How Zuffa’s Purchase of Strikeforce is Not a Monopoly

“Monopoly”.  Lately, that dirty word has been tossed around quite a bit, and almost always to describe the hold Zuffa now has over the marketplace after its purchase of main competitor Strikeforce.  But does such a condition – long considered unfavorable to free trade and made illegal with the Sherman Antitrust Act of 1890 – exist in this case?  The short answer is no.  Not yet, at least.

And now… the long answer.

According to Black’s Law Dictionary (8th edition), a monopoly is “the market condition existing when only one economic entity produces a product or provides a particular service.”  American Jurisprudence (2nd edition, volume 54A), an encyclopedic series of texts on US federal law, further states that “a monopoly is the practical suppression of effective business competition which thereby creates a power to control prices to the public harm.”  However, over a century of case law and legislation has determined that, to exist, a monopoly must possess three components: a single seller, market power wielded by that seller, and high barriers to entry into the marketplace.

Now consider the facts.  Zuffa, with its unstoppable MMA-producing factory (i.e., the UFC), has long dominated the market – just take a look at their pay-per-view and television schedule and count the number of offerings.  But they’ve been far from the only “seller”.  Strikeforce had a strong position in the relevant market, producing national-level shows for a broad audience.  And though it’s been absorbed into the Zuffa fold, others remain, like Bellator, Shark Fights and whatever events are aired on HDNet.  There is no single seller of mixed martial arts.

“Market power” is the ability of a producer to alter the price of its product without fear of losing customers to its competitors.  In this instance, Zuffa is the producer and their events are the product.  While Zuffa may charge close to fifty dollars for a pay-per-view, there’s no arguing that if the cost exceeds what the market is willing to bear, people just won’t buy it.  Unlike an essential good, a UFC on pay-per-view is a luxury that’s easy to forgo.  Plus, there are often cheaper options available.  Whether they be a twenty-dollar Moosin on pay-per-view or a fight show on MTV2, they’re out there.

The last component of a monopoly, “high barriers to entry”, means that there are legal or economic obstacles keeping a potential competitor out of the MMA business.  (Note that it does not mean that there are barriers keeping a promoter from being as successful as Zuffa, only that the barriers prevent competition.)  The continued existence of other MMA organizations (again, like Bellator, Shark Fights, or whatever events are on HDNet), and the fact that new ones continually sprout up, prove that this essential component of a monopoly is not present.

Finally, if attorneys with the Department of Justice (which prosecutes antitrust issues) were to ever consider investigating Zuffa for a potential monopoly, the first speed bump they’d encounter is the federal case of United States v. Syufy Enterprises (1990).  Syufy Enterprises was a successful movie theater “mogul” who in the early 1980s bought up nearly all the movie theaters in Las Vegas.  What remained was one lone competitor, a discount movie theater that ran older films.  The Department of Justice took Syufuy Enterprises to court, claiming that by buying out its competitors it gained monopoly power.  They lost, with the court saying that no barriers to entry existed.

When confronted by allegations of a UFC monopoly in a recent media conference call, Zuffa chairman Lorenzo Fertitta was quick to retort with: “There’s plenty of competition and there’s really no barrier to entry.”  Clearly, when it comes to antitrust law, he’s been doing his homework.

  • JoshCarrillo

    I personally am completely behind Zuffa on this deal. This may finally give Mixed Martial Arts a solid face, similar to the NFL, NBA, NHL, etc. Hopefully through this MMA will be recognized by all as a full fledged sport complete with athleticism, integrity, and discipline. Even perhaps more so than the other organizations I mentioned above.

  • Mattsilli

    If the UFC has a monopoly then so does the NBA, MLB, NFL, NHL, etc…while there are other professional basketball leagues or football leagues. There is and will always be the most dominate league in every sport. It just so happens that is the UFC. I don’t see any problem with it as long as PPV don’t start costing $100. If they did people wouldn’t but them and instead would try and pirate it or read about it. How can you monopolize entertainment? As a fan, I want the best possible fights and this is the only way. I don’t see them changing their price to adjust because lack of competition, and they still put on free fights for those who don’t want to PPV.

  • SteveBarry

    When I first started following MMA closely I thought having more than organization was the answer, but after seeing all the shit that’s gone on and how messy co-promoting is, I think this will be better for the sport and the fans in the long run. The fighters? Eh, maybe, we’ll have to see how it plays out.

  • Mattsilli

    @SteveBarry I hope they don’t get a fighters union and Zuffa will just do the right thing. Most the fighters do pretty well as it is. Between their pay, bonuses, sponsors, fighters are doing better then MLS players. Soccer is the biggest sport in the world and MMA fighters in America make more than soccer players in America, an fighters can fight into their late 30s where in soccer mid 30s is old.

    Fighters won’t make as much as NFL or MLB, but most fighters these days have nice cars (minus Nick Diaz and his civic) and almost all make more than me and they get to do what they love.

  • SteveBarry

    test

  • SteveBarry

    test 2

  • jim genia

    @Mattsilli @SteveBarry A players union is part of what keeps the NFL/MLB/NHL/NBA examples from being classified as monopolies. If MMA fighters were to unionize, it would actually permit Zuffa to exert more control over the market (from a legal standpoint).

  • Mattsilli

    @jim genia I understand, I’m just not a fan of unions in general. Looks what’s happening in the NFL right now. It’s happened in almost every major sport. I don’t think they will ever be able to classify they UFC as a monopoly. There will always be smaller promotions. As the sport grows so too does the amount of fighters, and the UFC can only have so many on their roster. We will always have the MFC, BAMMA, Bellator, etc… As the sport grows we might even see another SF type promotion. All it takes is for a “Jerry Jones” to get excited about it and invest a crazy amount of money. I wouldn’t be surprised to see a group of wealth investor see this as a chance to make money. However the UFC will always be top dog.

  • misterjayem

    @Mattsilli @Jim “I’m just not a fan of unions in general. Looks what’s happening in the NFL right now.”

    You mean asking for higher pay from the owners of the most successful sports organization in the world?

    – MrJM

  • misterjayem

    @Mattsilli @Jim “I’m just not a fan of unions in general. Looks what’s happening in the NFL right now.”

    You mean asking for higher pay from the owners of the most successful sports organization in the world?

    – MrJM

  • dim mak

    that antitrust analysis is a bit simplistic. first, both the Federal Trade Commission (my old employer) and the Department of Justice review and approve or block merger activity. But that review is only triggered by the thresholds set forth in the Hart-Scott-Rodino act, which states that the merger is reportable only if the acquiring company paid more than $66 million for Strikeforce, which seems unlikely given the promotion’s problems.

    But if it was reportable, the government would analyze the transaction under the Horizontal Merger Guidelines, and under those guidelines, the deal would be in trouble. Strikeforce is the only other major player in an already concentrated industry. By acquiring Strikeforce, the UFC would be far more likely to be able to maintain a “small but significant, nontransitory increase in price” than it would be before. Translated into English, if the Strikeforce deal makes it more likely that the UFC can either pay its fighters 5% less or raise the price of pay per views 5% (about $3), or charge networks like Ion and Spike 5% more, than the the merger should be blocked. I think it’s highly likely that the deal does grant UFC such additional market leverage.

  • dim mak

    that antitrust analysis is a bit simplistic. first, both the Federal Trade Commission (my old employer) and the Department of Justice review and approve or block merger activity. But that review is only triggered by the thresholds set forth in the Hart-Scott-Rodino act, which states that the merger is reportable only if the acquiring company paid more than $66 million for Strikeforce, which seems unlikely given the promotion’s problems.

    But if it was reportable, the government would analyze the transaction under the Horizontal Merger Guidelines, and under those guidelines, the deal would be in trouble. Strikeforce is the only other major player in an already concentrated industry. By acquiring Strikeforce, the UFC would be far more likely to be able to maintain a “small but significant, nontransitory increase in price” than it would be before. Translated into English, if the Strikeforce deal makes it more likely that the UFC can either pay its fighters 5% less or raise the price of pay per views 5% (about $3), or charge networks like Ion and Spike 5% more, than the the merger should be blocked. I think it’s highly likely that the deal does grant UFC such additional market leverage.

  • dim mak

    i also don’t find the barriers to entry argument compelling. if it was so easy to enter the MMA promotion market, why is Zuffa raking in such high profits? why are most fighters so desperate to join the UFC? MMA has significant “network effects,” which means that, the more top fighters a promotion has, the more valuable it becomes. the stable of top fighters creates a significant barrier to entry, as any regional promoter looking to go big time could no doubt tell you.

  • Mattsilli

    @misterjayem you are talking about a sport where a player makes 1 million a season and never even plays. What do they have to complain about. There are safety issues, but players are aware of that risk before they put on a helmet.

    Why complain for more money when they all make 15 times that of the average American? I have heard the argument that they only get so many years to play and then regular jobs aren’t easy. However most players make more in one season than most people will make in ten years. Just because they can’t budget themselves for a life after football doesn’t mean I should feel sorry for them or agree with this strike.

    They don’t have to play professional football if they are worried About injury, they already should have a degree (most likely a free one) and they can choose to get a real job if they are worried about getting hurt.

  • Mattsilli

    @misterjayem Also, just because a company is successful doesn’t mean the employees deserve more pay. If I remember correctly the better they play the bigger the contract. So maybe they should trainer harder and complain less. I hate listening to professional athletes compain about money. They should walk into my shoes where I drive a crap car and struggle.

    By your logic every successful company should pay their empolyees more, or the employees should go on strike?

  • krucz36

    They may not be a legal monopoly, but they are certainly a de facto monopoly. Also, the cornering of the market by the Fertittas is scary. The idea of mobsters running MMA makes me think of what the Yakuza did to MMA in Japan.

    FYI, there’s a word-o in the second to last paragraph, you’ve got “where” instead of “were”.

  • krucz36

    @Mattsilli @misterjayem SOME players make 1 million a season, and they average a four year career.

  • krucz36

    @Mattsilli You don’t understand labor law, do you?

  • Mattsilli

    @krucz36 I wasn’t debating the law, but my opinion of it. Obviously you have your opinions on labor law and it’s fairness. In sure you didn’t a big of “googling” because very few people just know how long the average career of a football player is. However long that life is or however much those players average isn’t the point. We arent talking about bus drivers getting screwed on pay because the are replace able. We aren’t talking about people making $8 an hour. You are talking about people who get to do what they love for a living and get paid very well for it. Between sponsors, bonuses, salary, and “hook ups” you can’t tell me that even the lowest paid NFL player doesn’t make $250,000 a season. I would have to work almost 8 years to make that. Multiply that times 4 and I would have to work 32 years to make what a “back-up” will make in 4 years. If you expect me to feel sorry for them you are mistaken. They are worried about injury? Try being a cop or firefighter and talk about injury. The only reason players are arguing pay is because with out players the owners don’t make money either and they are exploiting that to make money. It sickens me to see the kinda money these players get and still hear them cry.

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