Update on Fedor/Affliction Lawsuit

August 18, 2010

It has been a little over a year since Affliction had to cancel its third PPV at the last minute. Fedor Emilianenko, the company’s main attraction filed suit as a result of Affliction’s sudden demise. 

In October 2009, Fedor Emilianenko and M-1 filed suit against Affliction for breach of contract in Los Angeles. Fedor and M-1 Global, Fedor’s promotional group, seek damages as a result of Affliction’s cancellation of its third PPV. Fedor’s contract guaranteed three fights. The lawsuit claims that Affliction did not make reasonable attempts to find a suitable replacement for Fedor’s opponent, Josh Barnett. Barnett was taken off the card as he was denied a license to fight due to a failed drug test.

The following are developments in the case:

  • In February, Affliction’s original attorney, Michael Bassiri, was replaced by Judd Burstein of New York. Steven Silverstein of Orange, California is Affliction’s local counsel. According to Burstein’s web site, he currently represents Oscar de la Hoya and has represented boxer Lennox Lewis, Don King and Donald Trump.
  • On July 15th  the Fedor/M-1 legal team filed a motion to depose Affliction co-owner’s Tom Atencio and Todd Beard. Legal filings between the opposing sides show a failure to agree on dates to schedule the depositions.
  • On July 28th, on a motion filed by the Fedor/M-1 legal team, the court moved the trial date from November 16, 2010 to June 7, 2011.

Payout Perspective:

Based upon the recent court filings, the lawsuit aims to be a tough battle inside and outside the courthouse. The depositions of Atencio and Beard should be interesting, if not contentious. The hiring of a New York attorney that has handled high profile figures reveals a possible shift in litigation strategy for Affliction. It will be interesting to see the amount of information that will be obtained through the discovery process.  Hopefully, the information may shed light on the unique contractual relationship between M-1 and Affliction.

Affliction Countersues M-1 Global

May 31, 2010

Loretta Hunt of Sherdog.com is reporting that Affliction has countersued M-1 Global by asking for declaratory relief on the validity of a “consultation agreement” between Affliction and M-1.

Affliction Entertainment filed a countersuit against M-1 Global, the management and promotional group that reps Fedor Emelianenko, in Los Angeles federal court on Thursday, asking for declaratory relief on the validity of a “Consultation Agreement” signed into by the two parties in April 2008 — allegedly under false pretenses. Affliction is also asking the court to rule that M-1 Global return $2.4 million in consulting fees it was paid in conjunction with two Affliction MMA events the two groups co-promoted in July 2008 and January 2009.

In the filings obtained by Sherdog.com, Affliction claims it, under M-1 Global’s directive, entered into two separate agreements with Emelianenko and the Holland-based organization to procure the services of the world’s No. 1 heavyweight as a headliner for three events.

According to Affliction, the California-based promotion inked a “Fight Agreement” that tendered $300,000 to Emelianenko per bout he participated in, while Affliction was directed to pay the remaining $1.2 million of Emelianenko’s $1.5 million asking purse per bout directly to M-1 Global under the auspice of a “Consultation Agreement.”

“The reason for the two agreements, Affliction was told, was for personal tax implications,” reads the countersuit.

Affliction claims no consultation was ever agreed upon or given by the M-1 Global group for the two events.

“Because the consulting agreement was a sham contract designed to avoid tax obligations, M-1 had no obligations to perform pursuant to the consulting agreement and therefore rendered no performance under the consulting agreement,” alleges Affliction’s filings.

Affliction is asking the court to deem the consulting agreement unlawful and that M-1 Global refund the $2.4 million it initially collected for the two events, plus a 10 percent interest rate per year along with attorney’s fees.

Payout Perspective:

We’d all heard of these so called “consulting agreements” when the Affliction-M1 deal was signed. Most viewed it for what it was: purely a tactic designed to extract more money out of the organization. It was the price Affliction had to pay for playing the Fedor game. Now they’ve conveniently turned around and said, “hey, this probably wasn’t on the up and up.”

I guess my question is, whose fault is that? Affliction – and Strikeforce, for that matter – knew what it was getting into when it signed the deal.

Hopefully the MMA community can learn from this: don’t sign the wrong deal for the wrong reasons. Moreover, you can’t bet the farm on one fighter (especially an unknown within your own domestic market).

This could get ugly. It would seem that both sides are prepared to battle this out in court, which could take a while (and a fair degree of money).

GSP-Affliction Ad in GQ Magazine

February 1, 2010

Here’s a look at the Affliction advertisement featuring Georges St-Pierre that appears on the back page of GQ’s February edition of the magazine.

GSP Affliction

Payout Perspective:

Brock Lesnar may be the biggest draw in the sport right now, but if St-Pierre continues to increase his profile with high-level sponsorships, magazine covers, and television appearances, it won’t be long before he becomes the biggest attraction MMA has to offer. He’s not a heavyweight, sure, but he’s one hell of a fighter and his appeal goes also transcends that mainstream divide – he has serious cross-over potential.

Affliction Motion to Dismiss Denied

January 26, 2010

J.R. Riddell of Sherdog.com reports that Affliction’s motion to dismiss M-1’s claims of breach of contract have been denied by a federal judge in Los Angeles.

On Monday, Affliction’s legal team urged the judge to dismiss a number of Emelianenko and M-1’s breach of contract claims, arguing that two of the three agreements at issue in the suit had expired well in advance of the “Trilogy” show. Emelianenko and M-1 Global’s legal team countered that the contracts had not expired, pointing to evidence that Affliction actively co-promoted the event with M-1, which in their view suggests that Affliction was acting as if the contracts remained in effect.

Bassiri, Affliction’s counsel, said that the judge denied the motion because at this early stage of litigation, she was legally required to accept Emelianenko’s allegations as true. The judge did not, however, make any binding decisions regarding whether or not Emelianenko’s claims were factually accurate.

Payout Perspective:

MMAPayout.com was the first to break word of the impending suit back in October and followed up with some detailed analysis of the situation which can be found below. Essentially the Fedor and M-1 camp filed a breach of contract suit against Affliction Entertainment and other unnamed parties citing failure to perform certain contractually obligated services.

Although the complaint itself is quite complex, it actually can be easily summarized in lay terms.  Fedor had a three-fight contract with Affliction, and fought two of the three fights, and agreed to fight Josh Barnett to close the contract.  Barnett failed a steroids test, Affliction had discussions with prospective replacements for Barnett (e.g., Vitor Belfort and Brett Rogers) but ultimately reached an agreement with UFC that would permit Affliction to once again sponsor UFC fighters so long as it agreed to exit the promotion game.

All contracts have what is called an implied covenant of good faith, and Fedor argues that Affliction, instead of satisfying its obligation of booking a third fight for Fedor by finding a suitable replacement for Barnett, chose the path of least resistance by returning to UFC and cancelling the third show altogether, leaving the contracts with Fedor unsatisfied.

The substantive issues in the lawsuit are interesting: in contract law there is what’s known as the excuse of impossibility, and here the argument would be that Barnett’s failing the steroids test rendered impossible the satisfaction of Affliction’s obligations on the Fedor contracts, with Fedor arguing that Barnett’s negative drug test was used as a mere pretext to allow Affliction to exit the promotion end of MMA and stiff Fedor.

But then we come to Affliction’s motion to dismiss, which throws a monkey wrench into the entire substantive analysis.  You see, Fedor argues that Affliction breached its contracts by cancelling Affliction: Trilogy and reaching agreement with UFC in July 2009.

Affliction’s motion to dismiss, however, points to the language of the contracts, which calls for termination of the agreements on either (i) March 31, 2009; or (ii) the conclusion of the third fight, with the contracts specifically stating that they terminate upon the earlier of the two dates.  Since there was no third fight, the earlier date was March 31, 2009, and Affliction argues in its motion to dismiss that it cannot be alleged to have breached a contract in July 2009 that had expired four months earlier.

Although this is an attractive argument, there are many complexities to the suit, including issues of equity (i.e., fairness) in which Fedor could conceivably recover foreseeable damages suffered by his reasonably relying upon promises made by Affliction, so I do not expect this motion to dismiss to entirely end the matter.

Moreover, the language Afflcition points to in its motion to dismiss has wriggle room that could be favorable to Fedor: the contract cancels on the earlier of the two dates “unless the term of the promotion agreement or any extension thereto is . . . extended further pursuant to this Agreement or pursuant to a separate writing . . . .”  I would expect some — perhaps very creative — arguments from Fedor that indeed the contract term had extended either through explicit writing, oral agreement, or even something known in contract law as course of conduct of the parties.

Affliction Files Motion to Dismiss Fedor Litigation, Plus an Examination of Allegations in Suit

November 12, 2009

MMAPayout previously discussed the basic facts surrounding the Emelianenko v. Affliction litigation and has now learned that Affliction filed what is known in federal court as a Rule 12(b)(6) motion to dismiss the case on the ground that Emelianenko and M-1 (to simplify, “Fedor”) have failed to state a claim upon which relief can be granted, basically arguing that even if the court looks at all the facts in the light most favorable to the plaintiffs, Fedor still has not made a legitimate case.

Affliction’s motion to dismiss in essence argues that the lawsuit is frivolous.

Affliction’s Tom Atencio told MMAPayout.com:

“Affliction landed a serious blow to the Fedor and M-1 lawsuit by filing a motion to dismiss in federal court in response to the Russians’ complaint only eight days after being served. . . . The counter by Affliction goes to show Affliction does not intend to rollover and be extorted by the Russian visitors and how frivolous and meritless Affliction considers the allegations of their complaint.”

Before examining the nature of Affliction’s motion to dismiss the lawsuit, it’s worth providing a basic analysis of Fedor’s allegations.

Although the complaint itself is quite complex, it actually can be easily summarized in lay terms.  Fedor had a three-fight contract with Affliction, and fought two of the three fights, and agreed to fight Josh Barnett to close the contract.  Barnett failed a steroids test, Affliction had discussions with prospective replacements for Barnett (e.g., Vitor Belfort and Brett Rogers) but ultimately reached an agreement with UFC that would permit Affliction to once again sponsor UFC fighters so long as it agreed to exit the promotion game.

All contracts have what is called an implied covenant of good faith, and Fedor argues that Affliction, instead of satisfying its obligation of booking a third fight for Fedor by finding a suitable replacement for Barnett, chose the path of least resistance by returning to UFC and cancelling the third show altogether, leaving the contracts with Fedor unsatisfied.

The substantive issues in the lawsuit are interesting: in contract law there is what’s known as the excuse of impossibility, and here the argument would be that Barnett’s failing the steroids test rendered impossible the satisfaction of Affliction’s obligations on the Fedor contracts, with Fedor arguing that Barnett’s negative drug test was used as a mere pretext to allow Affliction to exit the promotion end of MMA and stiff Fedor.

But then we come to Affliction’s motion to dismiss, which throws a monkey wrench into the entire substantive analysis.  You see, Fedor argues that Affliction breached its contracts by cancelling Affliction: Trilogy and reaching agreement with UFC in July 2009.

Affliction’s motion to dismiss, however, points to the language of the contracts, which calls for termination of the agreements on either (i) March 31, 2009; or (ii) the conclusion of the third fight, with the contracts specifically stating that they terminate upon the earlier of the two dates.  Since there was no third fight, the earlier date was March 31, 2009, and Affliction argues in its motion to dismiss that it cannot be alleged to have breached a contract in July 2009 that had expired four months earlier.

Although this is an attractive argument, there are many complexities to the suit, including issues of equity (i.e., fairness) in which Fedor could conceivably recover foreseeable damages suffered by his reasonably relying upon promises made by Affliction, so I do not expect this motion to dismiss to entirely end the matter.

Moreover, the language Afflcition points to in its motion to dismiss has wriggle room that could be favorable to Fedor: the contract cancels on the earlier of the two dates “unless the term of the promotion agreement or any extension thereto is . . . extended further pursuant to this Agreement or pursuant to a separate writing . . . .”  I would expect some — perhaps very creative — arguments from Fedor that indeed the contract term had extended either through explicit writing, oral agreement, or even something known in contract law as course of conduct of the parties.

Stay tuned for an examination of Fedor’s upcoming response to Affliction’s motion to dismiss Emelianenko v. Affliction.

Emelianenko, M-1 Allege Breach of Contract by Affliction

November 3, 2009

MMAPayout.com has learned that Fedor Emelianenko and M-1 have brought suit against Affliction Clothing and Affliction Entertainment in Federal Court. The complaint alleges breach of contract and breach of the implied covenant of good faith and fair dealing as it relates to a series of agreements between Emelianenko, M-1, and Affliction.

The complaint obtained by MMAPayout.com sheds new light on the relationship between the parties. Under the terms of the agreements, Emelianenko was to receive $300,000 per bout plus travel and accommodations expenses from Affliction in addition to a “substantial” payment from M-1. In addition to its promotional agreement with Emelianenko, Affliction also entered in a consulting agreement with M-1 as well as a letter agreement concerning Affliction’s sponsorship of the M-1 Challenge.

The cancellation of Affliction: Trilogy and the circumstances surrounding it are at the heart of the allegations.  According to the complaint:

Plaintiff is informed, believes, and based thereon alleges Affliction intended to sign Brett Rogers to fight in Affliction: Trilogy and intended to go forward with the event if the UFC deal failed, but intended to cancel [the event] if the UFC deal closed.  Brett Rogers was ready, willing, and able to fight Emelianenko in [the event], but instead of honoring its promises to Emelianenko and M-1 by signing Rogers, Affliction elected to serve its own financial interests at the expense of its partners.

The complaint goes on to state that following discovery concerning the events that lead to the event’s cancellation and “determining what discussions and agreements took place between Affliction and the UFC, and when these discussions took place, Plaintiffs will amend this complaint to add additional allegations, causes of actions, and parties as supported by the facts discovered.”

Stay tuned to MMAPayout.com for further developments and more detailed analysis.

Affliction to Sponsor Paul Daley

August 19, 2009

MMAPayout.com has received word that Affliction Clothing has come to a sponsorship agreement with former Affliction Entertainment and newly signed UFC fighter Paul “Semtex” Daley.

Daley, 26, had agreed to fight Jay Heiron at Affliction: Trilogy on August 1st – an event that ended up being cancelled. Despite reports that visa problems would have prevented him from participating, he did, in fact, secure the proper documentation prior to the show.

Thus, the new deal with Affliction and his signing to the UFC have helped turn around quite a tumultuous four weeks for “Semtex.”

The Nottingham, England native is expected to face Brian Foster in his UFC debut at UFC 103 in Dallas, Texas.

What Affliction MMA Should Have Been

July 29, 2009

By Kelsey Philpott

The fact that Josh Barnett’s positive test for anabolic steroids was able to bring down an entire card really speaks volumes about the level of structure, organization, and most importantly, depth, within Affliction.

A crisis such as this would not have hampered the UFC’s ability to put on an event; nor would it have likely impacted Strikeforce. Some might say it’s unfair to compare Affliction to the UFC or Strikeforce, but I’d argue that’s precisely the point of absurdity in this entire situation.

The real truth of the matter is that Affliction could not hope to compete with the UFC right out of the gate, and to expect otherwise was to set itself up for a rather large and costly defeat.

And, sure, the idea of what Affliction was trying to do is absolutely marvellous. What MMA fan in their right mind wouldn’t want another organization that is paying huge sums to its fighters, puts on some of the best fights in the world, and supports itself through millions in PPV revenue?

But as they say, Rome wasn’t built in a day.

Affliction should have done things properly right from the outset: going small, going responsible, and going from the ground up, all in order to build a solid foundation.

What would have been wrong with Affliction as a regional promoter – doing four shows a year – in any one of the many underserved MMA markets across the US? It could have easily leveraged its brand into a strong following, sufficient media coverage, and likely a TV deal (HDNet would have been a great full-time partner).

More importantly, as a regional promotion, Affliction would have had the opportunity to gain many of things it proved to lack: operational experience, fiscal accountability, organizational structure, roster depth, and a chance at consistency. In other words, the regional promotion business model would have equipped Affliction with all the tools it would have needed to deal with a crisis such as the one that occurred this week.

Call it what you want – the Strikeforce model, responsible management, whatever – this is the kind of approach and business model that would have produced success. It may not have made money right out of the gate, but it would have been a whole lot easier for the clothing line to subsidize a regional show than the international money glutton that Affliction actually produced. You can also bet that they would have been making money by the 3rd or 4th show; again unlike the model they decided to run with.

Further, the greatest strength of Affliction- aside from the brand itself – was Atencio’s passion and commitment to the sport. Under a better, more well-thought-out business model, you have to figure that it would have only been a matter of years before the correctly modelled promotion began to compete for big name contracts (just as Strikeforce has done).

That’s what Affliction should have been.

Point, Counterpoint: Affliction Killed Affliction

July 28, 2009

By Kelsey Philpott

Welcome to the latest addition of MMA Payout: Point, Counterpoint!

After reading Payout contributor Jonathon Snowden’s latest piece entitled “Who Really Killed Affliction?” I feel compelled to respond and engage in some healthy debate here on the website.

In his article Jon argues for the following:

As the smoke cleared from Affliction Entertainment’s implosion, the media vultures were quick to assign blame for the promotion’s demise. Some pointed a finger at Tom Atencio, the organization’s front man and the architect of fight cards filled with untenable contracts, cards too good and too expensive for an upstart promotion. Others blamed Josh Barnett, the self destructive enigma who once again allegedly resorted to using illegal performance enhancers to prepare for the biggest fight of his career. But the real culprit is a true American hero, or a titular one at least. Yes, Randy Couture killed Affliction and he did it all the way back in September 2008.

Fedor vs. Randy

Although Fedor vs. Randy may have been an epic fight, it would have been a far less epic PPV for Affliction.

Randy Couture is an enigma in the sense that he’s quite well regarded – a legend in fact – by most within the sport, but he hasn’t been able to match the success of men like Chuck Liddell or Tito Ortiz in the PPV department. He’s managed to headline some record shows (e.g., UFC 57 or UFC 91), but he’s never done it on his own.

If you were to assess Randy’s drawing power at the time of the proposed Fedor fight, you’d have to look at fights like UFC 68 or UFC 74. He was the main attraction in both cards (aside from having GSP on the undercard at 74) and drew in the solid, yet unspectacular range of 520-540k.

Fedor’s numbers, on the other hand, were downright dismal: 30k and 50k for the Bodog and Pride events respectively.  

While I understand the hype surrounding the fight, the simple reality of things was that Couture could not have carried a “super fight” on a somewhat unknown promotion, against a virtually unknown fighter.

The fact that some were expecting Fedor vs. Randy to break PPV records under the Affliction banner speaks to just how much the MMA community underestimated the value of the UFC brand and marketing push in comparison to the individual drawing power of great fighters like Randy Couture.

The subsequent performance of Affliction I and II – both of which featured former UFC heavyweight champions, Sylvia and Arlovski – is further support to this line of thinking.

Bad Gamble, Bad Business

I concede the points that Randy Couture was likely the basis for which Affliction’s promotion was formed and that Affliction seemingly bet the farm on Fedor vs. Randy.

However, I object to the notion that Randy Couture killed Affliction. 

Affliction made a bad gamble when they decided to bet the farm on a single, impotent main event, which is an absolute indictment of their bad business practices – it was ultimately a sign of things to come, with or without Fedor vs. Randy.

Affliction Killed Affliction

To claim that Randy Couture killed Affliction is to divert attention from the other significant factors that contributed to the demise of the promotion.

The following reasons for Affliction’s demise are issues that the MMA community – and prospective promoters in particular – need to be mindful of in the future:

1. Affliction had no apparent business strategy. The organization was content to focus on one event at a time, without any forward thinking as to what might lie ahead and how they might try to bring everything together in a cohesive, progressive manner.

2. Affliction used a flawed and inappropriate business model. In the organization’s quest to compete with the UFC, they chose to follow the PPV business model without the prerequisite fan following to ensure sufficient cash flow generation. Additionally, they paid out some of the most handsome fighter salaries in the history of the sport, while also forking out huge money to produce each show. They had Ozzy scheduled to play at intermission for goodness sake.

3. Affliction tried to build their organization around one fighter. It’s hard enough to build a card around one fighter, let alone an entire organization; and, whether it ended up being Randy or Fedor, the organization’s appeal was destined to be quite shallow. This, of course, omits the fact that Fedor, who became Affliction’s prime ticket, was a virtual unknown in the United States. It never added up.

Other Contributing Factors

4. The presence of the UFC. The sport’s most popular fighting organization drew the ire of many hardcore fans for its hard-line stance and opposition to Affliction. By refusing to co-promote, refusing to acknowledge the existence of Affliction, and waging competitive broadcasts during Affliction events, the UFC helped to cut off the casual MMA fan from knowing about, hearing about, or watching Affliction events.

5. The state of the sport itself. MMA simply isn’t yet popular enough to sustain a full-on competitor to the UFC. There isn’t enough disposable cash in the current economy, there aren’t enough marketable entities outside of the UFC’s control to make it happen, and, dare I say, there just isn’t enough interest in the sport as of right now.

Counterpoint Conclusion

Randy may have contributed to the beginning of the end for Affliction, but it was a combination of the organization’s strategy, business model, and singular attraction that led to the organization’s demise.

Check back tomorrow for a look at what Affliction Entertainment should have been.

White Promising Big Things For Friday Presser

July 27, 2009

In speaking on ESPN Radio Friday Night, UFC President Dana White indicated that he had business trips ahead for this week, but a presser planned for this Friday would yield a plethora of big announcements. While such grand pronouncements have yielded mediocre results in the past, let us take a look at some of the possible outcomes that will be revealed on Friday.

One possible announcement that isn’t too far beyond the realm of possibility is the introduction of a new weight class. The UFC and Joe Rogan specifically were talking up the prospect of the UFC having a 195 division around the time of the Wandy vs Ace Franklin match-up. The timing for an announcement in this regard would be ideal. The Association of Boxing Commissions is holding their annual conference this coming week in New Orleans and tweaking the process during the week could yield an announcement on Friday. The ABC introduced multiple additional weight classes last year but received a could shoulder to their proposals. The big three commissions (California, Nevada, New Jersey) that carry a lot of the weight didn’t seem very receptive, the sport’s biggest promoter (the UFC) was not giving it a second thought at the time, and they got a generally chilly reception from fans. A year in time has made the addition of a 195 class more attractive to the UFC. With a good number of fighters (like Rich Franklin, Wanderlei Silva, Dan Henderson, possibly a newly signed Vitor Belfort) still having name value at the PPV window but lesser chances at UFC gold at 185 and 205, the institution of a 195 weight class would give the UFC another belt to push and these fighters anther shot at competitive relevance. Where the UFC goes on the 195 topic, the big three commissions will follow, and the ABC along with them… this merely being a case of follow the money.

Another possible consequence of the presser will be the announcement of new signings to the UFC. President Dana White has recently made public his smoothed over relations with former nemesis Tito Ortiz. Vitor Belfort and Fedor Emilianenko are also targets that could be possibly be announced as signings, though the FEdor one my be a longer term negotiation. The level of animus to this point between M-1 and the UFC make me think that the chances of a resolution in a little over a week aren’t good. A more protracted negotiation, however, may yield a better chance of seeing the Russian star being able to come to terms. The Vitor Belfort Signing is much more likely. White commented very publicly on his intentions towards Belfort, even before he was contractually free from Affliction. Belfort, for his part, has stated in the past he would like to eventually make an Octagon return. With two parties intent on a deal, the Belfort deal is highly probable and a match up for the Dallas card could be in the offing.

Almost assured will be a strange bedfellows introduction and elaboration on the UFC deal with Affliction. The public face of Affliction, Tom Atencio, is a safe bet to make an appearance but for the sake of entertainment I’m hoping for a Dana White, Todd Beard moment on the dais. The rumors we are hearing indicate Affliction giving up a good chunk of the back end to re-enter the Octagon, similar in concept to the UFC deals with CageFighter and Tapout.

Chatter on a possible TV deal has also arisen lately but these deals always have to be handicapped as a bit of a long shot. A meeting of mutual interest between the UFC and their myriad of romanced TV partners has always remained elusive. Issues of control, ownership, and personalities have derailed possible deals that have been have linked the UFC to HBO, Fox, NBC, and CBS. ABC has been the latest to enter the UFC network carousel and maybe their ride will have a happier ending but such an announcement on Friday would mark the biggest surprise out of all the options mentioned above.

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