There exists a critical assumption within the business world that most of our theories rely on: the concept of rationality. A rational or “greedy” individual is said to prefer more than less and it is this preference that can be seen in all walks of life. Investors are expecting greater wealth generation, creditors want higher interest rates, buyers want a cheaper price, and sellers want more for their goods. The same can also be said for the relationship that exists between a firm and its employees; no matter how much you pay someone, they’re always going to want more.
This is human nature. This is rationality.
And so we arrive at perhaps one of the most contentious issues within the MMA industry today – fighter pay. Regardless of what some fighters will tell you, they don’t fight for free and they always want more. The question is, how much more is fair?
One suggestion that has been thrown around the industry is to directly or indirectly tie salaries/payouts to a percentage of the revenue. In particular, many feel the UFC should be paying out somewhere between 20-30% of its revenues to the fighters. There are, however, several problems with this approach:
1.) People are comparing apples to oranges when looking at the guaranteed revenue sharing schemes that other professional sports leagues employ. The lack of a collective bargaining agreement between the UFC and its fighters makes it virtually impossible to form a guaranteed revenue percentage paid to the fighters.
The UFC holds too much power at this point in time – even despite the emergence of some potentially legimate contenders in Dream and Affliction – to give up their standard organizational contract and form a partnership with a fighters union. Futhermore, a lack of unity between the fighters would seem to make starting a union very difficult; certainly the precedence set in other combat sports support this theory.
Beyond guaranteed shares of revenue, indirect methods might still be possible, but the state of the industry would seem to indicate it won’t happen for the following reasons.
2.) The sport of MMA is still within its infancy stage of the product development cycle. It’s a stage characterized by extremely high development costs that see a larger-than-normal proportion of earnings reinvested into the organization – earnings that really aren’t that high to begin with. Let’s face it, MMA is not yet a big four sport with an established revenue base into the billions of dollars per year like the NFL, MLB, NBA, or NHL.
Tying fighter salaries to 20-30% of an organization’s revenue at this point in the industry’s life cycle would limit the amount of money the organization is able to reinvest back into the firm (thus limiting the growth of the organization and the industry at large).
3.) Fixed and variable costs. Given the above, we know that an MMA organization’s costs are currently higher because of its place in the product life cycle. We also know that many of these MMA organizations have comparatively higher production costs than their boxing counterparts because its all done in-house (opposed to being done by a network).
Proportionately, however, many of the costs with running an MMA organization are fixed relative to the fluctuation potential of revenue streams from any particular event. So, just for one moment let’s assume that an MMA organization’s average ballpark cost for one show is $1,000,000 before payouts. Then let’s entertain two scenarios:
A.) Revenue for the event is $1,000,000. Thus, fighter payouts are valued at $300,000.
B.) Revenue for the event is $20,000,000. Thus fighter payouts are valued at $6,000,000.
Under Scenario A, the firm loses $300,000.
Under Scenario B, the firm makes $13,000,000.
The point here is that revenue figures can be misleading. The sport is still growing at such a fast pace that linking fighter pay to revenues would seem to be a poor valuation of their worth. A general revenue percentage paid to the fighter also ignores the costs of putting on events, which from a business standpoint needs to be emphasized.
4.) Distribution Issues. Openly linking payouts to revenues is going to highlight the distribution issues between fighters and further aggrivate the much-maligned gap between top-end and bottom-end fighter payouts.
Fighters should be rewarded for the revenue they generate, but human resource experts around the world are going to tell you that paying the lower echelon employees is just as important as paying the upper echelon employees.
How exactly should the 20-30% be divided amongst the fighters? Furthermore, how does the implication that the majority of MMA revenue is generated by a few fighters, solve the issue of minimum fighter salaries being perceived as to low
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