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By: Michael Bane, MMATorch Contributor
The payouts for the UFC's exclusive deal with Reebok have been announced, and apparently Jon Jones hated them so much he dropped them as a sponsor. Okay, that's not exactly how any of that went, but the overwhelming response to the figures released has been negative from fighters and fans alike. MMATorch's own recent roundtable on the subject had several of our contributors point out the relatively low payouts fighters will be receiving. In Cash Norman's words: the fighters are getting screwed.
This week's Legal Take is going to examine the short term and long term business and legal ramifications of the deal. In doing so, we'll talk about a few obvious and unexpected consequences, and even offer up the minority opinion that this has the potential to be good for the sport, the UFC, and the fighters alike. There's some competing interest at stake here, so let's analyze how each party may be affected, and what their goals may be.
The UFC
The UFC has gone from an almost semi-organized backyard tough-guy contest to a nationally broadcast sports organization in about 20 short years. Purchased by Zuffa for $2 million in 2001, the UFC currently has an estimated value approaching $2 billion. That is a 100,000% return on investment in 15 years. It's very hard to argue that the UFC has made the wrong decisions in promoting their business. While you can get nitpicky about specific choices the promotion has made, they've done a fantastic job of putting their sport and company on the national radar.
What, exactly, is the UFC's motivation for making this deal happen with Reebok, particularly if they are profiting zero dollars on the deal? Anyone paying attention to the tone and intent of the UFC's actions in the past few years will likely concede that the UFC is trying to take its place among the "Big Four" sporting leagues (MLB, NFL, NBA and NHL) in the United States. While not having nearly the value of either of those four as of yet, they've done a very good job in positioning themselves in the nation's collective consciousness. The term "ultimate fighting" has become synonymous with MMA. They've also made a concerted effort to put themselves on the world's radar, holding a multitude of international events and making it a point to feature international talent.
The UFC has two distinct templates to take note of in their quest to become a mainstream presence. The first is the Big Four we mentioned. The Reebok deal makes it increasingly obvious that the UFC is trying to emulate these sporting leagues. One of the things these leagues have in common is a standardized uniform, over which the players have no control. Dana White has spoken of his distaste for the NASCAR-look the shorts and banners present in the Octagon, and the Reebok deal effectively eliminates this. It also takes that step toward the Big Four by treating itself like a league with a unified appearance.
The other template that the UFC is likely taking note of is boxing. Boxing was, and arguably is, the biggest combat sport to take the nation's attention. Outside of a few marquee fights and fighters over the past several years, boxing and boxers are relative unknowns in today's mainstream environment. Long gone are the days when the family would huddle around the radio to listen to Howard Cosell and other iconic announcers call title-fights. Between the litany of promotions and belts relatively few know or cares about, and the "top" fighters who refuse to take fights against each other, boxing has long stopped being a regularly followed sport for the vast majority of the public.
The UFC has differentiated themselves from boxing largely by consolidating talent under their promotion with exclusive contracts. The best fighters also fight the best fighters, largely to a degree that taking a loss doesn't wreck a fighter's earning potential like it generally does in boxing. While the "entertainment" and ratings realities of the business have led them to release, or not sign, top fighters in their division, it hasn't hampered the UFC to the point where they're viewed as a lesser of MMA organizations.
Secondly, they have struck a national television deal with one of the US's largest broadcasters and sporting networks. This was a monumental event for both the UFC and mixed martial arts as a whole. Now that it has the potential for a national audience, one of the next logical steps was to present itself like a sports league, and not just a group of boxer-like athletes whose name value outweighs the promotion that they fight for. Standardized uniforms are a measure in this direction.
From the UFC's perspective, the reason the fighters have been able to secure the sponsorship dollars that they have is because they have been able to take advantage of the national presence that the UFC has become. There's no doubt that a sponsor will pay more money to a fighter appearing on a UFC card than a WSOF one, particularly if the UFC card is nationally televised on Fox. All of their marketing, promotion, and growth have caused the fighters to reap a financial benefit that they wouldn't get, were it not for the UFC themselves. While the fighters may be upset about the reduced compensation, the UFC likely feels that that compensation was only ever available because they managed to grow their sport, and even a reduced amount is what they would be able to get otherwise.
The UFC Fighters
Assuming Brendan Schaub's contention that he made six figures from sponsors in his last six fights is true, then a lot of fighters are definitely seeing less money as a result of the Reebok deal. Even if you are skeptical as to Schaub's statement, the amount of negative commentary from current UFC fighters makes it hard to believe that there isn't a fair number of athletes who are losing income due to the UFC's deal.
When I initially heard of the exclusive uniform deal, I assumed it would be a good thing for the fighters as a whole. Sponsorship dollars have apparently dried up over the past few years, and many fighters have reported issues getting payment after representing various companies in the Octagon. Guaranteed money for everyone seemed like a good thing. What we had here was a redistribution of the wealth. While your top earning athletes may have gotten some less from ring appearances overall, the vast majority of the lower card fighters would be getting a slight bump in income. In addition, the worries of securing in-ring sponsorship would have been gone.
This type of redistribution is the norm in sports leagues. When people buy jerseys of their favorite players, that money is spread out to the league's players as a whole. In the sense of jersey sales, there's no difference between being Lebron James or being Matthew Dellavedova as far as direct dollars it will gain for them. This is where things get different for the UFC. The profitability of the NBA and other sports leagues directly affects how much compensation the players, as a whole, will get. This is due to a collectively bargained agreement between the NBA and the players, and the dollars are distributed to the players as a function of a salary cap that is dictated by a percentage of revenue the league brings in.
While James would individually be better off if every NBA player were just given a cut of their direct jersey sales, redistribution almost always causes your top earners to take a hit to help prop up the mid-level and lower level athletes. While player unions do have star players that wield substantial influence, the vast majority of the voting members are not, in fact, stars. The downside of redistribution for a star is mitigated somewhat by the salary cap being a function of profitability, and the maximum or high salaries they may earn as being a function of the salary cap. While not a dollar-for-dollar, direct correlation, this hybrid correlation aligns the players' interests in profitability with that of their respective league.
The UFC fighters who are being paid out through the Reebok deal do not have this mutual interest in profitability that the UFC does. While the UFC will not profit directly from having standardized uniforms, the league's image may improve, thus leading to larger earnings and margins because of it. The fighters' payouts are fixed and they receive no benefit from any increased monies this deal could tangentially provide to the UFC. It's one thing to sacrifice immediate gains for even better long-term potential, but because the fighters have no financial ties to that long-term potential, their sacrifices does them no good.
As MMATorch Editor-in-Chief Jamie Penick said, Dana White's comments are unbelievably tone deaf. While not taking away from the amazing business sense that White has exhibited, he should be analyzing the fighters' complaints and statements on a case by case basis. It's reasonable to believe some fighters are getting less money by this deal, and some fighters are getting more. If an overwhelming majority of people are getting less with no potential gains because of the deal, White should address this for what it is, and not sweep it under the rug with sarcastic or willfully ignorant comments.
Phil Davis framed his decision to leave for Bellator as a business one, which is precisely what it should be for a fighter. There is a limited amount of time that an athlete can spend in MMA, and it makes sense to maximize your earnings over that time period. Fighters in the UFC currently may still be making more money than they would be making otherwise in another promotion, but there's an inherent sense of unfairness in taking away a source of income that they have always had access to. If any fighters are being screwed, it is the fighters that are in the middle of their multi-fight agreements when this deal is being implemented.
Now, there's a difference between just having a complaint, and having one that you can act on. It's possible that some fighter could file suit alleging that the UFC entered into contract negotiations in bad faith, and try to get their deals voided. A class action of active fighters in this respect would be very interesting. Fighters could allege that the UFC represented to them that they would be able to control their own in-ring endorsements. This type of reliance interest could be a useful basis for attacking their agreements, not to mention a very quantifiable loss of income.
The UFC undoubtedly has provisions in their fighter agreements that allow them to control aspects of in-ring presentation, including attire. We saw this exercised previously after Dennis Hallman wore a speedo to the Octagon and Dana White subsequently banned that type of outfit. Minus affirmative representations, it might be hard for a fighter to argue they were taken advantage of, particularly as the majority likely had legal counsel review their agreements. While the UFC could easily prevail on this type of suit, depending on the specific facts, the very act of filing a class action suit would be disastrous for the UFC. Depending on who supported it, you could conceivably see a multitude of fighters stop fighting while the adversarial action was taking place. Even if they're wrong, a large percentage of the UFC fighter-base on the sidelines creates a lot of leverage.
I put the odds of this happening as very unlikely. While it would be a great tool to try to get concessions from the UFC, the practical matter is that a lot of fighters can't afford to not fight. We've seen millionaire athletes cave months into a lockout for the same reason, and UFC fighters are rarely worth that much.
Other Promotions
Scott Coker has made it known that numerous UFC fighters (still under contract) have reached out to Bellator about their sponsorship policies. As it currently stands, the UFC is in no danger of losing fighters and talent to other promotions, outside of Bellator. One of the carrots that Bellator will be able to hold in front of fighting talent is the ability to manage their own in-ring sponsorship. This may hold extreme value to a lot of fighters, particularly ones who made more from what they wore in the ring as opposed to what they did in the ring. It may or may not be a factor that tips signings in Bellator's favor, but it is definitely going to be considered and calculated when comparing salaries and other aspects of a fight deal.
Possible Solutions and a Self-Limiting Issue
While the UFC's Reebok deal may have short-changed the current fighter roster, it is ultimately going to be a self-limiting problem. The fighters who are "hurt" by the deal are the ones who are under exclusive contract with the UFC and have no recourse to explore other options that could provide more in-ring sponsorship dollars. Anyone else who signs with the UFC from here on out has no right to complain about the restrictive sponsorship. If fighters continue to choose to sign with the UFC, it's conceivably because the amount of fight pay plus UFC uniform payout is more than they can get were they to sign somewhere else. Now you can argue that the pay may be too low for the sport, but these contracts are market dictated. It would be "nice" if the UFC paid fighters more because they could, but these are not personal decisions, they are business ones. Until the fighters get a union, the amount of power that they hold in contract negotiations is going to be both limited and diverse, depending on the ability and star-power of that particular athlete.
In this sense it is limiting. Once the current agreements signed before the Reebok deal expire, it really becomes a non-issue. As they always have, fighters are going to have to evaluate their earnings with any promotion as a whole, not just on a per-fight payout. In-ring sponsorship is one of these things. Out-of-the-ring sponsorship is another. Does being in one fight organization raise a fighters standing in the public eye to get commercials, magazine ads, and other types of endorsement dollars? This is where the UFC starts to run into danger of losing fighters. Bellator appears to have the ability to offer comparable salary to the UFC now. The UFC always provided a bigger market for sponsorship exposure, but now that the in-ring dollars are capped, Bellator may be able to offer a fight agreement a fighter finds more appealing.
The UFC has long held the majority of top MMA talent on its roster. The perception that they no longer did would be a huge blow to everything the UFC has established. There may be some very sensible fixes that the UFC could employ to both keep their fighters happy and allow them to continue to try to emulate the Big Four.
The first is just finding more sponsors. The NBA has experimented this season with a small, Sprite logo on their jerseys for the slam dunk contest. While the NBA uniforms are made by Nike, it appears inevitable that we will see some logos on NBA jerseys in the future. There's no reason that the UFC couldn't work with some strategic partners to do this very thing, and add that money to the pool that the fighters are getting. If they're absolutely death on putting any type of logo on the uniforms themselves, cutting the fighters in on dollars for logos in the Octagon, or TV sponsors would work as well. Yes the latter suggestion might cost the UFC money, but it's money they might need to spend to remain competitive when it comes to top talent acquisition.
A second potential fix is to tie the fighters' in-ring endorsement payouts to a function of the league's profitability. It would align the fighters' interests with the UFC, and allow the fighters to benefit from any growth that these types of deals yielded the promotion. While a salary cap is not really feasible at this time with the logistics of a fighting league, a percentage of profitability set aside for payouts could both make up for the current lost income and allow the fighters compensation to grow with the promotion.
Looming Legal Battle?
In the paragraphs above we addressed how this is a self-limiting issue confined only to the fighters currently on the UFC's roster. There is one aspect that we did not touch, however, which is the most fascinating and probably in a legal sense. The issues surrounding this deal may ultimately result in a legal battle when the UFC tries to exercise its matching rights for a fighter whose contract is up. We most recently saw this come into effect when Bellator signed Gilbert Melendez to a multi-fight deal, and the UFC matched the deal to keep Melendez in the fold.
Just to pose a hypothetical, let's say popular and exciting fighter Anthony Pettis fights his last contracted fight in the UFC. Bellator, looking for a fighter who is both exciting and appeals to a burgeoning Latino market, signs Pettis to a multi-fight deal. Bellator makes it a point in this agreement to state that Pettis will maintain control of his own in-ring sponsors and endorsements. The UFC, not wanting Pettis to leave, matches the deal, but because of their exclusive Reebok agreement, cannot allow Pettis to control his in-ring attire and banner.
Now, it's important to recognize that a match doesn't have to be word-for-word, but rather it would have to match the material terms of the new deal. The term material is interchangeable with essential, as in was it one of the essential or important reasons that the agreement hinged on. The Eddie Alvarez contract litigation showed us that this is not always a simple thing to determine. Bellator was not able to match the UFC's agreement exactly, so they found some creative ways to try to provide the same financial outcome, albeit through slightly different means. Because Alvarez and Bellator ultimately settled, we weren't able to find out how the court viewed certain aspects of the alleged "match."
If a fighter was able to argue it was a material term, the UFC would have to figure out a way to match that particular provision if they wanted to keep that fighter. Not doing so, or even worse for them, not being able to could cause them to lose a lot of talent. A constructive match could come from guaranteeing additional monies on top of the fighters Reebok payout, equivalent to the amount that fighter would predictably receive in in-ring endorsement compensation. This would effectively raise a fighters' guaranteed bout purse. It's interesting to note that this type of guarantee would make it more expensive for UFC to sign fighters, but not for Bellator, as the additional monies they UFC would be matching would be coming from outside companies, not Bellator.
Bellator could try to push the expense onto the UFC even further by adding language into their fighter agreements saying they would guarantee a certain level of sponsorship dollars in the effort an athlete failed to reach a certain threshold, provided that said athlete attempted to get sponsors in good faith. If the UFC had to match this provision, there are no mitigating factors for them like Bellator would have, as their fighters aren't allowed to get in-ring sponsorship. A match would essentially put the UFC on the hook for not only the fighters' bout purse, but also for their sponsorship dollars as well. A fighter would love a match like this, because it would also eliminate the need for them to try to seek out in-ring endorsers.
As you can see, there are actually some ways this could end up helping fighters in the end. The UFC has a bit of transition time before their current fighters' contracts end to try to make everyone happy. If they don't, a mass, or at least attempted, exodus could be in the works for them. Either way, this is a short-term problem created by this exclusive deal that is going to force both fighters and the UFC to take a long look at how they continue to do business.
Michael Bane is an attorney and MMA enthusiast working out of Chicago, Illinois.
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