Analysis & opinion by Paul Gift, reporting by John S. Nash.
Antitrust cases move at a snail's pace but today we've got some action, fight fans! Zuffa has officially filed a motion to dismiss the antitrust charges levied against them by fighters in four separate but related lawsuits. For detailed information on the specific allegations from the fighters, see here and here.
At the most basic level, Zuffa "moves to dismiss the Complaints in the above-entitled actions for failure to state a claim on which relief may be granted... The Complaints' vague and conclusory allegations fall far short of the Supreme Court's requirements in Bell Atlantic Corp. v. Twombly, for pleading specific facts showing a plausible antitrust claim."
Twombly was a Supreme Court case that, while not directly applicable to the law the plaintiffs wish to enforce (Sherman Act, Section II), tightened the pleading standards for antitrust cases requiring "plausibility" as opposed to being merely possible or conceivable. The takeaway for fight fans is that it is harder for plaintiffs to survive a motion to dismiss. Here's a write-up from 2007 by current FTC commissioner Josh Wright on the Twombly ruling.
The heart of Zuffa's motion to dismiss is:
Plaintiffs fail to allege facts that plausibly show that Zuffa's alleged exclusive dealing arrangements are anticompetitive. Exclusive deals are common and procompetitive, including in sports, because they encourage interbrand competition, encourage promoters to invest in marketing both the athlete and the sport, and prevent competitors from free-riding on those investments. Plaintiffs' conclusory accusation that Zuffa's contracts "indefinitely" lock up "all or virtually all" of the Professional MMA fighters necessary to compete in the promotion of MMA bouts is unsupported by specific factual allegations and implausible on its face. Plaintiffs' conclusory allegation that Zuffa has locked up all the venues, television outlets and sponsors necessary to compete is similarly implausible and without factual foundation. Plaintiffs' Complaints do not show that Zuffa has foreclosed any competition in the alleged markets, much less foreclosed a substantial share of the alleged markets. Absent plausible allegations that the UFC's exclusive deals have foreclosed competitors from obtaining the necessary inputs to compete, Plaintiffs cannot show that Zuffa's contracts are anticompetitive or justify the enormous expense of a large antitrust case.
We still don't know which side's going to win or how any settlement will go, but for those who have been with Bloody Elbow from the beginning on this story, some of those arguments should sound familiar.
Next, Zuffa claims that the fighters "have failed to allege plausible, properly defined relevant product markets." The heart of this claim is that the fighters "invented the term ‘Elite Professional MMA Fighter' and did not consider substitutability which is a key consideration for a relevant market. On top of that, they claim the relevant market defined by the fighters (Plaintiffs) is "artificially narrow," as pretty much all antitrust defendants do. Remember, Zuffa wants a large relevant market so the percentage of their business activity in said market will be smaller.
Zuffa's third claim is that they have no antitrust "duty to deal with competitors" and their refusal to co-promote events with competitors (old Strikeforce, Bellator, WSOF, etc.) is not a "cognizable antitrust claim."
The fourth claim is that "Grants of exclusive name and likeness rights, including rights in perpetuity, are common in the sports and entertainment industries and have been consistently upheld by the courts." They claim the fighters haven't alleged any facts showing the granting of their rights have impacted competition.
Although Plaintiffs might have preferred to license fewer rights to the UFC or to receive more money for their rights, those desires do not give rise to an antitrust claim.
Zuffa's final claim is that the fighters haven't shown that the acquisition of other MMA promotions has had an anticompetitive effect.
Plaintiffs have not pled specific facts showing that the UFC's acquisition of other MMA promoters has resulted in any anticompetitive effect. The Complaints make clear that even after these acquisitions, the UFC continues to face robust competition from multiple, well-funded competitors able to stage bouts with prominent fighters and television distribution.
Those are the general claims. Here are some specifics outlined in the motion.
Zuffa argues against "all or virtually all" its fighters being locked up "indefinitely" by showing that "Plaintiffs themselves actually fought for competitors after fighting for the UFC." This makes for an engaging example, but Zuffa's probably weak here. They'll need to demonstrate that more than just the plaintiff fighters have moved to other promotions or been competed for and that this competition took place prior to being cut.
Zuffa then moves to a broader description of the output market.
Plaintiffs do not allege how many sponsors or potential sponsors exist or what percentage of those sponsors the UFC has under contract. In regards to venues, Plaintiffs do not describe the universe of "key" venues or explain why other venues would be not reasonable substitutes. As for television distribution, Plaintiffs do not allege which or how many networks are restricted, nor why any other of the hundreds of television networks that do not carry UFC bouts are not adequate alternatives for competitors.
Zuffa's trying to show implausibility through Plaintiffs' lack of detail. If the Plaintiffs don't meet the plausibility standard, we could very well see this complaint get dismissed without prejudice and the fighters file an amended complaint with more specifics. Zuffa's also trying to get Plaintiffs to more properly define the universe of elements being foreclosed from rival promotions such as sponsors, venues and television networks.
Zuffa notes that five competitors named in the fighters' complaint have emerged since 2006 (RFA, Titan, Legacy, Invicta and Bellator; plus two others, WSOF and BAMMA, that used Plaintiffs after their time in the UFC) and only one (Strikeforce) was acquired during the Class Period. This is an effort to show a competitive input market for fighter services in the sense that there are other bidders competing for contracts.
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As we've mentioned before, the Plaintiffs' case appears weak on its surface in terms of winning a verdict. The primary reason is that exclusive contracts are rule of reason illegal (a much lighter standard than per se illegal) due to their many legitimate business justifications. Zuffa pounces on this by stating, "Exclusive dealing is a common and pro-competitive form of agreement that encourages participants to invest in mutually beneficial promotional activities and prevents competitors from free-riding on those investments." This tells us that if the case progresses past the motion to dismiss, we can expect Zuffa's attorneys and economic expert witnesses to hammer home the pro-competitive benefits of their contracts; i.e., why it makes competitive business sense to have exclusivity for its workers. Zuffa adds to the argument by citing not wanting competitors to "free-ride" on investments they've made in their fighters. They note other sports and entertainment contracts as examples.
Zuffa next states that even if competition for fighters was foreclosed, rivals weren't blocked from critical inputs to compete and weren't blocked for a significant duration (recall that this was a key element identified in part two of my dissection).
...the Complaints do not allege facts plausibly showing these contracts have blocked competitors' access to so many athletes, venues, sponsors and media outlets that it has foreclosed competition in the promotion of MMA bouts and in MMA fighter services. Nor do Plaintiffs allege the purported extent or duration of foreclosure from exclusive contracts with fighters, venues, television networks or third parties.
They then go on to talk about the pro-competitive benefits of exclusive contracts, many of which we've touched on before (marketing, promotion, development, "competition for the contract"). For listeners of Show Money, they even cite an NBA case involving exclusive contracts in the off-season.
Zuffa next focuses on the nitty gritty details of how exclusives may or may not foreclose rival competitors. They focus attention on the competition that takes place before fighters sign with the UFC, the short-term nature of the exclusive contracts and the other fighters that are available outside of the UFC.
Plaintiffs' allegations are insufficient to show (1) that competitors were foreclosed from initially competing for the contract for any athlete who signed a UFC contract; (2) that the duration of contracts for so many UFC fighters was so long that competitors are foreclosed from competing for those fighters when their contracts run out or are otherwise terminated; or (3) even if one were to assume (incorrectly) that the UFC somehow obtained without competition complete and perpetual exclusivity with the 500 fighters it allegedly has under contract, that the inability to access these UFC fighters forecloses competitors from competing for a substantial share of the relevant alleged markets with other Professional MMA fighters.
Notice how they subtly dropped the word "Elite" from "Elite Professional MMA fighters"? They want the relevant market to be larger.
The next step is for Zuffa to address contract length more specifically. They note Plaintiffs reference the Champion's Clause but it only applies to a few fighters at a time. Short-term contracts expire on a regular basis which makes foreclosure of rival promoters much less likely.
Plaintiffs provide no other facts plausibly supporting their "all but indefinitely" claim. Nor do they show why competitors cannot compete for fighters on a staggered basis as fighters' UFC contracts end, even as some UFC fighters remain under contract.
Remember the discussion on how the fighters' claims of venue exclusivity "won't be pretty"? Zuffa's version is this:
...the alleged contractual restrictions with the venues it rents are both conclusory and wildly implausible... The Complaints do not identify which event locations constitute these "top venues" or "second-rate venues" or even attempt to approximate the number or percentage of event venues allegedly foreclosed to rivals on the "Las Vegas Strip."
Zuffa believes their contracts don't even foreclose Las Vegas, much less the United States. To repeat, this particular part of the lawsuit won't be pretty.
Regarding sponsors, Zuffa states Plaintiffs' haven't identified the universe of sponsors being foreclosed.
...if Zuffa has an exclusive deal with Reebok, Reebok may well be a "major" or "key" sponsor, but this allegation says nothing about whether competitors can compete for other major apparel providers, such as Nike, Under Armour, Adidas, Puma, Everlast, Champion, and countless others.
If you're noticing a theme here, Zuffa's attorneys are trying to use the fighters' lack of specificity against them to get a dismissal via the plausibility standard and, at a minimum, force the fighters to re-file their complaint with more specific allegations that can later be used against them.
Zuffa closes by noting that their likeness rights clauses haven't inhibited competition for fighter services.
While their theory is not clear, to the extent Plaintiffs argue that they wanted greater freedom to license their identities in other contexts, they do not explain how this would have increased competition in either MMA bouts or MMA fighter services. Clearly, the Plaintiffs who fought for other promoters after leaving the UFC were able to use their names and likenesses in promoting competitive bouts.
What you've now seen is a taste of the back and forth of antitrust cases. Don't be shocked if the case gets dismissed. Expect the fighters to immediately file an amended complaint with more specificity in key areas. Remember, in antitrust cases the time isn't now. It's years.
Zuffa requests a hearing for their motion to dismiss on July 23, 2015. Bloody Elbow will keep our readers updated every step of the way on this monumental case.
Paul is Bloody Elbow's analytics writer and former provider of expert witness support in antitrust cases. Follow him @MMAanalytics.