When the UFC's low fighter pay recently re-emerged as a major topic of discussion and even made its way to Business Week as a given, UFC president Dana White responded with a very canny threat: he promised to raise pay for the lowest tier fighters but only by killing the popular Fight Night bonuses for Best KO, Best Submission and Fight of the Night.
The outcry from UFC fighters was immediate and just what White expected. They'd rather have a very small chance to make a lot more money than have a guaranteed moderate pay bump.
Ben Fowlkes spoke to Seth Gitter, a professor of Economics at Towson University in Baltimore, who explained the psychological gamesmanship behind White's threat. Gitter cites something called "tournament theory":
"The idea is that in many situations most people receive really small wages with a small chance of big wages," Gitter said.
Those wages are determined not so much according to actual value, but rather on relative value among the individuals. That's why winning a fight usually pays twice as well as losing it, and why the champion usual makes many times more than the challenger. Financially, being No. 1 in MMA isn't an incremental improvement on being No. 2 – it's a colossal one.
Still, tournament theory might help explain why fighters are often content to compete for very little in the hopes of one day hitting it big. It also might be a very savvy way of doing business, from the UFC's perspective.
"Economic theory developed under tournament theory suggests the most effort will be put into production when there is a big difference between winning and losing payouts," Gitter said. "I think the prizes provide exactly the incentive an economist would recommend."
Dana White and the Fertittas are not rich by accident. They know the mentality of the fighters they employ and know how to manipulate the fighter mindset to keep pay levels as low as possible.