The Millions in the UFC

On my quest of making one Million Euros in less than five years, I have to share with you that my spirit is raised and I have doubled my energy during this last 50 days, I have been thinking to write this post for a long time. Every time I remembered my early days when I was 12 years old and as soon as the lessons were over, me and my then friends ran out to the streets and I would organize random fights outside my school making random bets and circulating a hand made newspaper presenting my young friends fighting outside the school I still remember that I even had to jump for the challenge to keep my honor and small enterprise going.

Back then I thought this is better than boxing. 20 years later someone added skills and made it a functional money making machine the UFC, see the video at the end of the post to see How this happened.

UFC fighters are among the toughest athletes competing in sports. Fiercely competitive, they enter the octagon knowing they could be cut, bruised or placed in submission holds that could render them temporarily unconscious. With each fight, they run the risk of suffering career-ending injuries.

But mentioning "fighter pay" to this same group of men brings forth a completely different side. They become consumed with fear. Flight instincts take over.

"Career suicide," one current fighter said when approached for comment.

"It would be the end of my career," said another current fighter, a former champion, when asked for an on-the-record interview about the UFC's fighter pay scale.

The men who run the Ultimate Fighting Championship are benefiting from unprecedented revenue growth -- the company purchased rival Strikeforce in March for $34 million, further tightening its stranglehold on the mixed martial arts industry. Recently, the UFC inked a seven-year deal worth a reported $100 million annually with FOX, its first significant broadcast agreement with a major network.

The UFC, $44 million in debt as recently as 2005, according to chief executive officer Lorenzo Fertitta, is today widely believed by industry insiders to be worth north of a billion dollars.

While paydays for top draws like Anderson Silva and Georges St. Pierre can run into the millions (St. Pierre recently told Agence France-Presse he earns between $4 million and $5 million per fight), entry-level fighters who compete under the banner of the UFC do so for as little as $6,000 if they fail to win their first match.

"We're basically fighting for crumbs," said one current UFC fighter, a veteran of more than a dozen years in the sport who also asked that his name be withheld for fear of reprisals from UFC management.

"The top 5 percent [of fighters] are definitely making good money, but you've got to look at the guys at the bottom of the card," the fighter said. "They can't fight anywhere else. If they make $10,000 a fight and fight every six months, they can't make ends meet."

"We're definitely not getting our fair share of the cash," said another fighter currently under contract with the UFC. A fan favorite, he, too, refused to be named, citing concerns about the reaction from UFC management.

"Any opposition, they [expletive] crush it," said the fighter. "Until somebody starts a union, we're all sort of at their mercy."

Fertitta, CEO of Zuffa LLC, the parent company of the UFC, said dissent among fighters is not only commonplace but tolerated.

"Anybody can talk about anything. We've had plenty of situations where fighters have come out and made statements. … Have they been blackballed or banned? Absolutely not," Fertitta said.

UFC management has had public disagreements in the past with some of its top fighters over the issue of compensation and image rights -- former heavyweight champion Randy Couture and top welterweight contender Jon Fitch to name just two.

Both were eventually welcomed back into the fold; Couture after a bitter legal fight with the UFC, Fitch after he was cut by UFC management and then reinstated a day later.

"Outside the Lines" recently conducted a wide-ranging interview with Fertitta about the issue of fighter pay and other aspects of the UFC's business.

Among items Fertitta noted:

• Since 2005, the first year the UFC became profitable, the company has paid more than $250 million to its fighters.

• 39 UFC fighters have become millionaires as a result of their earnings from the company.

• 29 fighters on the current roster receive a cut of pay-per-view profits.

• Since 2005, fighter pay has grown at twice the rate of revenue growth.

What Fertitta won't say is how much revenue the UFC currently generates. As the head of a private company, he's not obligated to disclose those figures to anybody, including the roughly 300 fighters with whom he and UFC president Dana White negotiate contracts.

According to a May 2010 "Standard and Poor's" report, 75 percent of the UFC's revenue comes from live pay-per-view events. The remainder comes from merchandising, distribution agreements and other live and taped television broadcasts (the UFC's contract with Spike TV to broadcast live events and "The Ultimate Fighter" ran through 2011).

When asked what percentage of that revenue goes to fighters, Fertitta said it's "not far off what the other sports leagues pay as a percentage of revenue."

Revenue-sharing formulas in the NBA, MLB, NFL and NHL give athletes about 50 percent of revenue. "[It's] in that neighborhood, yeah," Fertitta said.

"That's an absurd statement," said Rob Maysey, an Arizona-based attorney who in 2005 founded the Mixed Martial Arts Fighters Association. Largely powerless, the UFC has taken the tack of ignoring the organization, which claims about 50 fighters and trainers as members.

"The UFC is in the neighborhood of the major professional sports in terms of payout percentages compared to revenue generated in the same way as I am in the 'neighborhood' of challenging for Anderson Silva's middleweight title," Maysey said.

After examining pay-per-view numbers, live gate proceeds and other revenue streams, Maysey estimates the UFC has annual revenues between $350 million and $450 million.

Yet the median per fight income for fighters remains low, between $17,000 and $23,000, figures he said he obtained from his many conversations with current fighters.

Fertitta said that fighters have the potential to substantially boost their earnings through the company's incentive-driven pay model.

"We pay discretionary bonuses. No different than any other company that may be out there," Fertitta said. "We pay you for performance."

During each pay-per-view event, fighters are eligible to receive bonuses for either the submission of the night, knockout of the night or fight of the night. In addition to those structured incentives, which have ranged from $65,000 to $135,000 in recent years, the UFC also awards discretionary bonuses, Fertitta said.

"We've had guys that maybe were making $200,000 and said, 'You know what? This guy promoted the heck out of the fight. He performed. Write him a check for a million dollars,'" Fertitta said.

Even taking the unreported bonuses into consideration, Maysey said the 50 percent revenue-sharing claim is not accurate.

"The [UFC's] payout percentages in terms of revenue generated are far from the percentages paid to athletes by the NFL, MLB, NBA or NHL," Maysey said. "If I'm taking all revenue from all sources, I would put it around 5 percent."

"Outside the Lines" interviewed dozens of sources about the issue of fighter pay -- current and former UFC fighters, managers, agents, rival promoters and former UFC executives. On average, they estimated the UFC pays fighters roughly 10 percent of the revenue generated from its live events, essentially the inverse of the boxing business model.

"I think they have a tremendous business paradigm," said Lou DiBella, a New York-based boxing promoter who spent more than a decade as a programming executive running the boxing division of HBO Sports.

The percentage of event-generated revenue that goes to a boxer could be as high as 85 percent, DiBella said.

"A 70/30 deal is completely common," DiBella said, meaning 70 percent of the revenue generated from the fight goes to the boxer, the remaining 30 percent to the promoter.

Under the Muhammad Ali Boxing Reform Act, a federal law DiBella helped author, promoters are required to disclose to boxers how much money their fights generate. No such law applies to the sport of mixed martial arts.

"You have one industry that's not disclosing and thriving, and another industry that is disclosing and dying," DiBella said.

Fertitta likened that comparison to apples and oranges: "What you have to understand is that our model is different. We are everything. … We're the promoter. We're the television producer. We're responsible for all the costs that go into the production, and you're talking millions and millions of dollars.

"We employ well over 500 people just to make this machine run."

Within the sport there has been talk of a fighter's union, and for the past three years, Maysey has been aggressively pitching fighters on the benefit of bargaining with a unified voice.

Maysey has traveled the country at his own expense, speaking to small groups of fighters and trainers, touting the merits of joining the MMAFA.

Among other things in his presentation to fighters, Maysey highlights the percentage of revenue the fighters receive from the UFC's live pay-per-view events.

He's gone so far as to venture into Fertitta's own backyard to make his pitch.

In early May, while UFC management was hosting its two-day "fighter summit" at the Red Rock Casino Resort & Spa in Las Vegas, Maysey booked a room at the same hotel. Red Rock is one of 19 gaming properties owned by Station Casino Group (Fertitta and his brother, Frank, also own a controlling interest in Station Casinos).

Maysey held an impromptu meeting in his hotel room, which, he said, quickly grew from four to 19 fighters as word spread through the hotel.

"There were fighters who were in the room who, if they thought their presence would be publicized, they wouldn't have gone," Maysey said of the gathering, which initially occurred under the radar of UFC management.

According to Maysey, he did not sell the fighters in attendance that day on the idea of starting a union, but rather an association, which he said would resemble the Major League Baseball Players Association or the Screen Actors Guild.

"I'm going to guys and saying, 'You have a very slim sliver of ancillary rights left. Join together. All the other sports figured that out,'" Maysey said.

It's a hard sell.

"The vast majority of people I meet with want to do it, but 75 percent of that majority fear repercussion, so they won't," Maysey said.

"The only way that you can get a union is to get all of the top 30 fighters in the UFC … all of them to agree that 'we're going to stand together and do this,'" said Iowa-based promoter and manager Monte Cox.

"If it's the top five, they [UFC management] can kill off the top five and still keep going," Cox said. Cox currently manages 70 fighters, 16 of whom are under contract with the UFC.

Talk of a fighters union is nothing new. Former UFC welterweight champion Pat Miletich remembers similar discussions brewing back when he was competing, shortly after the Fertittas purchased the company in 2001.

"To organize a fighters union I think would be a colossal undertaking to be honest with you," Miletich said. "That's really going to depend on having the right money behind it, powerful people to be able to put it together."

For his part, Lorenzo Fertitta claims he's neutral on the issue.

"I'm not pro union, I'm not against a union. If the fighters want to form a union, that's fine," Fertitta said.

In practice, the Fertitta brothers have had a contentious history with organized labor.

"Station Casinos is an extremely anti-union company. It has been running an aggressive and nasty anti-union campaign," said Ken Liu, research director for the 60,000-member Culinary Workers Local 226 in Las Vegas.

For years, the Culinary Workers Union has been trying to organize service industry employees at the Fertitta-owned Station Casino properties, which largely cater to the local market in Las Vegas.

In an August letter to the FTC's Bureau of Competition, Liu attacked the UFC's restrictive business practices and claimed the company violated federal anti-trust laws.

"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 contractual restraints can have the effect of forcing some athletes under contract with the UFC to negotiate with one buyer, depriving them of any real bargaining power and depressing pay below competitive levels," Liu wrote.

On the surface, Liu acknowledges it may seem an odd pairing -- a union that represents cocktail waitresses, bus boys and chambermaids, among others, taking up the cause of UFC fighters.

"For us there's an eerie parallel in how the Fertittas treat their workers at Station Casinos and how they treat fighters in the UFC," Liu said. "As a union we have to continue to put pressure on this company from all conceivable directions."

In September, an administrative law judge with the National Labor Relations Board found that Station Casinos engaged in unfair labor practices more than 80 times.

The judge's 151-page ruling details alleged threats, bribery and interrogation tactics used by Station Casino management against employees who had engaged in union-organizing activities.

Station Casinos is appealing the decision.

In a statement on its website, the company dismissed the union tactics as "an ongoing campaign of harassment."

"The Culinary Workers Union filed baseless charges alleging violations of employee rights. … We are confident that the National Labor Relations Board will find that in no instance did Station Casinos violate any aspect of the law," the statement reads.

The case is instructive for Maysey, who's come as close as anyone to taking on the task of getting UFC fighters to organize.

While Maysey remains hopeful UFC fighters will one day join forces to negotiate better deals on their image and marketing rights, he is less than optimistic they'll ever mobilize into a full-fledged union.