The Economics of UFC Fighter Uniforms

Photo courtesy of Front Row Brian

In addition to standardizing a brand image, fighter uniforms are essentially giant exclusive contracts. Bloody Elbow’s resident economist takes us through some of the economic issues with UFC uniforms and sponsorship restrictions.

When the idea of UFC fighter uniforms was initially floated a few months ago, it's safe to say it was greeted with mixed reviews. Some saw it as a positive development moving the UFC in the direction of more mainstream sports leagues, while others saw it as just another way for the alpha dog UFC to screw over its fighters. Some fighters were worried about the effect on their own brand image as well as restrictions on sponsor logos in the limited remaining space. The UFC is often perceived as the only MMA game in town and mandated fighter uniforms could reinforce that perception.

As a fan, I'm still haunted by the memories of Dennis Hallman fighting in his bet-losing, eye-burning, can't-look, can't-turn-away blue speedo during UFC 133. Uniforms or not, it's clear that any remotely mainstream business would want to protect itself from Hallman's nonsense. But he was an anomaly.

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Esther Lin for MMA Fighting

Cody Mckenzie gave us another recent example of crazy fighter apparel when he jumped into the octagon wearing freshly-purchased basketball shorts at UFC on FOX 9 last year. Funny as it was to see Herb Dean remove one of the tags in the middle of the fight, McKenzie left his fight shorts at the hotel. Throw the first stone if you've never gone to work and left your laptop, cell phone or other important piece of equipment at home. [Bracing myself]

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Kyle Terada - USA TODAY Sports

Uniforms in sports are obviously nothing new. The four major US sports all have them as well as an effectively prohibitive sponsor tax. Players are disallowed from having personal sponsors on their in-game uniforms, with limited exceptions for things like shoes in the NBA or batting gloves in MLB. We see these exclusions every day and no one bats an eyelash.

Players are also generally restricted from promoting unauthorized sponsors at official events. Brian Urlacher was famously fined $100,000 by the NFL for wearing a vitaminwater hat to the 2007 Super Bowl media day. As a direct competitor to Gatorade, the NFL's official sports drink, Vitaminwater wasn't an authorized sponsor. While this may seem heavy-handed or even an abuse of power, these restrictions are generally pro-competitive and economically beneficial as they encourage Gatorade and others to invest in advertising and compete with their rivals.

If the UFC adopts fighter uniforms, presumably they'll offer different types and styles of shorts so the heart of the issue is about limiting each fighter's ability to make extra money by selling space on their fight gear to sponsors.

Every fighter is a walking, talking potential corporate billboard. Every inch of their gear is scarce and limited "shelf space," not much different than the space in grocery stores (top shelf, bottom shelf, eye level, end of isle) that food companies fight for and spend tens of millions of dollars a year to obtain.

A uniform is essentially a big-time exclusive contract. Apparel companies like Nike, Adidas and Under Armour bid for the right to be the exclusive uniform manufacturer. The winner gets to place their logo on the uniform and obtains the rights to sell officially-licensed product to the public.

Another potential economic element of uniforms is exclusive sponsorships. In this case, the winning sponsor's logo is placed in a featured position while all other logos are forbidden (except for the manufacturer's logo). The four major US sports don't currently take advantage of exclusive uniform sponsorships but European football clubs do.

To get an idea of the revenue-generation potential of uniform deals and exclusive sponsorships, we can look at Real Madrid. Their uniform deal with Adidas (also known as a kit deal) pulls in $41 million per year while their sponsorship deal with Emirates Airlines brings in $39 million. While the UFC's numbers would be different, it's clear that we're not talking about chump change.

The exclusive uniform sponsor of the UFC could be anyone from Bud Light to Harley Davidson to Dynamic Fastener to Salesforce. It could even be the uniform manufacturer with Nike or Under Armour bidding extra to also be the exclusive sponsor. Logo placement could be completely exclusive or semi-exclusive with a few other areas reserved for a fighter's own sponsor logos. There are a number of ways these deals can be implemented and the economics are similar, so I'll focus on complete sponsor exclusivity - as in the Chris Weidman mockup below - while recognizing that the actual uniform deal could take different forms.

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Photo courtesy of Front Row Brian

When potential sponsors compete for exclusive logo placement, the winner of the bidding gets everything. The loser gets nothing. There are a number of economic reasons to use an exclusive and, in this case, it changes the pricing forces faced by bidders (sponsors), giving them a stronger incentive to bid more aggressively.

A simple way to think about this is to pretend you own one of the ketchup brands: Heinz, Hunts or Del Monte. You can share shelf space with your competitors at grocery stores or you can offer money to be the only one on the shelves of Ralphs, Kroger, Albertsons, etc. Normally if you set a slightly lower price, you might land a few more customers. But when you bid for an exclusive, a slightly better offer can take you from nothing (losing the deal) to everything (winning the entire thing). It's all or nothing, so you have a strong incentive to make better bids, especially if big money's involved.

In and of itself, this is good news. In-cage sponsors don't bid lower prices, they bid higher ones - so more money goes into the MMA fight game. For those who've been concerned with trends in the in-cage sponsorship market, fighter uniforms are a way to expand this money pie.

The real question and true unknown is how will the slices be divvied up? While the four major US sports forbid uniform sponsorships, they each have uniform production deals with apparel companies and share the revenues with their players.

How will it work in the UFC? Will every fighter be guaranteed to make more than their current sponsorship deals are worth? Will a certain class of fighters (top-tier, mid-tier, low-tier) get screwed while others make out like bandits? Will fighter payments be slotted based the type of type of event (PPV, FOX, etc.) and their position on the card - similar to the slotted salaries for NBA draft picks? Will fighters individually negotiate their sponsorship payments when they sign or renew with the UFC? How much money can be made with the remaining space each fighter will still control?

At the moment, opining on many of these possibilities is akin to talking out of one's ass since we just don't know yet how the details will work. If I had to guess the final form, it would be that the lower-tier guys receive slotted payments or have the payments added to their show and win money - which are effectively slotted for many - while the higher-level fighters negotiate their own individual deals with the UFC.

What we do know is that the economics are clear; a uniform deal and/or exclusive sponsorship deal will generate substantial new revenues for the UFC and its fighters, more than could be achieved by the individual fighters on their own. The real question is how this revenue will be split.

A larger revenue stream is a big positive, but not all of it will be passed through to the fighters. How much depends on the UFC's power in the labor market. Their actions over the next few months will not only be important for the immediate effects on fighters, but they could also potentially serve as statistical evidence in the future if the UFC is sued by the Federal Trade Commission or private litigants for antitrust concerns.

The days of earning $50,000 in walkout money are over for most fighters so this is a big moment for the UFC, not only in terms of fighter relations, but in terms of potential monopsony power and antitrust issues down the road. Will there be a reasonable amount of revenue sharing or will the UFC go full-blown Ivan Drago, "I must break you"?

I expect this piece to illicit strong opinions. People love to get fired up and argue vehemently when economic issues involve workers and their compensation. So check out the poll at the end and let your voice be heard in the comments no matter where you stand or what you think.

I'm on record as saying that I think the UFC's biggest antitrust concerns going forward are in the labor market, of which fighter sponsorships are one component (already written, forthcoming on BE via John Nash). But I won't judge them before learning more precise details about the upcoming uniform and sponsorship restrictions. If, in fact, Under Armour is to be the official in-cage sponsor, here's hoping that the deal protects all houses instead of just "this house!"

Paul is an associate professor of economics the Pepperdine University Graziadio School of Business and Management and Bloody Elbow's analytics writer. Follow him on Twitter @MMAanalytics for more.

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