Culinary Union Requests Formal Zuffa Investigation By FTC

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.