Plaintiffs’ expert in UFC Antitrust lawsuit takes turn picking apart Zuffa’s economic expert

February 26, 2018

Dr. Andrew Zimbalist had the opportunity to offer a rebuttal report in response to a UFC’s economist undressing of his opinion on the damages in the plaintiffs’ case in the UFC antitrust lawsuit.

In the report he goes after Zuffa’s economic expert, Dr. Roger Blair as he claims that his analysis “provides no insight into Zuffa’s market power or monopsony power.”  As is the case with most rebuttal reports, Dr. Zimbalist picks apart the analysis from Dr. Blair.  He notes that while Dr. Blair pointed out that he did not originally define a market in his original expert report, it was not in his assignment to do so.  Thus, the critique “makes little sense.”

Here, Dr. Zimbalist has the opportunity to critique Dr. Blair’s definition of the market in stating that the basis of revenue generated, not the number of bouts or events.

Thus, the belief is that Dr. Blair is being too broad in his analysis of the market whereas Dr. Zimbalist is being more centralized.

Dr. Zimbalist also defends his use of the “yardstick” method in his original report:

The yardstick method I use to calculate damages, namely, selecting a group of comparators with as much similarity as possible with the target industry or company is one that is used commonly in real estate appraisals. It is also one of the three basic methodologies (comparable sales) employed to value companies: asset based valuation; discounted cash flow valuation; and, comparable sales valuation. More importantly, as Dr. Blair admits, the yardstick approach is a “recognized” approach to calculating damages. However, he claims that my yardstick approach is not acceptable because my comparators are not sufficiently similar to UFC, save the different organizations of their labor markets.

He also defends his use of boxing data in his original report:

Moreover, I also use professional boxing as one of my yardsticks, which suffers from none of the defects Dr. Blair suggests infect my team sport comparators. Boxing is similar to MMA in virtually every respect other than the amount of monopsony power the promoters can
exercise over the athletes, and the absence or unenforceability of many of the challenged
contractual terms due to the Muhammad Ali Act. Boxing has similar total revenues to UFC and
is therefore of similar scale and scope. Boxing promoters have an identical business model to
MMA promoters, with identical sources of revenue such as gate, PPV receipts, licensing fees,
and merchandise. Boxing promoters also incur identical costs to MMA promoters, such as purses for athletes, advertising and promotional expenses, timekeepers, referees, judges, and medical personnel. They also incur some television production costs As in MMA, boxers do not
collectively bargain. Indeed, none of Zuffa’s experts points to any distinguishing characteristic
that would make boxing an inapt yardstick. The only criticism Zuffa’s experts raise is with my
calculation of fighters’ share of revenue in boxing. I address that criticism below.

He also picks apart Dr. Blair’s arguments that the UFC’s conduct is procompetitive citing the flawed comparisons with pro sports free agency.  In this case, he takes issue with the examples of the NFL’s Andrew Luck and Von Miller used by Dr. Blair:

However, the specific examples that Dr. Blair discusses illustrate the important
contextual difference between the relatively competitive market for NFL athlete services and the
current UFC-dominated market for top MMA fighters. Dr. Blair cites the contract negotiations for two NFL players, Andrew Luck and Von Miller.  Both players negotiated contracts with their respective teams without reaching unrestricted free agency Andrew Luck’s team, the Indianapolis Colts, signed Luck to a five-year contract extension prior to the final season on Luck’s rookie contract. The total value of Luck’s contract was $122.97 million with $87 million guaranteed. Von Miller’s team, the Denver Broncos, applied the Franchise Tag to Miller after his final season on his rookie contract and, before the season under the Franchise Tag began, the Broncos signed Miller to a five-year extension worth $114.1 million with $70 million guaranteed. As both Luck and Miller approached free agency, the availability of a competitive labor market allowed them to negotiate contractual terms which allowed them to capture something close to their marginal revenue product, and reflected substantial increases from their prior contracts. UFC fighters have no such prospects.

As noted by Dr. Zimbalist, the issue in the above negotiations rested on the amount of guaranteed money as opposed to the overall contract number.

Also an interesting specific comparison is Dr. Blair’s analogy between the UFC’s “champion’s clause” and the “NFL’s franchise player rule.”  While the NFL’s rule is advantageous for the player that is “tagged,” the champion’s clause does not present the same reward.  Some of the portions of the report are redacted as to the champion’s clause discussion but the arguments remains true that

The report also addresses Zuffa’s other experts which we will get to in another post.

Payout Perspective:

The rebuttal is allowed of the plaintiff as a form of response to the defendant’s report.  Similar to the defendant’s report it is meant to poke holes at the opinion formulated by the opposing side.  Key to note in Dr. Zimbalist’s rebuttal to Dr. Blair’s critique is how he explains how free agency in other sports is different from that in the UFC as it relates to allege procompetitive benefits.  The negotiations differ since the NFL contracts are fought over the amount of guaranteed money in a contract versus the overall value of the contract.  This is due to the fact that many contracts of exorbitant amounts are never paid out that amount, are renegotiated for lower terms or terminated prior to payment.

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