MMA Industry Scenarios and Fighter Pay

Some may find the recent glut of fighter comments on pay rates to be exhausting, but I've been reading them, and the comment sections, with great interest. As a management consultant, I like to study such things as industry structure and economics. Over time, I think the industry will continue to evolve. Allow me to analyse and then speculate a little...

Current Situation

> One major (could be considered dominant) player (UFC) which has absorbed several competitors. The defining characteristics of this major player are:

- has most of the top fighters under contract (i.e. close to monopsony)

- pays equal or slightly higher than industry average (this, I don't have solid proof of - just going on the collective anecdotal evidence from fighter interviews, disclosed pay, etc.). I'm referring mainly to entry level fighters here, as "the sky is the limit" for stars depending on their charisma and self-promotion. Now, the fact that they pay similar to the rest of the industry is something that is "good" from the point of view of allowing competition. If the UFC wanted to keep other promotions from attracting talent, it could offer significantly higher than the competition, as well as sign guys just to keep them off other promotions' rosters, even paying them to be inactive if necessary (think some of the big soccer teams in Europe, whose 3rd stringers are possibly the same quality as a smaller team's starting lineup)

- offers some employee benefits above industry standard (insurance; royalties from appearances in games; greater sponsorship opportunity due to better exposure)

- limits sponsors via the "sponsor tax" which arguably hurts fighter income because small sponsors cannot participate. Also arguably ensures a higher quality of sponsor which leads to greater likelihood of sponsorship payments actually coming through

- has the biggest TV deals and highest earning PPVs in the industry

- charges a fairly high price for its PPV and other (tickets, merchandise, etc) product (i.e. is leveraging its dominant position to extract significant profit from consumers - this is in fact "more OK" from the point of view of allowing competition. If the UFC charged a low enough price that it could be considered "keep out" pricing - i.e. low enough that competitors would not be able to profitably operate, that would potentially trigger a study by the competition watchdog)

> The rest of the industry are 2nd tier (Bellator, One FC, WSOF) and 3rd tier players. As they are much weaker, Competitive Rivalry would be relatively LOW.

- limited or no access to "stars". The fact that the UFC hasn't monopolised Rampage, Fitch, King Mo, Fedor and other recognisable fighters that it COULD have kept on the roster (Alvarez, for example, is not currently signable) is a point in the UFC's favor as far as allowing competition to exist

- a few have relatively strong financial backers like Viacom/Bellator, and OneFC appears to be solid

- a few have significant TV deals

> Barriers to entry are relatively low - as indicated by several new promotions starting up in recent years. Therefore threat of new entrants is HIGH

> Supply (of fighters) is high (i.e. it's an enjoyable job that seemingly many are willing to do for low pay) and fragmented (no collective representation) - which means the the suppliers (fighters) have LOW bargaining power

> Customers (i.e. us, the consumers) are fairly large in number and fragmented (no collective representation) - which means we have LOW bargaining power

> Threat of Substitute Products - HIGH - other sports and entertainment all compete with the UFC. And new forms of entertainment continue to evolve e.g. youtube videos, reality tv.

> Regulatory Frameworks - relatively little impact, although licensing in NY seems to be a sticky one. But mostly, regulatory bodies aren't constraining the industry too much.

> Overall this points to what we know to be true: the UFC is in a very dominant, powerful position currently. Some small threats exist in the form of new entrants but it will be hard for them to gain significant market share.

Possible Scenarios

1) Status quo - little will change over the next 10 years. There will be steady but not groundbreaking industry growth. The UFC will continue to allow competitors to grow, and when they achieve a certain level, will attempt (probably successfully) to acquire and merge them. We will see a pattern of 2nd tier players rising, being absorbed, new ones rising, being absorbed, etc. The UFC will remain dominant. Fighter pay will continue to rise but there will always be complaints because the UFC's income will rise at least equally fast if not faster, resulting in a permanently low percentage of revenue delivered to fighters. Supply and demand will continue to determine the actual, low pay rates. Prices paid by consumers will remain high and rise with inflation or faster, if the UFC feels it can extract more profit by doing so. I think this is the most likely scenario but clearly not the best for fighters. Reason: obvious - the fighters appear unwilling or unable to organise themselves into a "Union".

2) "Union"isation - I use this term loosely as it is more likely to be a professional association like the ATP, if it winds up existing at all. This scenario is the same as (1), plus fighters across the USA and potentially overseas form a meaningful association that has negotiating power with the UFC and other promotions. It establishes a pay scale, primarily aimed at giving lower tier fighters a higher pay rate. It will not necessarily force all promotions to pay the same rate, which I think should be allowable (I believe unions can negotiate different CBAs with different organisations even within the same industry, which makes sense because no two companies are identical and the benefits they can provide may vary). That makes sense because insisting everyone pay 10/10 minimum could force smaller promotions out of business, hurting the industry. Over time, as the union becomes more successful, it should hopefully attract higher and higher tiers of fighters to its ranks, potentially resulting in enough power to negotiate a straight revenue split arrangement at the 35-50% mark with the UFC. At this point the industry would have achieved what many think is "fair" as compared with the NFL and similar leagues. Personally, I think this is the best industry outcome for fighters and fans. A stable dominant player whose power is counterbalanced by a single dominant talent representation entity that protects fighter rights and negotiates pay levels. We'll have the best fighting the best, for the optimal amount of money. What this needs though, is some dedicated/influential managers, gyms and enough lower tier fighters to start the ball rolling. Self-interest seems to be getting in the way of such activity.

3) Oligopoly (Strong Competition) - Multiple strong players will exist, dividing the talent pool among them. Perhaps it's OneFC, Bellator and the UFC. I am against true business competition in these kinds of industries because it reduces the quality of the sporting competition. It would be similar to having three regions in NFL where the champions never meet. Or three competing tennis organisations - and Federer, Nadal, Djokovic would never play each other. I also think the industry structure doesn't encourage this outcome as a stable long term proposition, so it is unlikely to occur. Reasons include: consumers prefer to see the best against the best; there are currently no big overseas players or interest in creating them (harking back to Pride here, which if I am not mistaken was the only significant overseas player which could have been considered a peer to the UFC); athletes generally tend to choose to fight in the promotion with the best competition (i.e. they gravitate to the UFC, which means it's very hard for any other player to build a full rank of top tier guys in any division). Prices to the consumer might be lower in this scenario but the quality of product would suffer.

4) Major Sport - the UFC remains dominant and leads the sport into the "major sport" stage where it competes on an equal footing with the NFL, NBA, global soccer, etc. Unlikely, because the level of violence will probably always turn off a major proportion of the potential fans. But if it does happen, revenues will go through the roof, and fighter pay will probably follow. It'll rise to the point where all UFC fighters are making a decent enough living, complaints will dry up, and Dana and the Fertittas will be richer than God. With so much money to be made, I'd expect some heavy duty sports lawyers or influential organisers, perhaps from other sports, to enter the industry by assisting with organising the fighters. A "Union" would be more likely to get created, leading to a higher % of revenue distribution to fighters. Prices paid by consumers would remain high but with pay rates high, attracting strong talent, the fighter quality would improve. A fantastic outcome for everyone but I don't see it happening.

Your Say

- are there other scenarios you think are possible or likely, or desirable?

- what do you think is the likely outcome?

- how can the best outcomes be achieved? (For example, Nate Quarry suggests consumer pressure on the UFC - I believe it wouldn't work)

\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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