New UFC Antitrust Lawsuit filings include Plaintiffs’ Objection to Use of Zuffa “Summary of Exhibits”

June 15, 2019

The parties in the UFC Antitrust Lawsuit have exchanged objections to exhibits previously submitted to each side.  The objections are part of the trial schedule and are lodged with the court to argue prior to the use at August’s hearing with the experts.

For context on the request, Plaintiffs included the email to Zuffa attorneys in which they inquire about the exhibits that they seek to now exclude.  Plaintiffs claim that the exhibits are “creating new metrics for analyzing the data (e.g., “Fighter Share Deviations,” Foreclosure Share Deviations,” etc.) or breaking down data in ways that neither Zuffa nor its experts has/have ever before done in this case.”

Exhibit to Plaintiffs’ … by on Scribd

Plaintiffs have objected to exhibits submitted by Zuffa which are “Summary of Exhibits.”  The argument relates to expert materials which they claim are “outside the scope of the record created by Zuffa’s economists during expert discovery.”  As explained by Plaintiffs, they are “undisclosed consultants” with new analyses and cannot form the basis of Zuffa’s expert presentation.

Plaintiffs argue that the exhibits that Zuffa would like to use include new information that they did not have possession of for their experts to render an analysis and opinion.  This would be untimely and not according to the evidentiary rules per Plaintiffs.  The reasoning behind this rule is to give each side a fair opportunity to evaluate the opposing expert’s position and prepare accordingly.  Plaintiffs contend that the information should have been provided in a “timely written report” but they did not provide the report to them per the rules of the Court. Plaintiff points to the expert discovery deadline on January 24, 2018.

Payout Perspective:

Zuffa also objected to certain exhibits provided by Plaintiffs for use and we will look at that in another post.  In this submission by Plaintiffs, they claim that Zuffa has attempted to submit new information to utilize at the hearing of the experts in late August.  Plaintiffs object because of the overarching belief that it is an unfair surprise in that they do not have an opportunity to rebut the new information.  Plaintiffs point to the expert deadline to submit reports as a reason why they are seeking to have these exhibits excluded.  If excluded by the Court, this could cause significant impact to Plaintiffs case.  Of course, its anticipated that Zuffa will argue that the information is not new expert testimony and just a summary of findings already provided to Plaintiffs.

UFC 238 Payout Perspective

June 12, 2019

Welcome to another edition of Payout Perspective. This time we take a look at UFC 238 taking place at the United Center in Chicago, Illinois.

Cejudo dispatches Moraes and becomes double champ

Henry Cejudo recovered from a shaky first round to defeat Marlon Moraes with at TKO in the third round of the main event at UFC 238 to win the vacant UFC Bantamweight title. With the win, Cejudo holds the UFC Flyweight title and the Bantamweight title.

The fight showed Cejudo’s growth and maturity of an MMA fighter. The first round saw Moraes getting worked by Moraes with leg kicks. Cejudo seemed a little tentative in the first round but pressed Moraes in rounds 2 and 3 to get the victory.

Shevchenko leg kick KOs Eye

Valentina Shevchenko showed why she is the Flyweight champion. She almost submitted Jessica Eye with a Kimura in the first round, but used a perfectly timed leg kick to the head to knock Eye out. It was a very scary couple minutes as Eye lay on the mat unconscious.

The broadcast showed how Shevchenko set Eye up for the KO with leg kicks to the body drawing Eye’s guard low. Then, instead of a kick to the body Shevchenko went to the head as Eye braced for a body blow. A perfect setup.

Attendance, gate and bonuses

The event at the United Center drew 16,038 for a gate of over $2 million.  The bonuses went to Cejudo, Shevchenko, Ferguson and Cerrone.

Prefight Hype

UFC 238’s return to Chicago saw Henry Cejudo throwing out the first pitch at a Cubs game. He also showed up at a media luncheon with “bodyguards.” At the face offs during media week, Cejudo wore a costume to face off against Moraes. Shaun Al-Shatti explained it here:

Cejudo’s act may be just that to get him some publicity.  But, if he continues to improve and dominate opponents, he may be bringing a throne to his next fight face-off.

UFC Embedded was sponsored by Toyo Tires.

Sponsorships

Octagon sponsors included Toyo Tires, Motel 6, P3, Nemiroff, Modelo, Poker Stars, Devour, PariMatch, Monster, Hudson Shipping and Monster Energy in the middle.

Modelo had the fighter checkpoint.

Interestingly enough, no real signs of the UFC’s newest sponsor, Aurora Cannabis.

Despite his loss, Donald Cerrone is one of the few UFC fighters with his own Monster Energy sponsorship with

Ratings

The UFC Prelims on ESPN did its best since March scoring 964,000 viewers.  It served as a lead-in for Top Rank Boxing.  The UFC main card went up against the return of GGG on DAZN.

Odds and Ends

The Tony Ferguson-Donald Cerrone fight was everything you could have wanted until Cowboy blew his nose.  Ferguson looked sharp and if the fight have lasted longer, probably would have won a decision over Cerrone.  He should face the winner of Khabib-Dustin.

Tai Tuivasa was likely the star of the Embeddeds based on his outgoing personality.  However, he’s now lost two in a row as he lost a unanimous decision to Blagoy Ivanov.

There were some great performances on the undercards including Eddie Wineland, Calvin Kattar and Aljamain Sterling.

Sterling had a good week:

It was interesting to see Moraes get upset at a heckler at media day face offs.  It seemed over the top although you may believe that he was thrown off by it considering this was supposed to be media at the event.

Jessica Eye did not have a good start to fight week as she had problems with here airline.

The broadcast crew is using more technology in explaining a lot of the strategy and moves going on in the Octagon.  A prime example saw Daniel Cormier go step-by-step explaining how Shevchenko was able to get a clear headkick over Eye.

Is this good or bad?

UFC 238 google searches drew over 500,000 for Saturday and another 500,000 on Sunday.  Tony Ferguson had 100,000 himself on Saturday night

Conclusion

UFC 238 was a very entertaining show.  It went up against Top Rank Boxing on ESPN and the return of GGG on DAZN.   But the prelim ratings were up which may equate to a better PPV buy rate.  Reports indicate that the buys since going to ESPN+ have been lower than when on satellite and cable providers.

UFC 235 (pre-ESPN+ only PPVs):  520K-650K

UFC 236:  >100K buys

UFC 237:  ~70K buys

With that being reported, its hard to think that UFC 238 did better than UFC 236 although one might be generous and state that the buys were likely around 100,000.

The Athletic expands to combat sports, will fans subscribe?

June 10, 2019

The Athletic unveiled another vertical in its ever-expanding sports journalism business with coverage in combat sports.  The expansion gives the sport greater coverage but will the company’s foray into combat sports be rewarded with an uptick in subscribers.

Last week MMA coverage was introduced with MMA writing veterans brought on to write about the sport.  Today, Lance Pugmire, Mike Coppinger and Rafe Bartholemew announced that they are moving to The Athletic to write about boxing.  Pugmire wrote for The Los Angeles Times, Coppinger, for The Ring, and Barthomew a former writer for Grantland.  Notably, I interviewed Rafe back in 2010 about his first book at basketball in the Phillipines.

The expansion into covering MMA amd boxing was foreseeable.  Memorial Day weekend saw the unveiling of the company’s expansion into motorsports.  It also started to cover the WNBA when the season began in late May. With the company’s core business based on subscribers, robust content plus good writing, they are banking on an audience of hardcore sports fans that want a little more than the box score.

The Athletic has disrupted traditional sports journalism.  The standard business model for web sites with content is based on the selling of ads.  But The Athletic is solely based on subscribers as their main revenue source.

It hired away some of the biggest writers in the industry from other outlets and started a focus the localizing of journalism which hone in on certain cities and their teams as the writers gave a more detailed look at the teams including more features.

The startup was a creation of the Summer 2016 class coming of the Y Combinator – think summer camp for young entrepreneurs where they learn how to cultivate their ideas and most importantly, meet investors.

The company premised its business plan on the belief that there is still demand for “truly local content, written by sportswriters” with established credentials and contacts in the industry they cover according to a NY Times interview.  It started in Chicago where they hired the top sportswriters full-time and gave them a quota of writing quality, original content each day.

Perhaps the most notable early hires once it expanded past Chicago was the San Jose Mercury’s Tim Kawakami and veteran baseball writer Ken Rosenthal.  It also hired Seth Davis and Stewart Mandel.  Both known for their knowledge of college basketball and football respectively.

At a time when journalism was thought to be dead, The Athletic has shown it is not.  In a 2016 TechCrunch article, Alex Mather, co-founder of the company, said that 80% of readers view every article that is produced and subscribers spend an average of 90 minutes a week reading the content.  You can conclude that there is a base of fans that still want to read about the sports they follow and are willing to pay.

In addition to the written content, one of its main selling points is the quick load times for articles which, in a ‘right now’ society, is helpful.

Another aspect of The Athletic is that writers are incentivized to promote their work and build subscribers via social media as pay is tied toward the number of subscribers that they recruit.

Access is another linchpin for The Athletic.  With hiring established sportswriters, it gained instant credibility with teams and athletes.  NBA and MLB broadcasts refer to The Athletic articles all of the time.  Reporting on sporting events and interviewing players is just one component of The Athletic’s writing.  Long-form articles with intense detail and storytelling are a tell-tale characteristic of the web site.  This part of the web site has allowed them to be more creative and less-driven by press releases and/or PR pitches than with other sites demanding clicks.

Another facet of The Athletic that is pleasing to readers is no ads.  No sponsored content or banner ads that detract from the site.  Readers are asked at the end of the article if they find the content, “Awesome,” “Solid,” or “Meh,” which one might assume will factor into future content.

With the written content, it was only time before podcasts came along.  There are several podcasts on its platform and one might suspect MMA podcasts in the near future.

The Athletic has been a success since its launch.  As of late last year, it had over 100,000 paid subscribers with 60% under the age of 34 and a 90 percent retention rate for those retaining their subscription past the initial introductory offer.

Will this work for the MMA audience that have been accustomed to twitter for its news and looking on social media for the latest dust-ups between fighters?  Moreover, a fan base which is very supportive of fighters getting paid more and a union or association to combat the perceived injustices.  Yet, openly admitting to not wanting to spend money on PPVs and going through illegal streams to watch instead.  Paying $60 per year for stories up against web sites without a paywall seems to be a hard sell to MMA fans.  Alex Mather stated in a TechCrunch article that the $60 price is a “meaningful price, but not prohibitive.”

Of course, there is still backlash, by the MMA fan that doesn’t feel like they should spend money for writing.  It’s not a unique argument, but, as pointed out by Ben Fowlkes below, there is a price for writing:

In the TechCrunch interview, Mather differentiated The Athletic from others online as it being more original content as opposed to aggregated content.  With the advent of online content, there has been a demand for journalists to churn out blog posts in addition to stories for the daily paper.  The Athletic still demands daily original content, but there is also more feature material which could only live online without the parameters of a normal print paper or magazine.

The Athletic is the creation of co-founders Alex Mather and Adam Hansmann.   The two were co-workers at Strava – the subscription-based fitness company.  There has been a total of 6 rounds of venture funding.  Two seed rounds and three additional funding rounds.  According to Crunchbase, the initial seed round in 2017 drew 2.3 million.   A series A round saw it get $5.4 million.  A series B round raised another $20 million.  In October 2018, it drew another $61.8 million and the latest round in May 2019 saw it get another $21.7 million.  In total, it has raised approximately $89.5 million.

The company was valued at around $200 million after its October 2018 round and its likely more now after this latest round.

The Series C round this past fall was based on the possibility of diving into audio and video.  It also looks like there are rumblings that The Athletic will be expanding into the UK soon.

Eric Stromberg of Bedrock Capital, who met Mather and Hansmann at the Y-Combinator, and is an early investor in The Athletic stated that there were two things that they focus on when looking into investing a subscription business:  retention and a positive flywheel.

Retention seems self-explanatory in that there must be retention of customers after an introductory price is made.  The Athletic usually offers introductory offers to entice those interested.  It’s the retention to the usual price point is what matters to investors.

A positive flywheel is based on the premise that the more you build your subscriber base, the more you build your revenue base.  This provides the opportunity to reinvest the capital into hiring writers, expansion and technology.  Stromberg stated, “[w]hen this flywheel is working it’s actually quite hard to put a ceiling on the business.”

It would seem that The Athletic’s business model is working and the expansion into other sports will yield more fans to subscribe.  But the question of how much fans will be willing to spend becomes something dependent on the consumer.  Right now, things are looking great in the industry of combat sports as there are fights on multiple platforms and every weekend there’s an event to cover or write about.  The area of combat sports is not devoid of characters or notable stories.  This will keep the hardcore fans intrigued.  On a personal note, I think that boxing has a rich history that there would be a lot of stories to choose from.  Since MMA is relatively new, there’s only so much to pull from in comparison to boxing.  Yet, with the expansion of the subscription model where fans are paying for ESPN+ and DAZN and PPVs will there be a breaking point for paying out money for content that can be culled from the internet.  We shall see, but as of now the plan is working for The Athletic.

 

Mark Hunt lawsuit gone, but not forgotten

May 31, 2019

It appears that the Mark Hunt lawsuit will be coming to an end in the not-too-distant future.  With the parties dismissing their appeal to the Ninth Circuit, one might anticipate a settlement.  However, his case still presents an interesting legal issue that was not addressed by the trial court which dismissed most of his claims.  The question of whether there is an assumption of risk that a fighter will step in with another that is using PEDs.

In Hunt’s lawsuit, he filed a Civil RICO claim which alleged that the UFC and Dana White devised a scheme which allowed doping fighters to fight in the UFC.  The Court concluded that the scheme was “fatally speculative.” This, along with all of Hunt’s claims (save one) were dismissed by the trial court.

The trial court which decided the merits of Hunt’s case dismissed 9 out of the 10 claims in his lawsuit.  It held that the allegations were “non-cognizable damages or failed to plead facts to show” a proximate cause to his financial losses.

There were specific problems the Court had with the majority of Hunt’s claims.  Namely, his damages with respect to his allegations.  For non-lawyers, each of the allegations must have a duty, a breach of that duty, a proximate cause resulting in damages.  Here, the Court had issues with Hunt’s claim that his loss to Brock Lesnar at UFC 200 caused him to lose out on post-event marketing deals including loss of income from his clothing brand.  The damages claimed by Hunt were speculative in nature and could not stand as concrete damages.

The Court did not side with Hunt’s notion that doping fighters like Lesnar are “bigger, strong, faster, hit harder, and can handle damaging hits better,” and ‘misses the forest for the trees.’  As the Court explains, there are ‘numerous other factors’ that could account for why Hunt lost the bout or why it was (in Hunt’s view) such a lopsided defeat.’

In one of the more interesting parts of the Court’s opinion it dismissed Hunt’s battery and aiding and abetting claims against Lesnar because Hunt consented to the fight.  Notably, the Court highlighted that there was no evidence offered that suggested Lesnar did anything outside “the range of the ordinary activity,” in an MMA bout.

When it rendered its opinion citing that Lesnar did not do anything during their bout which was outside the “range” of ordinary activity in MMA, it cited to a California case in which a pitcher intentionally threw a ball at a batter’s head which injured the batter.  In a lawsuit over the damages claimed by the batter, the Court sided with the pitcher stating that while throwing at a batter’s head is “forbidden by the rules of baseball,” it “is an inherent risk of baseball.”  By analogy, the Court states that even though Lesnar tested positive for a performance enhancing drug, there was no evidence submitted which revealed he did something outside the scope of an MMA bout.  Thus, there can be no battery claim against Lesnar.  And since there is no battery claim, the underlying claim of aiding and abetting cannot occur.

The parties have (presumably) settled their case but the notion that Lesnar’s participation while on PEDs poses the question of whether the use of illegal drugs is within the “range” of ordinary activity.  Certainly, that can be the scenario with the Court’s conclusion flipped on its head.  Specifically, if the Court interpreted the case law on the premise of whether the actions occurring were within the scope of what’s ‘normal’ within the sport.  Consequently, you might infer from the trial court ruling that PED-use is normal which it should not.

The Court seems to draw a distinction with what an athletic participant could expect as opposed to the potential for actions outside of the scope of normal athletic participation.

The tort doctrine of “assumption of the risk” is that a plaintiff should not be able to recover for injuries caused to the plaintiff if he or she willingly assumed the risk inherent in the activity.

So, is using PEDs a “risk inherent in the activity”?

There are obvious cases out there which have addressed the threshold question of a “risk inherent in the activity.”

The most notable case involving sports assumption of the risk was an impromptu football game during halftime of a Super Bowl.  In Knight versus Jewett, a football game between friends turned into a lawsuit when a man stepped on a women’s hand causing an injury which resulted in the amputation of one of her fingers.  A lawsuit was filed based on the claims of assault and battery and negligence.  The Court held that the plaintiff could not recover for her personal injuries since the injury occurred in the ordinary course of the football game.

As mentioned above, a baseball player suffered a brain injury when he was the subject of a “beanball” by a pitcher.  But the California Supreme Court stated that the “beanball” was a part of the game and any claim was barred by the assumption of the risk doctrine as it was based upon its anecdotal theory based on empirical data.  The dissent stated that assumption of the risk should be based on “what risk the plaintiff consciously and voluntarily assumed” and not what risks are inherent in a particular sport.

Arguably, Hunt could have asserted that the implementation of the UFC Anti-Doping Policy was a sign of a “risk inherent in the activity.”  It’s clear that Hunt consented to an MMA bout where he may receive bodily harm from his opponent.  But, is the inherent risk of testing UFC fighters a potential factor in the activity.  This is a broad interpretation as “activity” used by Courts is the actual activity occurring and not an ancillary part of the sport.  The Court that decided to dismiss the bulk of Hunt’s lawsuit viewed the “activity” as the bout with Lesnar and not the fact that Lesnar was subject to drug testing.  Moreover, there is no evidence that Lesnar specifically took PEDs to injure Hunt but he may have taken a banned substance to be able to compete with Hunt.  Whether taking a banned substance is “reckless” seems to be a factual claim.  On the other hand, the UFC Anti-Doping Policy anticipates the possibility of athletes using banned substances and Lesnar’s flagged tests reflects the fact that his behavior was not reckless but negligent.

With the appeal seemingly gone, the question lingers until another lawsuit occurs.  While Hunt’s RICO claims were tenuous at best, the question of assuming the risk in a sport and whether the injured person ‘consciously and voluntarily assumed’ the risk is a compelling question of law.  The dissent in the ‘beanball’ case is recognition that there are certain actions within sport that are not contemplated by an injured party.  Even if there are “inherent risks” in participating in a sport, whether a participant acknowledges the issue and voluntarily assumed the risk could be a concern in the future.

Yoel Romero just received a huge judgment. Will he ever see it?

May 28, 2019

Yoel Romero obtained a judgment against supplement maker Goldstar in state court in New Jersey.  At a hearing to determine damages, the Court issued an order granting him damages totaling $27 million.  Of course, the issue will be collecting on the amount.

Romero was suspended by the UFC for violating the UFC Anti-Doping Policy and was suspended for 6 months.  For working with USADA in determining the alleged tainted supplement, he received a lighter sentence that the guidelines.

Once the source of the alleged failed drug test was identified, Romero decided to sue the supplement company.  Romero used the product Shred Rx made by Goldstar Performance Products.  Despite filing the lawsuit, Goldstar Performance Products never responded to the lawsuit.

According to its web site, the company is based out of East Hanover, New Jersey and features a variety of supplements.  It was noted that the supplement contained Ibutamoren, a banned substance. The substance increases lean body mass to create bigger muscles.

As a penalty for not responding to the lawsuit, Romero moved for an order of default and default judgment.  This came to fruition this past December.

Yoel Romero Default by Jason Cruz on Scribd

In requesting this order from the Court, it essentially confirms that the allegations brought by Romero are true and that a hearing may be set to claim the damages.  On Tuesday, the hearing day came for Romero.  Howard Jacobs, the renowned doping lawyer from Southern California, made a special appearance before the Court to argue the damages for Romero.  It was announced that the Court awarded $27.45 million to Romero.

Of course, this is great.  But, with everything legal, you should leave it up to the lawyers.  Real lawyers.  Obtaining a judgment is one thing.  No doubt a success.  But collecting on the debt is another.

Most MMA fans probably don’t know that there must be another proceeding (a completely separate lawsuit) for Romero to realize on the judgment.  This might include having to pay to get the money from the defendant and even repossessing property to realize on the actual dollar amount.  Even then, it’s unlikely he’ll see that much money.  Moreover, in these situations where a company just flat out doesn’t respond to a lawsuit, the plaintiff is just holding a piece of paper.  Even if there were assets, they may be in line with more senior creditors trying to get money from them.  But most likely, they won’t get the amount the Court granted them.

In the event that Goldstar is still around, there can be several issues at hand.  First, they may be claiming no jurisdiction because they have no contacts with the state court in New Jersey.  This might be a little far-fetched based on its business address and the old “International Shoe” test for you lawyers out there.  Second, they might still appear in the lawsuit within a certain period of time. If so, they can ask the Court to ‘set aside’ the judgment.  There might be a monetary penalty if the Court thinks they were just being lazy, but not a $27.45M penalty.

In the end, the judgment looks great on paper.  But, unfortunately for Romero, it may be that all he’ll have is paper to hold the judgment.  MMA Payout will keep you posted.

Could the UFC be a publicly traded company?

May 27, 2019

With Endeavor filing paperwork to go public in the not too distant future, the UFC’s future became inextricably tied to its parent company.  Then again, it may be looking at its own IPO as well.

Embedded in the lengthy S-1 documents which details the finances of the soon-to-be publicly traded company on the New York Stock Exchange was language which indicates that the UFC could go public itself.

Via Endeavor’s S-1:

Our control of UFC is subject to certain consent rights held by other equityholders of UFC, whose interests in UFC may be different than ours and yours, and the terms of the preferred units issued as partial financing for the UFC Acquisition contain negative covenants that may limit our ability to pursue our business strategies with respect to UFC.

The bold is my outline of the language may allow for a UFC file IPO.

In addition, the UFC LLC Agreement also contains provisions relating to an initial public offering of UFC, which provide that (i) prior to February 18, 2019, an initial public offering of UFC may be requested or approved by at least one director designated by each of us, Silver Lake Partners and KKR, (ii) after February 18, 2019 but prior to August 18, 2021, an initial public offering of UFC may be requested or approved by at least one director designated by each of us, Silver Lake Partners and KKR, provided that a request or approval by any two of the directors designated by each of us, Silver Lake Partners and KKR is required if the valuation in the offering achieves a specified valuation, provided that the approval of the director designated by us is required under all circumstances prior to August 18, 2021, so long as we hold a majority of the equity entitled to appoint directors of UFC, and (iii) after August 18, 2021, any of us, Silver Lake Partners or KKR, subject to certain ownership requirements, may exercise a demand right with respect to an initial public offering without approval by us or our director designees. Any initial public offering undertaken pursuant to the UFC LLC Agreement must be completed in accordance with the agreement and could be dilutive to our ownership position in UFC. The demand rights granted pursuant to the UFC LLC Agreement may require UFC to undertake an initial public offering at a time or on terms that are not in your best interests, and such a transaction could adversely affect the value of our investment in UFC.

Since a limited liability company does not sell shares in itself (LLC’s have ‘member’ interests), the UFC, LLC entity would convert into a corporation.

The above language from the Endeavor S-1 suggests that a UFC IPO may not be in the best financial interests of the parent company, Endeavor.  However, based on the ownership interests outside of Endeavor, it may have to comply if the company receives a specific valuation.  Remember, the S-1 gives all of the prospective investors all of the information and risks of the company.  So, you might believe that Endeavor does not want the UFC to go public on its own, but its only a preventative warning in the case someone were to allege that they were led astray by the information.

While Endeavor states it has a majority stakeholder interest in the UFC (50.1% to be specific), the UFC LLC Agreement contains provisions for the company to file for its own IPO based on approval from enough directors. The first two provisions require director approval.  But, the last provision (i.e., iii) states that after August 18, 2021, a demand may be made to a UFC IPO without approval by directors.

The language seems to protect the lenders in the original UFC sale, Silver Lake Partners and KKR.  One might infer that the reason to go public would be to raise money from the sell of shares.  One has to believe that if a demand were to be made, the market conditions would reflect an opportunity to capitalize on a public willing to purchase a piece of the UFC.

The UFC as a publicly-traded company would indeed be an interesting scenario considering that Dana White doesn’t want to go public.  But, that may not be up to him.

 

As Austin Trout heads to ring on Saturday, his legal team has been fighting WBO in appeal of lawsuit

May 24, 2019

As Austin Trout returns to the ring on Saturday, last month his lawyers submitted their appeal brief in an effort to overturn a federal court decision to arbitrate his lawsuit, including his Ali Act claims.

For background of the case, you can go here.

The Court determined that based on legal rights under the Federal Arbitration Act, that arbitration was a suitable alternative instead of having parties going to trial

Appellant’s Brief.filed by on Scribd

In addition to its claims that the WBO waived its right to arbitration, Trout argues that the Ali Act cannot be arbitrated as it would fly in the face of the spirit of the act.  Essentially, its protections highlighted in the law runs contrary to the District Court ruling.

Trout alleges that the WBO violated the Ali Act when the promotion dropped him from its rankings.  In the alternative, it claimed that the Ali Act claims should remain in federal court even if the trial court decided that his other allegations could be arbitrated.

Trout’s appeal brief relating to the Ali Act claim argues that the intent of the legislation was to protect boxers from promoters and managers.  Trial court made an error when it granted the WBO to arbitrate its claims.

As stated by Trout’s attorneys:

“If allowed, compelling the arbitration of the claims under the Muhammad Ali Act will defeat the purpose of the Act.  Leaving Sanctioning Bodies, as the term is defined in the statute which includes the WBO, free to circumvent the must of courts of law over claims alleging the WBO is violating the Muhammad Ali Act, and will be able to ventilate such claims in arbitration before a panel designated by the WBO.”

The District Court stated that arbitration was a suitable alternative when agreed upon by the parties.  That is not the case here. It would appear that Trout agreed to the contractual obligations of the WBO and its arbitration clause provision embedded in the rules of the promotion and his contract.  Yet, upon closer scrutiny, the irony of the conclusion by the District Court is that it is inapposite to the outcome that the Ali Act wish to have prevented.  Here, the appearance that a promotion is taking advantage of a boxer through a coercive contract.  In his lawsuit Trout claimed that the boxer rankings of the WBO dropped him from its rankings, depriving him of a potential title fight.  The elimination rom the WBO ranking was not explained via written statement or to the Association of Boxing Commissions as required by the Ali Act.  Trout was left without an opportunity for a title shot and economic revenue through a chance to be champion.  For Trout, the contract of the WBO, as drafted an interpreted by the promoter, states that it would internally decide any grievance made by one of its contracted fighters.  For Trout, the contract of the WBO, as drafted an interpreted by the promoter, states that it would internally decide any grievance made by one of its contracted fighters.

The District Court ruling highlighted two cases which stated that arbitrations clauses in contracts would override the right to trial.  However, there are strong dissents to those cases. As a result, the WBO appears to sweep the Ali Act into the arbitration for Trout’s other claims listed in the lawsuit.

Trout decided to sign a contract with the WBO.  There is no argument set forth by the parties that Trout did not have an opportunity to negotiate the contract he signed with the promoter.  Yet, it would seem that Trout was unaware that if he had an issue down the road with his contract, that the dispute would go to arbitration where the arbiters of the dispute were chosen by the WBO.  This would appear to be contrary to the filing of this lawsuit. Moreover, the overarching protection for boxers, found in the protections highlighted in the Ali Act, such as contractual disagreements, fraud or issues with rankings, could be usurped with one fail swoop in a contractual clause.

In its Order Compelling Arbitration of Trout’s Ali Act claim (see embedded opinion below), the Court order does not address the strong dissent in Mitsubishi Motors v. Soler Chrysler-Plymouth which it cites in its opinion.  The dissent, written by Justice John Paul Stevens, brought up strong questions regarding the arbitrability of the case and which similarly resonate with the present case here on appeal.  In Mitsubishi Motors, Justice Stevens noted that it was the first time that the Court held a statutory claim to be arbitrable.  “It is reasonable to assume that most lawyers and executives would not expect the language in the standard arbitration clause to cover federal statutory claims.”  This was premised upon the belief that the complexities of the issue in Mitsubishi – an antitrust matter – was too complex to arbitrate.  Neither party has brought up any case in combat sports which has tested the complexities of the Ali Act simply because there are few and far between.  This would seem to conclude two points.  First, it is unknown whether the issues in the Ali Act are complex for that of a private arbitration.  Secondly, the Ali Act legislative history which is included in Trout’s appellant brief, contemplates that aggrieved boxers may file a lawsuit and have those issues determined by a Court and not through arbitration.

In CompuCredit v. Greenwood, Justice Ginsburg notes in her dissent that the Federal Arbitration Act remains the Court’s “responsibility to examine carefully “the text of the [statute], its legislative history,” and Congress’ “underlying purposes.”  The District Court cites the Federal Arbitration Act as superseding Trout’s cause of action.

The passages from two dissenting opinions are not profoundly authoritative.  However, they provide shed a light on the rationale behind the Ali Act and the recognition that the District Court ruling contradicts the legislative intent of the establishment of the law which is the protection for boxers.

While we await the Answering Brief from the WBO, the Trout case seems to have gone under the radar of many boxing fans, it is a huge case for the Ali Act and the future of the law.  If promoters are allowed to skirt the meaning of the rule by utilizing arbitration clauses in its contracts deeming itself or a self-appointed arbiter as the self-binding authority, it would render the Ali Act toothless, mute and useless for the boxers it sought to protect.

MMA Payout will continue to update you.

Endeavor files paperwork for IPO

May 23, 2019

Endeavor, the company that currently owns the UFC, has filed paperwork with the Securities and Exchange Commission to become a publicly traded company on the New York Stock Exchange.

Endeavor states that it plans to raise $100 million in the offering which is a standard figure for companies until it provides an actual figure at a later date.  Proceeds from the company receives from this offering will go towards working capital and general corporate purposes.

According to the S-1 filed today, it reported revenue of $3.6 billion.  The company posted a net income of $231.3 million in the year ended December 31, 2018.

Endeavor is the combination of Ari Emmanuel’s company with Patrick Whitesell’s IMG sports and modeling agency in 2013.

According to the filing, Goldman Sachs will be the IPO’s lead banker.  KKR Capital Markets, J.P. Morgan, Morgan Stanley and Deutsche Bank are also underwriters on the IPO.

Zuffa is included in the voluminous S-1 statement.  It includes information on its finances, debt as well as information on the UFC antitrust lawsuit as a potential liability.

MMA Payout will take a look and provide a further in-depth analysis of the S-1.  But, as for now, it looks like the UFC may be a part of a publicly-traded company in the near future.  How does it affect its business?  We will see.

Show Money 28 talks UFC PPV buys, Endeavor buyout rumors and ONE

May 22, 2019

Its once again that time when we talk with John Nash and Paul Gift about the business of combat sports.

UFC Holdings follows market trend of reducing ‘debt cushion’

May 17, 2019

The Wall Street Journal reported late last month that the UFC was paying off its junior loan utilizing a senior one in order to reduce its overall debt load.  The move comes on the heels of an exclusive PPV deal with ESPN and the lack of concern that the Federal Reserve will raise interest rates.  The reduction of ‘debt cushion’ is a market trend by some companies to the chagrin of senior debt holders.

UFC Holdings, the official name of the entity for the UFC, sold $435 million of an add-on to an existing $1.44 billion loan that was due in 2023 and now has been extended to 2026.  The addition to the loan was sold at $99.75 on the dollar which included a discount to where the existing debt traded.  The company also paid existing loan holders a modest fee to allow the transaction.

The new debt will be used to pay off a more junior loan which eliminates a ‘debt cushion’ for senior lenders as junior debt (i.e., bonds and loans) are typically the first pieces of debt to absorb losses in bankruptcy.  Essentially, if the company were to go bankrupt the junior loans would be the most vulnerable in not being paid back as the most senior creditors would have the first chance at the assets which may leave junior debt out of luck in repayment. In this case, the junior loan had a higher interest rate than the senior loan.  The floating interest rate on the junior loan has been the London interbank offered rate plus 7.5%, or 4.25 percentage points higher than the rate on the senior loan.  Thus, the move aids in eliminating interest on the junior debt.

The transaction seems to be a growing trend in debt financing as more companies are reducing ‘debt cushion.’  This occurs in instances of speculative grade loans and instances where the junior loan has a higher interest rate than the senior loan.  To the chagrin of senior debt holders, paying down a junior loan is not favored as one might recognize that paying down a junior debt means that in the worst-case scenario for a senior debt holder, if a bankruptcy were to occur, assets previously used to pay off the junior debt will not be there to pay off the senior debt.

Via WSJ:

Last year, buyers of first-lien loans were paid 0.83 percentage point above the benchmark London interbank offered rate for every multiple the loans exceeded a measure of borrowers’ cash flow, according to LCD. That was the smallest amount since 2007, when lenders were paid just 0.69 percentage point.

Also, according to WSJ, 27% of first-lien loans, mostly held by senior type of debt held by investors were not backed by companies that didn’t have junior outstanding debt.

If you were wondering, this is analogous to using a credit card to pay off one with a higher interest rate.  Using a loan to pay off another might not seem like the most financially secure way to address debt load issues for a company and concerns senior debtholders that hold priority over the junior debtholders.  But a number of factors (as outlined above) likely made this move prudent.  First, Disney’s 7-year agreement to pay a “fixed license fee” to air its PPV fights exclusively in North America was seen as to “dramatically reduce the volatility” of UFC’s business.  Secondly, the market to purchase debt is on an uptick.

Here’s another reason that reducing debt cushion is a thing.  According to Moody’s, the company’s debt to EBITDA would fall to 5.5 times from 7.8 times which is said to potentially put lenders in a stronger position even without a debt cushion.  UFC Holdings’ existing loans in 2016 were said to have an EBITDA of $170 million by one measure and $300 million by another which was based on speculative future TV revenue.  Regardless, it borrowed another $100 million in 2017.

Of course, we may now know a little more about the TV revenue since its deal with ESPN.  Moreover, the deal likely assuages lenders about the debt.  Essentially, the speculative nature of the deal became less speculative.

The move pays off the interest rate of the junior debt but senior debt holders are weary as there is potential for not being made whole at the end.  But, it lowers its overall multiple which would allow it to be more lucid in investing and future debt restructuring.

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