FanPost

MMA, UFC and Natural Monopoly




With SF's demise now confirmed, this would seem to be a good time to talk a bit about the UFC's virtual monopoly on the sport, and whether it's good or bad for the sport, or simply "Natural".

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According to Wikipedia:

"A natural monopoly by contrast is a condition on the cost-technology of an industry whereby it is most efficient (involving the lowest long-run average cost) for production to be concentrated in a single firm. In some cases, this gives the largest supplier in an industry, often the first supplier in a market, an overwhelming cost advantage over other actual and potential competitors. This tends to be the case in industries where capital costs predominate, creating economies of scale that are large in relation to the size of the market, and hence high barriers to entry; examples include public utilities such as water services and electricity."

"William Baumol (1977) [1] provided the current formal definition of a natural monopoly where "[a]n industry in which multiform production is more costly than production by a monopoly"

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One way you can look at this is: yes, it's true - if the UFC dominates MMA, it can keep the purses paid to fighters low, therefore keeping costs down. Multiple promotions bid up the cost of talent - therefore monopoly is natural. Also, you need scale to put on cost-effective events. The fixed costs of putting on an event are high - venue, production, etc. One top promotion putting on the best events, getting full houses, and selling many PPVs is more efficient than several promotions putting on half-filled events and splitting the PPV pie. Again, this drives toward natural monopoly.

I feel that the definition isn't complete particularly when you look at certain industries. It fails to take into account the revenue (i.e. money from Customers) side. Operating systems for computers are a relevant case. Microsoft has a dominant, virtual monopoly on desktop computer operating systems, with Apple over time maintaining a sizable niche position, some people use Linux... and just about all others dying/died out (remember Atari, Amiga, Commodore, etc). Why? Because the customer experience in a world of many non-compatible operating systems and software that runs on those systems is terrible; in addition to the low efficiency of many companies independently developing OS and software.

In sports, and in MMA, most of us will agree that the best sporting achievement occurs when all the best teams or players are in the same league competing with each other. Examples (probably redundant but I do think they illustrate):

- Tennis: imagine if Federer and Nadal played for one league while Murray and Djokovic played in another, and "never the twain shall meet"

- Boxing: frustrating that, with alphabet soup and many different promotion and management companies, the market cannot compel Manny and Money to fight

- Soccer: what if World Cup didn't exist, and Brazil never got to play any of the top European teams, instead playing in a South Am Cup?

- Football, Basketball, Baseball: imagine if all the top teams were split into 3-4 different leagues, never playing each other? This is what it would be like if Pride, SF and UFC all co-existed.

In my mind, it's clear that the best customer experience is when the UFC has all the top fighters in its stable, and can largely compel them to fight each other (within certain limits, e.g. with regard to Superfights). It's also fairly clear that the MMA industry lends itself to natural monopoly - to the degree where only one top level promotion can exist. Sure, there will be feeders and regionals, but I believe unless the UFC screws up badly, anyone else that attempts to compete at the top level will either fail or be bought out. There's only so much money on the customer side (PPVs, network TV) that will be allocated to MMA, due to the limited size of the MMA fanbase. That total pool is probably only large enough to support one top level promotion. If that pool was enough for two, SF would have had the opportunity to thrive, either via massive TV viewership or sizable PPV views. In the end, I think it served just two, relatively unprofitable purposes: 1) hardcores getting an extra MMA fix; 2) casuals watching some "ultimate fighting" for a bit of a laugh; perhaps realising that they are seeing a 2nd tier, and therefore "not very good" promotion as compared with the UFC, which they wouldn't be prepared to pay $50-60 for.

So: UFC's dominance, it's virtual monopoly, is both natural and good for the industry from a cost as well as customer experience perspective. Given the "natural" nature of its monopoly, it actually probably has a zero to positive effect on fighter salaries. The idea that competition can raise salaries is, long term, a falsehood, because those competitors are doomed to failure or merger with the UFC - again partly due to the market size, and partly due to sporting merits (what customers prefer). And, due to the sporting merits, I believe the UFC is the platform that can drive increasing growth in the market, growing the pool of money available, and (although the % of profit delivered to fighters may be low compared to major sports) constantly increasing fighter pay at a rate FAR above most other industries, at least for the short to medium term.

Keep bangin', bros.

Arca

\The FanPosts are solely the subjective opinions of Bloody Elbow readers and do not necessarily reflect the views of Bloody Elbow editors or staff.

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