UFC Lawsuit: Takeaways from the fighters’ response to Zuffa's motion to dismiss

The fighters suing the UFC for antitrust violations filed their official response to the promotion's motion to dismiss late Friday night. They reiterate their claims that the UFC has used long-term, exclusive contracts to prevent rival MMA promotions from accessing the services of elite, professional MMA fighters, allowing the UFC to raise event prices and lower fighter compensation. They also make two new arguments.

Bloody Elbow has previously provided a detailed breakdown of the allegations in the fighters' complaint and the UFC's motion to dismiss. The latter deals with whether the fighters have satisfied the "plausibility" pleading standard from the Supreme Court in Bell Atlantic Corp. v. Twombly. The UFC essentially tried to argue that the fighters didn't provide enough factual allegations in their complaint to state a plausible claim for antitrust relief (others have also noted that the UFC may be using the motion to set the judge up for its future arguments). Now it's the fighters turn to return fire.

If the UFC's motion to dismiss was a mechanism to get the plaintiffs to make more specific factual allegations, it doesn't seem to have worked. To a large extent, the plaintiffs refrain from updating their claims with more detailed information. In many sections, they simply repeat their claims from the complaint. In a sense, they seem to be saying, "Let's take it to the judge and see if our allegations are plausible."

The two new pieces of information in the filing address why the plaintiffs have a monopoly claim and how the UFC's actions towards venues, sponsors and TV networks should be treated.

"The UFC's monopoly and monopsony power were mutually reinforcing."

When analyzing the complaint, I considered the monopoly power argument to be very weak (and still do). I wasn't even sure why it was part of the case, except for the fact that it really does no harm. We now have an answer as to why it's in there. The fighters argue that the UFC acquired monopoly power in the output market for elite MMA events which then gave rise to monopsony power in the input market for elite MMA fighter services. More specifically:

Plaintiffs allege as follows: the UFC used anticompetitive conduct to establish and maintain its dominance in the market for promoting live elite professional MMA events. That conduct included, among other things, (a) entering exclusive contracts with Elite MMA Fighters that effectively blocked the vast majority from fighting for rivals, (b) acquiring rival promotion companies, and (c) entering exclusive agreements with key sponsors and venues - together, the "scheme." By depriving rivals of necessary inputs (Elite MMA Fighters, key venues, etc.) and acquiring them, the UFC foreclosed all competition from rival elite MMA promoters. As a result, it became the dominant—really, the only—promoter of Elite MMA Events. It has monopoly power. That monopoly power in turn gave the UFC monopsony power over Elite MMA Fighters because it was the only purchaser of their services. That monopsony power enabled it to impose exclusive contracts on Elite MMA Fighters and to require them to give up their identity rights in perpetuity. The UFC thereby deprived rival promoters of inputs necessary to mount a successful MMA promotion company.

It looks like the plaintiffs are trying to describe the timing of events that led to fighters being harmed: first the UFC acquired monopoly power, then monopsony power, and then they screwed over the fighters. But as it's currently written, this will get blasted by the other side. They'll probably start with the logical consistency of the beginning and end, "By depriving rivals of necessary inputs...The UFC thereby deprived rival promoters of inputs necessary to mount a successful MMA promotion company."

I don't expect this to be fatal to the plaintiffs' case. It just means that eventually this "monopoly led to monopsony" story will change. Maybe the plaintiffs are dead set on including a monopoly claim because people understand monopoly and can relate to it. Maybe they like monopoly because it lets them claim consumer harm which is always helpful as an antitrust plaintiff. Maybe this is lawyers talking and the economists haven't taken over yet.

Monopoly leading to monopsony was never mentioned in the complaint and the plaintiffs don't need it to make a credible raising rivals' costs argument. I suspect it will eventually change but at least we now know what the monopoly claim is all about from the plaintiffs' perspective.

Cumulative effect

John Nash has been saying for months now that Carlos Newton and others told him the conduct as a whole is damning. In antitrust, this is referred to as the "monopoly broth" which comes from the statement, "[i]t is the mix of various ingredients...in a monopoly broth that produces the unsavory flavor," in City of Mishawaka v. American Electric Power. Monopoly broth is a fine term but since this is an MMA case and we're MMA lovers, let's call it "The Carlos Newton." The Carlos Newton goes as follows:

The UFC also engages in exclusive agreements with sponsors, venues, and distributors. Such exclusive agreements are cognizable parts of an anticompetitive scheme. The UFC improperly addresses each of these parts of the scheme separately, suggesting each, standing alone, did not foreclose competition. But that is improper. The cumulative effect was foreclosure. That is what matters.

To explain what they're getting at, suppose the UFC signs half its fighters to exclusive contracts and the other half are non-exclusive and can fight for any other promotion at any time. But for the non-exclusive fighters, the UFC tiers their salary so they make $50,000 show/win money during years in which they fight only for the UFC and $15,000 show/win money during years in which they fight for another promotion. The fighters are free to fight for another promotion but I'm guessing most would fight only for the UFC and take the higher pay.

The Carlos Newton (conduct as a whole) says we don't look at the exclusive UFC contracts and the non-exclusive tiered contracts separately. They're two separate forms of conduct but part of the same monopoly broth.

Look for this to turn into a battle of legal citations. Plaintiffs cite a 1992 case in which Southern California Edison was alleged to do a price squeeze and deny access to an essential facility. The court found, "...it would not be proper to focus on specific individual acts of an accused monopolist while refusing to consider their overall combined effect." This supports the idea of The Carlos Newton.

The UFC will probably point out that the next two sentences in the exact same case are, "At the same time, if all we are shown is a number of perfectly legal acts, it becomes much more difficult to find overall wrongdoing. Similarly, a finding of some slight wrongdoing in certain areas need not by itself add up to a violation." And now The Carlos Newton isn't looking as good.

Both sides will also likely battle over the types of conduct to which The Carlos Newton applies. So will The Carlos Newton survive? Only time will tell.

Judicial notice

In addition to filing their response motion, plaintiffs also gave judicial notice of certain facts as support for their relevant markets of elite, MMA events (output market) and elite, MMA fighter services (input market). These facts were mostly UFC statements, Moody's reports and third-party statements relating to the UFC being "premier," "elite," or "the best."

Per the UFC:

UFC ... today stands as the world's leading MMA promoter, offering the premier series of MMA sports events.

Most fighters fight professionally in smaller organizations for years and have extensive training in multiple disciplines before the UFC will even consider allowing them in the cage. These fighters are hand-picked from the best of the best and the few chosen ones make it to the pinnacle of MMA fighting - The Octagon.

Per Moody's:

In its Investors Service Report, Moody's attributed its high investor rating for Zuffa in part to the fact that "[t]he current scale and worldwide recognition of the UFC dwarfs any of its competitors in Moody's opinion... [W]e believe that Zuffa has attracted and secured under exclusive contract most of the top highly trained fighters in the sport, which is a qualitative competitive advantage."

The plaintiffs also post a copy of the Moody's report as an exhibit and highlight the quoted section.

In the Moody's quote above, the "..." covers up the sentence, "The company has been able to leverage its scale to offer comprehensive fighter insurance that smaller competitors are unable to offer..." This is important because Compensation = Salary + Benefits and insurance is a benefit.

The plaintiffs are trying to argue that compensation is being suppressed and they just voluntarily submitted a fact that the UFC offers a benefit no other competitor offers. This isn't disastrous, but it's definitely not something you see every day in an antitrust filing.

This is a major antitrust case and there's obviously a lot going on in these filings. We didn't touch on every single detail, nor would your desire for free time and sanity want us to. But we can be sure the legal teams will, as will the judge when it comes time for a hearing and ruling.

It looks like there will be a real fight over The Carlos Newton. Monopoly leading to monopsony may survive the motion to dismiss but will probably change sometime after. Per the current schedule, the UFC will submit a reply by May 1 and a hearing will be held on the motion to dismiss on July 23. Bloody Elbow will keep its readers updated as the case progresses.

Paul is Bloody Elbow's analytics writer and former provider of expert witness support in antitrust cases. Follow him @MMAanalytics.