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).
Thanks Kelsey,
There is also the alternative motive in trying to lure M1 into an out of court settlement.
Or you could say that most foreign fighter contracts are structured in unusual ways for tax reasons. That is why you see high ranked foreign fighters with reported payments of $1000 for example. M1/Fedor doesn’t need a services agreement to get the money they want. If they don’t use the services agreement then they would just jack up Fedors contract rate.
I expect other sites to perpetuate the myths around this situation but I would have expected this site to be a little more on the ball. I guess I was wrong.
Interesting stuff.
Could this have a ripple effect by exposing these somewhat tax evasions deals and getting them more out in the public? Any chance some public official sees this and says hmmmm… just how much money are they evading taxes on by doing these funny deals? Could it force these MMA promotions to start being forthright with their contracts and making sure the proper taxes are being paid.
MMAGuru,
I think that is exactly what this is: Affliction returning fire in hopes getting M1 to back off.
By far the most interesting little nugget of information in these filings is Fedor’s $1.5 million asking price. Was no one else interested to read this after all the estimates and guesswork as to how much he was getting paid? Wonder how that compares to what he is paid for his Strikeforce/M-1 Global bouts…