An update on Net Neutrality and potential implications for the UFC and WWE

May 21, 2014

Last week the Federal Communications Commission voted 3-2 to open for public debate new rules to guarantee an open Internet.  With the UFC and WWE online networks, both may have an eye as to what may eventually transpire.

Net neutrality is the concept that all Internet content should be treated equally.  The issue here is that Broadband providers might be able to prevent or inhibit end-users from accessing certain content simply because it could.  In January, we reported on the court ruling that precipitated last week’s vote.

The FCC indicated that it would propose new rules that would allow companies like Disney, Google and Netflix to pay Internet service providers for “fast lanes.”  These special, faster lanes would presumably allow for content to flow much quicker than normal.  Broadband companies have pushed for this right.  This would come into play with services like online streaming.  Thus, UFC Fight Pass and the WWE Network would be affected if such fast lanes require extra cost.  Thinking along these lines, extra cost for the UFC and WWE would likely mean that it would get passed along to subscribers.  However, this proposal has drawn the ire of consumer groups citing it would favor big business and stifle innovation.

There will be much more political wrangling as the sausage is made for net neutrality rules.

Payout Perspective:

It may not necessarily be an issue on the top of the minds of anyone in combat sports, but with business expansion for both UFC and the WWE, each company’s network would be affected by new rules regarding regulation of the Internet.  As we know, the WWE finds itself in corporate distress with a declining stock price with a disappointing television deal and news that the network’s cannibalization of its PPV product will affect revenue more than originally thought.  Additional distress made by extra “faster lane” fees would increase already hefty network costs and passing them along to subscribers may cause a tipping point.  With the WWE already setting network earning expectations for end of year 2015 based on 2 to 2.5 million subscribers, additional “fast lane” fees could make it tough for it to reach its OIBDA goal.

On the other hand, UFC Fight Pass has been a success from all indications.  It has already been made available abroad which we assume has increased the number of its subscribers.  Still, additional fees to allow for its live streaming could be a concern.

As UFC and WWE online networks depend on unfettered live streaming of its content, one suspects that each company is interested on how the net neutrality debate develops.

Zuffa supporting Florida bill regarding promoter disclosure

April 30, 2014

The MMA Report reports on a proposed bill that would amend boxing and MMA regulations in the state of Florida so that promoters would not need to disclose the number of tickets sold for an event, the gross receipts among other things. Zuffa has contributed $100,000 to the Republican Governors Association in support of lobbying efforts to pass this measure.

The Orlando Sentinel reported Zuffa’s contribution to the RGA.

The proposed measure would exempt the disclosure of “proprietary confidential business information” in a public records request.  This would include information on the number of tickets sold, gross receipts of an event, trade secrets and “business plans.”

The proposed text of the bill which rationalizes the reason for the nondisclosure of the information is interesting:

Section 2.  The Legislature finds that it is a public necessity that proprietary confidential business information be protected from disclosure.  The disclosure of proprietary confidential business information could injure a promoter in the marketplace by giving the promoter’s competitors insights into the promoter’s financial status and business plan, thereby putting the promoter at a competitive disadvantage.  The Legislature also finds that the harm to a promoter in disclosing proprietary confidential business information significantly outweighs any public benefit derived from the disclosure of such information….

A notable change of the proposed amendment to the current rules would allow the promoter to apply to the Commission for authorization to issue more than five percent of seats in the house as complimentary tickets and not be included in gross receipts for post-event taxation purposes.

Thus, the promoter could comp more than five percent of the seats in a venue and would not have to disclose the amount of comps it issued per the proposed amended law.

An analysis of the bill cites that certain terms are not defined and are overly broad (or will be interpreted as such).  Unless the bill is amended to define certain terms, the effect of the proposed law could mean that the promoter could exclude a broad amount of information from public records.

Payout Perspective:

It will be interesting to see if this law is eventually passed.  It appears that it the Florida House agrees with the bill voting in its favor.  Coming off of a successful event in Orlando, the UFC intimated that it would be back soon.  Based on the public records and proposed legislation, one may assume that the UFC is willing to come back to Florida and would not mind that this particular law is in place.  The broad scope of this law as it presently is written could mean that the UFC would not have to disclose attendance, gate and/or salaries to the public.  Other commissions do not officially release this information but this is a unique amendment to Florida’s existing law.

The proposed legislation may run contrary to the requirements of the Muhammad Ali Act which require the promoter to disclose certain expenditures to a boxer.  However, the proposed law has language that would seem to allow such disclosure.  Also, the promoter could disclose such required information without it being a public record.

The key issue is that the public would not be able to see information such as tickets sold and gross receipts.  MMA Payout will keep you posted.

Senate Bill 0808 (2014) by JASONCRUZ206

An update on Zuffa-NY lawsuit and 3 proposed bills re MMA in Albany

February 27, 2014

Zuffa and lawyers for the Attorney General of New York have filed an amended discovery plan which looks to depose certain individuals as it relates to Zuffa’s lawsuit against New York.  In addition, Lohud.com reports on the latest happenings with the future of professional MMA in New York.

Notably, the Lohud.com article reports on three major bills which addresses the regulation of MMA in the state.

One bill would allow professional bouts in the state.  Another bill would lift the ban only if an injury fund for fighters is set up and another would put a moratorium of two years on all MMA matches.

The article quotes a representative from the National Organization of Women stating that it would continue to oppose the legalization of professional MMA in the state.  Women groups have expressed concern over the messaging and violence of the sport.  Examples of their concern include recent statements by Dana White where he used the word “pussification” and actions by UFC fighter at the time Thiago Silva which included alleged violence toward his estranged wife.

And, of course, labor unions were mentioned as an obstacle for Zuffa in the state.

Of the three proposed bills that will be introduced this spring is one that would put a halt to MMA in the state (including amateur bouts) until a study on the health impacts of MMA will be performed.  I would assume that this would come out of a part of the state budget.  The other bill allowing MMA in the state with conditions has promoters coming up with a “compensation fund for injured fighters.”  It would also create a presumption that “any neurological later discovered in a fighter were caused by their participation in MMA.” (via Lohud.com).

There are inherent problems with the two bills that would presumably allow MMA in the state with certain conditions.

Payout Perspective:

As we’ve written year after year, hope springs eternal for professional MMA in Albany.  This time around we are presented with some interesting proposals which we will track.  Obviously, there is only one of the three bills listed that Zuffa would be interested in supporting.  From the public relations perspective, the Thiago Silva situation is bad PR for the UFC but realistically, like all sports leagues (e.g. Raymond Felton), it’s hard to avoid.  Moreover, the UFC was quick to act in dismissing Silva.  But, it supports anti-MMA advocates as recent examples of its position.  White’s comments reflect the good and bad of having a promoter speak from the hip.  He is going to say what he means without a filter but that is not always good for business.  We can only surmise that White did not think that his comments could be seen as derogatory towards women, otherwise he would not have said it.  But, that’s the problem.

Regarding the lawsuit, the discovery phase will be complete by April 25, 2014.  At this point, New York has identified three individuals that it will depose.  Zuffa has identified “persons most knowledgeable” at the AG of the State of New York, the New York State Liquor Authority, the New York State Athletic Commission and the New York State Department of State as well as Melvina Lathan.  She is a former boxing judge and chairperson to the NY State Athletic Commission.  Here is a 2010 article on her from the NY Times in which she wanted the state to legalize MMA.

MMA Payout will continue to keep you posted of the lawsuit as well as the political maneuvering in Albany.

The continued fight for MMA in NY

April 23, 2013

The Sports Business Journal (subscription required) is running an in depth perspective on combat sports this week and one of the articles asks whether this will be the year New York finally sanctions MMA.

The article points to several inferences that could position the bill to legalize MMA for a vote in Albany this year.  This includes the state senate passing the bill to legalize MMA by a vote of 47-14, comments made by Governor Andrew Cuomo in support of MMA and64 members of the Assembly co-sponsored the MMA bill (12 short of the needed for the bill to be made into law).  The most telling inference is the fact that Assembly Speaker Sheldon Silver told the New York Daily News that MMA will “probably” be legalized but did not indicate when this might occur.

An interesting take on the fight to legalize MMA in New York is the position that the lobbying efforts of Zuffa has hurt the overall effort due to the strong opposition against Zuffa. Namely, the Coalition to Legalize Mixed Martial Arts in New York questioned whether if Zuffa played a “smaller role” would MMA have already gained legal status.

A vote on the bill to legalize MMA must take place before the legislature ends on June 21st.  But, the Assembly’s Democrats will decide on the bill’s fate at the annual Democratic Conference in May.

With the article coming out this week in the Sports Business Journal and the indication that the bill would be decided (whether to vote or not) in the next couple weeks, it was likely that opponents would voice their opposition and will speak out about the bill on Tuesday.

Payout Perspective:

It will be interesting to see how the legislature will play out this spring.  If a bill is turned away this year, the litigation efforts will likely not provide any help this year as well.  Even though the New York Attorney General conceded in court proceedings that the statute may allow an exempt third party to sanction professional MMA, it has taken a hard line in not entertaining a settlement in the lawsuit if one of the concessions is allowing professional MMA in New York.  Despite the financial benefits of MMA in the state, the opposition remains stiff.  The union opposition to Zuffa has definitely come back to hurt it in trying to legalize MMA in New York.

South Dakota becomes 46th state to regulate MMA

March 18, 2013

MMA Junkie reports that South Dakota is ready to sign off on a bill that will legalize mixed martial arts in the state.  Gov. Dennis Daugaard stated that he will not stand in the way of a bill that would regulate MMA and boxing.

The bill passed out of committee and the state legislature.  The South Dakota Athletic Commission which will regulate MMA will commence on July 1st of this year.  It has received $95,000 of funding.

While the governor is opposed to the violence in the sport, he recognized the argument that regulation would curtail some safety concerns.

South Dakota become the 46th state to regulate MMA.  Only New York, Connecticut and Montana do not regulate MMA.  Alaska does not have an athletic commission.

(H/t:  Argus Leader)

Payout Perspective:

A victory for mixed martial arts in the state of South Dakota.  While this news will be just a blip on the screen nationally, the recognition by the governor that regulation would protect those participating in the sport should be highlighted.  Even though he was opposed to the sport, one has to think of the safety of the people of the state and the new commission should oversee MMA and boxing events.  

NY MMA Bill passes out of committee

March 2, 2013

ESPN reports that a bill to legalize mixed martial arts in the state of New York passed out of the state’s Senate Committee on Cultural Affairs, Tourism, Parks and Recreation.  It now moves on to the Senate Finance Committee with the eventual hope a vote on it comes before the state Assembly.

Last year, a bill to legalize MMA died prior to being voted on after an informal survey of votes revealed it would not pass.

Last month, Zuffa’s lawsuit against the state of New York entered a negotiation phase as the state indicated that a third party sanctioning organization recognized by the state could regulate professional MMA in New York.

Payout Perspective:

The legislative process is in the initial stages at this point as there is no date set for the Senate Finance Committee to meet.  It appears that professional MMA may be allowed in the state if a sanctioning organization recognizes the event.  Still, a bill to legalize MMA would dispel any concerns about coordinating with a third party sanctioning organization.  We will see whether this bill will gain any traction for a vote this spring.  

White threatens no UFC in CA if AB 2100 passes

April 29, 2012

UFC head Dana White has threatened to cease holding events in the state of California if a controversial piece of legislation passes in the state.  Assembly Bill 2100 was introduced last Wednesday and is supported by the Culinary Workers Union while opposed by the UFC among others.

Via San Jose Mercury:

(Assembly member Luis) Alejo wants to eliminate what he sees as abusive contracts, freeing up fighters to make Assembly Bill 2100 would prevent promoters from claiming unreasonable future merchandising rights, prevent unreasonable restrictions on fighters’ seeking outside sponsors and prohibit other onerous contract provisions.

Dana White told the OC Register:

“Do you know what’s going on in Sacramento, right now?” White said. “They are trying to pass this bill to raise our taxes and do a bunch of crazy (expletive) to us. They voted 4-2 for the bill. There were a couple of people not present to vote on it. If that thing passes we won’t do anymore fights in California. All kinds of crazy (expletive) they’re trying to throw in this bill for MMA. You know who’s doing it? The Culinary Union from Las Vegas. These guys have been (expletive) with us in New York, too. That’s why we’re not in New York. These guys got a bunch of lobbyists together to try to pass this bill against MMA. They are putting pressure on my partners, the Fertitta brothers, because they own the fourth-largest gaming company in the country and they are non-union.”

More info on AB 2100 can be found in our previous post.

H/t:  Bloody Elbow

Payout Perspective:

Would it hurt the UFC economically if it did not run events in either New York or California?  It’s an intriguing question considering the UFC derives most of its income from PPV revenues and many of its live events are expanding to new areas or in Las Vegas.  The UFC is expanding internationally and could find new venues in the US to hold events.  Still, not holding events in the two biggest states in America does seem odd.  The self-imposed ban on the state of California would affect Strikeforce more than it would the UFC.  Although the UFC held its biggest event in Anaheim (UFC on Fox 1), Strikeforce has held events in San Jose or San Diego more often than the UFC has held events  in the states.  Of course, we do note that UFC on Fuel TV 4 will be in San Jose and UFC on Fox 4 will be in LA.  So, maybe the strategy is to stress the economic impact Zuffa creates in the state with the 2 upcoming events and threaten that this will all end if AB 2100 passes.

11 for 11: No. 5 Culinary workers versus Zuffa

December 26, 2011

The Culinary Workers Union Local 226 became one of the biggest opponents of the UFC in 2011. It has helped opposed the legalization of professional MMA in New York state and has requested that the Federal Trade Commission investigate Zuffa for possible antitrust investigations.

In late August, the union sent a letter to the FTC requesting that it look into Zuffa’s acquisition of several of its competitors:

The letter goes on to point out that since 2001, Zuffa has acquired four of its key rivals (Pride Fighting Championship, World Extreme Cagefighting, the World Fighting Alliance, and most recently Strikeforce earlier this year.  They also state that through some independent research performed in 2008, Zuffa controls 80-90% of the mixed martial arts market.

Specifically, the letter points out that Zuffa has preserved and strengthened its dominance in the market through their unwillingness to co-promote events as well as anti-competitive contractual restraints placed on their contracted fighters.

As most know, the union’s beef with Zuffa stems from the Fertittas ownership of its Stations Casino. A failed attempt to unionize the workers at the Stations Casinos is the reason why there is staunch opposition to the legalization of MMA in New York. Lobbying efforts by the Culinary Workers have stifled efforts for passage of legislation allowing the UFC in New York.

USA Today reported in October that the union contacted Anheuser-Busch to boycott the UFC for “a history of tolerating homophobic conduct.” In addition, the Union has done the following to get its message across:

• Backing anti-MMA legislators in New York.

• Calling on the Federal Trade Commission to investigate UFC parent company Zuffa, which the union accuses of using monopolistic tactics to thwart competition from other promoters of mixed martial arts.

• Launching a website designed to highlight White’s use of vulgar language.

It will be interesting to see how much more the Culinary Workers will go to lobby against the UFC. The recent Zuffa lawsuit is a way around the union and lobbyists opposing MMA. So far, nothing is being reported about an FTC investigation of Zuffa and we will see if 2012 gives us any findings from the FTC about Zuffa and the claimed anti-competitive practices.

Culinary Union Requests Formal Zuffa Investigation By FTC

September 1, 2011

Yesterday, the Culinary Workers Union Local 226 sent a letter to the Federal Trade Commission requesting that a formal investigation into whether business practices by Zuffa LLC, the corporate owner of the Ultimate Fighting Championship (UFC), violate U.S. antitrust laws.

The letter goes on to point out that since 2001, Zuffa has acquired four of its key rivals (Pride Fighting Championship, World Extreme Cagefighting, the World Fighting Alliance, and most recently Strikeforce earlier this year.  They also state that through some independent research performed in 2008, Zuffa controls 80-90% of the mixed martial arts market.

Specifically, the letter points out that Zuffa has preserved and strengthened its dominance in the market through their unwillingness to co-promote events as well as anti-competitive contractual restraints placed on their contracted fighters.

a) “Automatic renewal” contract provisions such as the “champion’s clause,” which extends the contract of an athlete who becomes a champion. Such clauses effectively prevent some athletes who sign contracts with Zuffa from becoming free agents and negotiating for higher pay.

b) Exclusive negotiation and “right to match” clauses that lock athletes into negotiating with Zuffa for a period after their contracts have expired. These clauses diminish the ability and incentive of smaller promotions to bid for top mixed martial arts athletes.

c) Merchandise and ancillary rights agreements that require athletes to forfeit their image and likeness rights “in perpetuity,” or forever. These far-reaching agreements deprive athletes of the freedom to make money from their own success and further bind them to Zuffa indefinitely.

Regarding the contractual restraints placed on the fighters by Zuffa, the letter states the following:

As a result of Zuffa’s contractual restraints, athletes who compete in the UFC are denied the freedom of movement available to athletes in other professional sports.  These restraints artificially prevent athletes from offering their services in a competitive market and from receiving a competitive market value for their services.

These contractual restraints can have the effect of forcing some athletes under contract with the UFC to negotiate with one buyer, depriving them of nay real bargaining power and depressing pay below competitive levels. The Mixed Martial Arts Fighters Association estimates that professional mixed martial arts athletes received just 5.7% of total gate and pay-per-view revenues at five UFC events in 2009, while athletes who compete in other pro sports organizations receive 50% or more of revenues.

In addition to impeding athlete mobility, these restraints have the potential to harm consumers by reducing the quality and supply of professional mixed-martial arts events. Indeed, Zuffa’s practice of requiring athletes to sign contracts that may automatically renew, or that allow Zuffa to match offers made by competing promoters once they expire, diminishes the incentive for other firms to enter the market and bid for professional athletes.  As a result, the market for mixed martial arts is artificially reduced, to the detriment of consumers and athletes.

The letter then goes on to point out court rulings that deem restraints on athlete movement as being anti-competitve.  The NFL’s “Rozelle rule”, which states that a team signing a free agent had to compensate the players previous team, is pointed out since the court held that this rule, by “imposing restraint virtually unlimited in time and extent”, was a violation of the Sherman Antitrust Act.

Professional sports leagues have sought to justify restraints on athlete mobility by arguing that such restraints are necessary to maintain a competitive balance among teams, and thereby maintain spectator interest. In some cases, courts have agreed. In American Needle v. the National Football League, the U.S. Supreme Court ruled that competitive balance is “unquestionably an interest that may well justify a variety of collective decisions made by the teams.”

However, Zuffa does not operate as a professional league, and thus cannot justify its restrictive behavior as being necessary to preserve a competitive balance in mixed martial arts. Zuffa is a private limited liability partnership that promotes and produces professional mixed martial arts events for the benefit of its owners. The anticompetitive restrictions it imposes on athlete mobility serve no legitimate business justification beyond stifling competition and increasing Zuffa’s already dominant position in the market.

In addition to these contractual practices, Zuffa has refused to promote mixed martial arts events with rival promotional firms.  After Zuffa acquired Strikeforce, UFC president Dana White said the two companies would continue operating as separate entities. ‘Even when we own them, we don’t co-promote’, White said.  In 2009, Zuffa’s negotiations with Russian heavyweight Fedor Emelianenko collapsed, in part, because of Zuffa’s refusal to co-promote an event with another firm, M-1 Global.

The issues between the Fertittas, owners of Stations Casinos and Zuffa/UFC, have been well documented as of late. Back in 2008, MMAPayout’s Robert Joyner wrote a piece titled “Labor Politics at the Heart of MMA’s Impasse in New York”, which went on to detail the issues Zuffa has ad with the Culinary Union, claiming it as a big reason why the UFC has not been sanctioned in New York.

According to WCBS, the sole correspondence received by the Committee was from UNITE HERE, the hotel and restaurant workers’ union. The letter cited the American Medical Association’s opposition to the sport as well as the alleged concerns of policeman about teenagers emulating the sport on the streets. The union urged the committee to “fully explore” the “social cost” of sanctioning MMA in New York.

UNITE HERE is a powerful force in the state with 90,000 members in New York. Last year the union spent $100,000 lobbying the Albany legislature and made more than $130,000 in political contributions to the Democratic and Working Families parties. That financial commitment dwarfs the UFC’s reported $40,000 in donations to New York Democrats.

The union’s opposition to sanctioning is the result of its failed efforts to unionize the Fertitta’s Station Casinos in Las Vegas. The Culinary Union Local 226, the Las Vegas local of UNITE HERE, is the largest local of the union in the United States and it’s most politically potent. However, it has failed to crack into the locals casino market in the city, one dominated by Station Casinos which is the last major non-union company in Las Vegas.

The family owned Station Casinos has long been staunchly open shop, but its relations with UNITE HERE took a turn for the worse with the company’s purchase of a union casino in 2000. Station fired 1,000 union workers and required them to reapply for their jobs. Only 150 were rehired according to union officials.

Dana White addressed Zuffa’s concern with the Culinary Union in an interview with MMAWeekly earlier this year:

This is where the rubber meets the road. The Culinary Union has been trying for years to unionize Station Casinos, but thus far, has been thwarted. This is why White believes they are using their vast resources – the Culinary Union boasts approximately 60,000 members – to stop the Fertittas from bringing their mixed martial arts business to New York.

MMA in New York Not Happening in 2011

June 21, 2011

As predicted (and as in past years), the MMA bill has again stalled in the New York State Assembly after passing the New York Senate and overwhelmingly passing the two committees where it was debated in the Assembly–Tourism, Parks, Arts and Sports Development and Codes.

Unfortunately, the next committee in the process, Ways & Means, has issued its Agenda on this last day of the legislative session and it does not include the bill that would legalize MMA in New York.

While the legislative session could go a few days longer — until Wednesday or Thursday perhaps — the bill would still need to pass through W&M and Rules before going to the floor for a vote.  This is not going to happen as Herman Farrell, Chair of Ways & Means, has voiced his distaste for MMA:

The Ways and Means chairman said that he’s “looking at” the bill, but said he’s far from a mixed-martial arts fan.  “I don’t think very much of the sport,” Farrell said. “Next we’ll give them clubs with spikes on the end; that will be good.”

Moreover, Sheldon Silver, Chair of Rules and Speaker of the Assembly, has stated that he is not “enamored” with the sport.

Despite the setback, there is some room for optimism this year.  Indeed, there was more mainstream media attention to the issue, which I believe and have previously written will be critical if we are going to get this done.  Moreover, the votes (when votes occurred) were more favorable to MMA than past years.

The fight resumes in 2012.

Fight Lawyer

Justin Klein is an attorney at Satterlee Stephens Burke & Burke LLP in New York City where he concentrates his practice in commercial litigation and represents clients in the fight industry. He regularly addresses current legal issues that pertain to combat sports, including efforts to legalize MMA in New York, at his Fight Lawyer website. He is a licensed boxing manager with the New York State Athletic Commission as well as the founder and Chairman of the Board of the New York Mixed Martial Arts Initiative, a non-profit organization that gives inner city youth the opportunity to experience the emotional and physical benefits of martial arts training. Justin lives in New York City where he trains in jiu jitsu and boxing.

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