players in MMA. Both Justin Klein of Fightlawyer.com and Jose Mendoza of MMAPayout have done a great job of covering the case and Judge Morrow's summary, highlighting what they each view as some of the most pertinent sections contained within, particularly in concern with the chronology leading up to the cancellation of the Trilogy event.

via jabsngrabs.com

May 13, 2009

Tom Attencio sent M-1 counsel Steve Bash a letter which stated "Mr. Emelianenko is to fight on August 1, 2009 against Josh Barnett.

July 9, 2009

Affliction began discussions with the UFC regarding a potential sponsorship deal.

July 13, 2009

[Afflction's counsel] Bassiri and Lawrence Epstein, UFC’s general counsel, discussed the possibility that UFC would assume responsibility for the Trilogy show and postpone it to September 19, 2009, in Dallas. Bassiri told Epstein that Affliction Promotions wanted to leave the MMA promotion business and re-establish its relationship with the UFC.

July 15, 2009

Beard, Courtney Dubar, Clifton Chason, Eric Foss of Affiction knew Bassiri was meeting with the UFC a second time...

 ...No one at Affliction told anyone affiliated with M-1 that it was exploring the possibility of reestablishing a relationship with the UFC.

July 21, 2009

M-1 learned from Affliction that the California State Athletic Commission would not renew Josh Barnett’s license because he had tested positive for the use of steroids.

...

After leaning of Barnett’s ineligibilty, Atencio identified a short list of potential replacement opponents, including Brett Rogers, Roy Nelson, and Allistair Overeem.

July 22, 2009

Atencio offered [Brett] Rogers $500,000 to replace Barnett as Emelianenko’s opponent at the August 1, 2009 Trilogy event...

....

Strikeforce, with whom Rogers then had a promotional contract, was not willing to release him from his contract to fight in the Trilogy event, however.

...

When Bash called Affliction on July 22, 2009, regarding the status of the search for a replacement fighter, he "was told by . . . [Atencio] and [Beard] . . . that ‘[they were] going to make a decision tomorrow, and [they would] call [Bash] once . . . [they] figure[d] everything out.’" Bash reports that, after Beard and Atencio "said [they]’d call in the morning . . . [t]here was a period of time when [Beard] wasn’t answering his phone," i.e., "[t]he whole [next] day," despite the fact that Bash "kept calling and texting." The following day, Bash was in Los Angeles, and decided to visit the Affliction offices in person. He spoke with Atencio, who told him that the "partners [were] upstairs in a meeting, and they’re. . . making a financial decision on . . . who the opponent’s going to be." Bash waited for an hour and a half, but left when Atencio promised to call him at 8:00 a.m. the next day.

July 23, 2009

Strikeforce released Rogers to fight in the event. By that time, however, Affliction Promotions had decided to cancel Trilogy. At 4:00 p.m. that day, Affliction concluded a deal with UFC. Paragraph 1 of the UFC/Affliction agreement provided: "[E]xcept for any rights that [Affliction] has with respect to Fedor Emelianenko (‘Fedor’) and conditioned upon [Affliction] . . . assign[ing] the agreements between [Affliction] and the [Affliction] Fighters to the UFC, the UFC agrees to assume [Affliction]’s responsibility for payment of the entire purse of the Affliction Trilogy Event which [Affliction] represents is not in excess of $741,000 purse and $370,000 win bonus. . . ." Paragraph 2 stated that "[w]ith respect to Fedor, in the event the UFC is able to come to an agreement with Fedor on terms and conditions satisfactory to the UFC, the UFC shall assume responsibility for payments of Fedor’s purse for the Affliction Trilogy event or cause Fedor to release [Affliction] from its agreement with Fedor." Paragraph
6 required that Affliction Promotions cancel the Trilogy event.

July 24, 2009

Atencio finally returned Bash’s telephone calls on July 24, 2009. He advised that Trilogy had been cancelled and that Affliction had signed a deal with the UFC. Prior to the time M-1 learned of the cancellation, it had put Emelianenko on his scheduled flight to Los Angeles, and given him footage of both Rogers and Vitor Belfort so that he could study the fighters while in flight. Emelianenko did not learn that Trilogy had been cancelled until he arrived at Los Angeles International Airport with thirty fans from Russia.

According to the summary it appears as if not only was M-1 clueless to the fact that Affliction and UFC were in any kind of negotiations, learning of it only while Fedor was in flight on his way to Los Angeles, but that part of the final agreement between those two required that the Trilogy event be cancelled. To my layman’s eyes it would appear as if M-1 does in fact have a strong case in their claim of a breach of contract by Affliction [It’s also not hard to imagine that this might come into play in any hypothetical Federal Trade Commission investigations].

Here are some of the other tidbits that caught my eye:

* In an apparent effort to win the favor of their partners Finkelchtein (the parent entity of M-1) had invested $1 million to open an Affliction store in Moscow.

* In the Spring of 2009 M-1  tried to put together a co-promoted event between themselves, Affliction, and Dream in Japan, going so far as to fly Affliction staff members to Japan to take part in discussions. In the end, Affliction turned down the idea. (Note: Rumors of a Dream/Affliction/M-1 event being in the works was reported in April of that year. This seems to confirm that there was some basis for those rumors.)

* Perhaps symbolizing the breaking down of the relationship, when offered assistance with the matchmaking for the upcoming Trilogy card Tom Attencio answers with "NO!". 

Some of the most interesting revelations involve the relationship between Fedor and M-1. For years rumors had floated that Fedor was being used  by Vadim, that he was nothing more than a pawn in a game being played by M-1. On cursory examination of the release it would appear as if these rumors were true. In an email exchange with Affliction Vadim  bluntly states that M-1 is "tr{ying] to build a competitive organization using Fedor as the trump card." And use him they did. When questioned as to why he didn't express any complaints concerning the use of the Affliction logo at the M-1 Challenger events they were sponsoring to the tune of $1 million (non payment of $500,000 of which makes up part of the lawsuit) Tom Beard bluntly answers  "as long as Fedor fought for Affliction, that was all that mattered."

Even more alarming is the fact that Fedor was being paid only $300,000 per bout while M-1 was receiving a consulting fee of $1.2 mil per bout. It would appear as if we finally have confirmation of those long-persistent rumors, a smoking gun to prove that  M-1 is taking advantage of Fedor. Of course, this is only from a cursory examination, and if one was to study the document closer it would tell a completely different story.

We now know how large a stake Fedor has in M-1 (or in actuality, in Finkelchtein Beheer bv, the parent entity) - "Emelianenko has an 8.5% interest in the company". Also revealed are the details to his March of 2008 contract with M-1, which "obligated him to fight for M-1 for a two-year period in exchange for $2 million per bout, as well as a $1.5 million signing bonus."   Later, although still under contract with M-1, he and M-1 signed an agreement with Affliction Promotions. This new "fight agreement required that Emelianenko fight in three bouts with a $1.5 million purse per bout.’ Since Affliction would not cover the full ($2 million) payment, M-1 paid the $500,000 difference  along with a portion of his $1.5 million bonus after every fight.  For their part "[Fedor] and M-1 would have the exclusive right to distribute and exploit the bouts in Russia and Asia and to retain any revenues from such distribution and exploitation".

As for the  M-1 consulting agreement purportedly stealing from Fedor, according to Afflcition it was merely "a sham contract designed to decrease Emelianenko’s tax liability. Beard asserts that in a conversation with M-1 management prior to execution of the agreement, M-1’s managers stated that ‘they had certain financial concerns in having the entire $1.5 million dollar purse paid directly to Fedor,’" In fact, "Affliction has proffered undisputed evidence that M-1 paid the $1.2 million per bout it received from Affliction under the Consulting Agreement directly to Emelianenko or a company owned by him."

[From Finkelchtein (parent company of M-1) deposition "Q. At any time in relation to the first fight, did Affliction actually perform by paying $1.2 million to M-1? . . . A. Yes. Q. Did M-1 take that money and pay that to Fedor? A. Yes. Q. Did it pay it directly to Fedor or to one of these other entities [owned by Emelianenko] that we’ve discussed? . . . [A.] I don’t remember. Something to him, something to the company")

In fact, from the document it seems as if the evidence is almost overwhelming that the consulting agreement was purely a sham. Atencio maintained that "[he] never heard in all of the communications [he] had, . . . written and oral, [with] M-1 . . . anything about the Consulting Agreement until the meeting at Affliction’s office after the Trilogy event was canceled in July 2009." In addition there are numerous cases where M-1 referred to the fact that Fedor had an agreement to be paid $2 million per bout and that they themselves where paying him $500,000 (their share of the $2 million) for every bout. The most damning evidence might be the fact that the it is only two weeks after Affliction signs the original agreement to pay Fedor $1.5 mil that the agreement is changed to one where the bulk of the monies go to M-1 for ‘consulting". It seems impossible to imagine, no matter how naive you believe Fedor to be,  that after signing the first agreement he would willingly give up $1.2 million to his management a couple of weeks later. 

If one was to factor in Fedor’s fight with Brett Rogers, which was fought under the span of this agreement, it would mean that Fedor was paid $7.5 million for his 3 fights between March of 2008 and March of 2010, when the agreement ended. It seems likely that no other fighter had a guarantee for a purse of that size. And when put in comparison to Randy Couture's contract at that time, the only other major fighter who's contract has been released for the public to examine, it is hard to imagine more than a select few - if any - being paid more.

This information also brings up several interesting questions and scenarios. Is it possible that many of M-1 actions can be explained away as efforts to pay off and keep happy their number one asset, an asset that was also a heavy financial burden? While it is unlikely to be confirmed, I can't but help allow my feverish imagination to run wild envisioning an M-1 working overtime to find the markets and funds necessary to make payments to the "Last Emperor." Another interesting coincidence to consider is that Fedor's contract with M-1 ended right before the April 2010, Strikeforce: Nashville debacle. Is there any correlation between  the end date of his contract and the re-negotiations between M-1 and Strikeforce that kept him off network TV? Hopefully these questions and others will be answered by future court releases.

The case now moves to trial. A court date has not been set yet.