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SPORTS ENTERTAINMENT AND THE LAW: THE ROLE OF GOVERNMENT REGULATION, INTELLECTUAL PROPERTY, AND CONTRACTS IN AND

BY

PIERRE BEDARD

TABLE OF CONTENTS

I. Introduction ………………………………………………....……2

II. Two Dominant Players………………………………………..…3

III. Government Regulation………………………………………...8

IV. Intellectual Property Rights…………………………………..14

V. Contracts……………………………………………………...…25

VI. Conclusion: The legal future of sports entertainment……....30

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I. INTRODUCTION

Professional wrestling and Mixed Martial Arts (MMA), two forms of mayhem

known collectively by the euphemism “sports entertainment,” are like double-wide

trailers. To some, a double-wide is nothing more than a tornado magnet, a nest for white

trash. To others, it’s home.

In some social circles, admitting a love for wrestling or cage fighting is a form of

intellectual , the moral equivalent of lighting a Camel no-filter in an aircraft

lavatory.1 Yet, many of us are drawn to wrestling through childhood memories or cultural

ties. The memory of my Dad and uncles, playing cards, while watching wrestling on a

15-inch black and white Dumont television set and drinking room temperature O’Keefe’s

beer in East Montreal is an early memory. When we moved to Southern ,

Freddie Blassie, being told by the LA Olympic Auditorium crowd to “Bite, Freddie,

Bite!” welcomed me to Orange County. Visions of Mad Dog Vachon, accidentally

opening up a vein in his head on a steel post, blood spurting out marking each heartbeat,

stay with me to this day, and not in a post-traumatic way.

But wrestling is less ethereal than my random memories of violence past. The

sports entertainment industry has left a rich historical trail of case law about government

1 Well, it may not be as bad as a federal crime, but professing a love of or MMA makes people question your demographic.

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regulation, intellectual property rights, and contract law. This paper attempts to gain

insight on the industry through these cases.

II. TWO DOMINANT PLAYERS

Sports entertainment as a concept has ebbed and flowed over the years. Emerging

from circus sideshows, carnivals, and traveling strong men, this form of sports

entertainment is arguably as legitimate as any sport, requiring conditioning, training, and in wrestling’s case choreography and acting needed to get a performer “over” with the

crowd. Today, sports entertainment is dominated by two players – one in professional

wrestling and the other in MMA.

World Wrestling Entertainment (WWE)

The WWE, headquartered in Stamford, Connecticut is a publicly traded on the

NYSE (WWE). Once known as the World Wrestling Federation (WWF)2, the company

had revenues of $485.7M in 2007 and market capitalization of about $1.2B. The WWE

segments its revenue in four categories; 1) Live and TV entertainment, 2) Consumer

Products, 3) Digital Media, and 4) WWE Films.3

The WWE’s longterm financial objectives are 10% average revenue growth and

12% average earnings growth year-to-year from 2006 to 2011. Their primary path is

2 Until sued by the other WWF – the World Wildlife Fund. See WWF vs WWF: The trademark war http://slam.canoe.ca/SlamWrestlingArchive2000/oct26_wwf-ap.html (last visited May 14, 2008) 3 See Current WWE 10-K Report http://corporate.wwe.com/investors/documents/200710-KFinal.pdf (last visited May 14, 2008)

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through international expansion, the exploitation of Digital Media opportunities including

website advertising, the sale of hard goods through .com, and the strengthening of the core businesses, especially pay-per-view.4

Business Segments 2007 Revenue ($M) Percent of Total Percent Growth Revenue

Live & TV Entertainment $ 316.8 65% 8%

Consumer Products $ 118.1 24% 24%

Digital Media $ 34.8 7% 24%

WWE Films $ 16.0 3% N/A

Total Revenues $ 485.7 17%

Just like they segment their business, the WWE knows how to segment the demographics they serve. Their segmentation philosophy is a roadmap for growth. They manage the business with an eye to trends and shifts. If they see an opening to micromarket a t-shirt geared towards 35 year old divorced grandmothers, they exploit it and a t-shirt geared to the demographic emerges on the WWE storefront at wwe.com.

While Live & TV Entertainment represented two-thirds of the revenue in 2007, its growth (8%) lagged behind the other business segments. Was it because Live & TV

Entertainment is more susceptible to economic petroleum and agricultural shocks? Did

4 See WWE First Quarter 2008 Conference Call Presentation http://corporate.wwe.com/investors/documents/1Q2008Presentation_004.pdf (last visited May 13, 2008)

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the rate of growth correlate to the rise in the price of gasoline? Was the pay-per-view

market saturated? Their Trending Schedule5 dissects each granular part of each segment

and guides investment (and disinvestment) decisions. For example, in 2007, sensing an

overload in the pay-per-view schedule, the WWE canceled at least one show.

The WWE is growing the product line by looking to the international market.

They’ve determined that the US market is relatively saturated, with almost one pay-per- view scheduled per month. The WWE has signed affiliates like BSkyB in Europe, taking

them into new markets and hoping to keep TV revenue on a positive slope.

Consumer Product revenues, which includes license fees, royalties, home video

sales and magazine sales was strong in 2007. From 2006 to 2007, licensing increased

47%. In Q1 2008 alone, licensing revenue rose 27% year to year based on the sale of 5.2

million units of WWE’s flagship videogame published by THQ. The strength of the

Consumer Product segment clearly demonstrates that the WWE is not just about professional wrestling. With a deep intellectual property portfolio ripe for licensing, the

WWE is an entertainment company.

Zuffa

Zuffa, LLC, located in , Nevada, was formed to purchase the

Semaphore Entertainment Group (SEG) in 2001. Because Zuffa is a privately held limited liability corporation, it is hard to pierce the veil surrounding internal financial

5 See WWE First Quarter 2008 Trending Schedule http://corporate.wwe.com/investors/documents/TrendingScheduleQ12008.pdf (last visited May 13, 2008)

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machinations of the company. Thankfully, an enterprising blogger / law student / writer,

Adam Swift, has been able to piece together some interesting facts harvested from a

Standard and Poor’s report downgrading Zuffa’s corporate debt rating in late 2007.

According to MMA Payout, Zuffa was carrying about $350M in debt at the end of 2007.

The money was most likely used to issue dividends to the partners, and refinance existing debt needed for operating expenses and the purchase of three (3) MMA promotions, the

World Fighting Alliance, World Extreme Cagefighting, and PRIDE Fighting

Championships (PRIDE). Mr. Swift was also able to determine that about 100% of

Zuffa’s 2007 revenues came from live matches, television revenue, and pay-per-views.

If we look at the same metrics used by the WWE to evaluate their business, we can surmise the following about Zuffa. First, we can assume Zuffa’s revenues are approximately $300M per year based on pay-per-views, gate receipts, and television contract revenue.

Today, their revenue is wholly from the Live TV Entertainment segment as defined by the WWE in its segmentation. To truly grow, they need to follow the WWE’s game plan, expanding into consumer product and digital media sales.

The UFC has started selling DVD editions of its television show which appeared on SpikeTV. They are about to enter into consumer products with the release of a UFC videogame by THQ in the Spring of 2009, but at best, this might return $20M per year since the octagon is not located in Liberty City. With every live event, they are building a catalog of digital assets and intellectual property Zuffa can

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repurpose into licensing and merchandising opportunities. But, Zuffa does not appear to

have a viable merchandising storefront, nor do they have a vast stable of characters they

own all rights to for exploitation.

Can Zuffa maintain its revenue and service its debt while trying to follow a strategy perfected by the WWE? Can they expand the other segments of the business

while not going broke financing the expansion? On today’s trajectory, the only thing standing in their way is execution. As long as cash flow is maintained and the proper infrastructure is put in place, Zuffa will likely raise capital through an Initial Public

Offering (IPO) in an attempt to replicate the WWE’s success as sports entertainment powerhouse.

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III. GOVERNMENT REGULATION

Government regulation has reared its head in many human enterprises, especially in the MMA industry. Women’s rights, the First Amendment and taxation, and the regulation of professional fighting have all been tackled in the courts. The following cases examine government’s role in sports entertainment.

“Because there are too many blondes!” - Women in wrestling (1955)

In 1955, Rose Hesseltine, also known as Rose Roman, sought a license from the

Illinois Athletic Commission to wrestle. The Commission, citing “unladylike behavior”, denied her the right to wrestle. 6 Rose, sporting purple hair, won her case based on a

6 WOMEN GRAPPLERS ADD BIT TO GROANERS (Williamsport PA Gazette Bulletin, Friday, Aug. 26, 1955) Reprinted from http://www.f4wonline.com/content/view/3216/105/ (last visited May 12, 2008) CHICAGO -- Women wrestlers like Rose Roman Hesseltine believe a woman's place is in the ring. She ranks as a top hand among the 40 members of the fairer sex in the who have invaded man's wrestling domain for a share of the loot. Rose Roman has been wrestling professionally ever since she came to Chicago five years ago from Des Moines. "I've had about a dozen black eyes, broken toes and fingers, and have been laid up with my back several times. But I've won better than half my matches," she says proudly. "That's better than I did in my first ones." As for loot, lady wrestlers can make from $15,000 to $65,000 a year.

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literal reading of the statute. The Supreme Court of Illinois affirmed the ruling of the

Cook County circuit court, allowing her to wrestle. Attendance to the wrestling shows immediately tripled. Finding the Commission’s ruling an “arbitrary assumption of power,” the court felt there was no need to examine the constitutional issues since in reading the statute; they found no mention of gender.7 Rose Roman was free to terrorize other women and perform in front of the fans, helping to blaze the trail for today’s popular WWE divas.

First Amendment challenges to taxation (1990 – 1992)

Titan Sports, the corporate predecessor to the WWE, challenged a media tax levied by the State of New Jersey on its wrestling shows, claiming that wrestling should

Promoter Fred Kohler says since lady wrestling returned this spring after a long ban by the Illinois Athletic Commission, attendance has jumped 300 to 500 per cent. The national boom began when Indiana early this year permitted women to wrestle in public exhibitions. It now is permitted in 43 states, Kohler said. Rose Roman won women's rights a healthy boost when she pinned the Illinois Athletic Commission to the mat with a decision by the Illinois Supreme Court. Justice Roy Klingspiel said the commission had not statutory power to refuse Miss Roman a wrestling license. She is one of six lady wrestlers in Kohler's stable which also has 35 men wrestlers for matches as far away as Mexico City and Caracas, Venezuela. He insists they be ladies and follow the rules set by athletic commissions on behavior. That means no kicking, or hair pulling, no gouging of eyes. "They want to protect the fragility of women," Rose Roman says. Her 138 pounds and 24 years are about average for her profession. Her ringmate, Shirley Strimple, from Pittsburgh, is 26 and is married to a wrestler, Roy McClarity, a sleeper-hold specialist from Winnipeg, Canada. The couple have three children -- Debra, 3; Tony, 21 months, and Steven, 4 months. The tots are tended by a nurse when their parents are wrestling. Kohler says Shirley and Rose are the two most beautiful ring dolls who ever applied a head lock. Rose has the with her purple hairdo, however. Why purple hair? "I wanted to be different," she said. "There are too many blondes." 7 Hesseltine v. State Athletic Comm’n, 6 Ill.2d. 129

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be considered expressive free speech and thus protected by the First Amendment. Titan

asserted that the “video productions are an expressive activity” … “because they are

dramatizations which depict moral issues and are best classified as dramatic social

satire.”8 In its brief to the court, Titan broke , the illusion that what happens in the

wrestling ring is real, in order to fight the tax. Titan argued that taxing a WWF wrestling

exhibition was analogous to taxing a soap opera like Dallas.

Linda McMahon, the WWF’s executive vice-president and Vince McMahon’s wife, filed affidavits detailing how wrestlers are often nothing more than “characters and personas” acting out “sagas in a form of drama that includes plots, subplots, characterization, theme improvisation, spectacle, acrobatic expression, critical expression, moral expression and political expression."9 Was Titan banking on wrestling fandom not

reading the proceedings of the New Jersey tax court, or was this an admission by one of

the two largest wrestling promotions at the time that wrestling was more entertainment

than sport, more theatre than reality?

Ultimately, the court ruled for the state and against Titan’s First Amendment and

commerce clause challenge, finding that New Jersey’s right to regulate professional

wrestling, be it an event, a soap opera, or a sporting event was not a constitutional issue

worthy of federal intervention.

8 Titan v. Hazzard, 11 N.J. Tax 259, at 269 9 Titan v. Hazzard, 11 N.J. Tax 259, 266

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MMA and the Role of Athletic Commissions

The Frawley Act, enacted in 1911, legalized professional and placed it

under the control a state athletic commission.10 The death of a young boxer in 1917

prompted the repeal of the Act and the suppression of legal prize fighting until 1920,

when New York’s Walker Act established yet another commission to regulate boxing.11

This form stuck, and other states modeled themselves after New York’s Athletic

Commission. But MMA is neither fish nor fowl, neither boxing nor wrestling.

Incorporating rules from boxing, yet allowing choke holds, elbowing, and kicks you would never see in a boxing match, promoters attempting to promote MMA events often ran afoul of commissions originally set up to deal with boxing events. Eventually, some state commissions embraced MMA, but not until MMA had been rehabilitated and accepted by the general public. This attempt at rehabilitation continues. MMA is still illegal in New York State.

Early Days of MMA – Semaphore Entertainment Group (SEG) v. the World

(1996 – 1998)

Commissions and legislatures tend to mirror and serve the public that elects them to office. There are four cases which helped define the evolution of MMA as a regulated activity. Not surprisingly, many of these cases were resolved by virtue of state’s rights

10 http://query.nytimes.com/mem/archive- free/pdf?res=9C07E5D7123BE633A25754C1A9679C946296D6CF (last visited May 13, 2008) 11 http://query.nytimes.com/mem/archive- free/pdf?res=9500E4D7143AEE32A25754C1A9609C946195D6CF (last visited May 13, 2008)

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questions or on technicalities suited to mesh with public sentiment and serve public policy.

The first was in 1996, SEG v. Gonzales. 12 SEG scheduled an MMA pay-per-view

in . At the time SEG entered into its contracts for the event, there was no

commission with jurisdiction over MMA events in Puerto Rico. The Commonwealth of

Puerto Rico decided to hold hearings on MMA. SEG sought equitable relief against the

Commonwealth and filed suit to enjoin them from holding the hearings, fearing that they

would prevent the event. The District Court, citing the potential for irreparable financial

harm ruled for SEG and enjoined the commission, allowing the show to go on.

SEG found New York less friendly in 1997. As in Puerto Rico, the New York

State Athletic Commission revised its rules just prior to a scheduled SEG MMA event.

Even though the company proved economic harm because of the rule changes, SEG

failed to clear the hurdle of “irreparable financial harm” needed for injunctive relief set

by the New York federal district court.13

In New Jersey in 1998, the federal court refused to preempt the state’s jurisdiction and grant SEG a preliminary injunction when the New Jersey State Athletic Commission, as in Puerto Rico and New York, revised its rules immediately before a scheduled MMA

12S.E.G. Sports Corp. v. Gonzales, 919 F.Supp. 543 13S.E.G. Sports Corp. v. State Athletic Comm’n , 952 F.Supp. 202

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event. The rulings in New York and New Jersey did little to enhance SEG’s financial health.

In 1997, SEG did find one sympathetic ear in Michigan, foreshadowing a changing societal attitude towards MMA. The Michigan Supreme Court 1) denied an injunction canceling a Ultimate Fighting Championship (UFC) event , 2) threw out a criminal contempt ruling against fighters who did not follow agreed-to rules (open fists and no head butts), and 3) ruled that the UFC did not violate any criminal state statutes in holding an MMA event. Though ruling that the UFC violated Michigan laws because it constitutes "boxing," the court ruled only that the UFC must follow Michigan laws in the future, and refused to stop the event or sanction the organizers.

In spite of Michigan, the uncertainty and the general public against the concept of MMA hastened the sale of the UFC to Zuffa in 2001. SEG was clearly paddling uphill, fighting public perception and a court system which was generally unfriendly and void of any sympathy for the promotion’s economic woes and hardships.

Courts, as they did in Mason v. City of Lincoln14 in 2003 in Nebraska, tend to defer to the wishes of the state commissions or the legislature on these issues. Many states have followed New Jersey’s lead, establishing their own commissions specifically chartered to deal with issues around MMA.15

14 Mason v. City of Lincoln, 665 NW.2d 600 15 http://www.state.nj.us/lps/sacb/ (last visited May 13, 2008)

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It would take some astute marketing and positioning to slowly build MMA into a

regulated, controlled sport rather than a spectacle. Zuffa’s purchase of the UFC and its

affiliation with SpikeTV helped mainstream MMA and a harnessed a nation’s passion for

martial arts. Though legislatures are generally acceding to the public’s acceptance of

MMA as a legitimate sport, there are still boundaries which probably won’t be crossed,

such as the concept of an MMA Little League for children. A martial arts teacher’s

attempt to start an MMA youth league in Tulsa, Oklahoma is drawing fire from elected

officials.16 By establishing rules, self-control and government regulation, MMA is quickly maturing into an industry.

IV. INTELLECTUAL PROPERTY RIGHTS

Compared to the MMA segment of the sports entertainment industry, professional

wrestling offers a more mature landscape in terms of intellectual property law. The

development and exploitation of established characters and story lines have sparked

trademark, copyright, and product licensing polemics which have surfaced in the courts.

As MMA establishes and entrenches itself, becoming more like professional wrestling in

terms of character development and merchandising, intellectual property issues common

to professional wrestling will start manifesting themselves in the MMA.

16 http://www.usatoday.com/news/nation/2008-04-03-mo-cage-fighting-ban_N.htm (last visited May 13, 2008)

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The typical WWE contract stipulates that the company either owns outright or holds an exclusive license to a performer’s name, persona, and likeness.17 The company believes that if they spend resources to develop and cultivate a character, the characters likeness and name is an exploitable asset of the company’s intellectual property. In the

MMA, many of the conflicts have been over contracts and not about the ownership of one’s persona or the sale of collectible action figures.

As with many industries, what has evolved into the wrestling sports entertainment industry has seen unprecedented consolidation in the latter half of the 20th century. The growth of cable television and the later growth of the internet created a seemingly insatiable need for content to fill the airwaves and merchandise to sell over the internet.

The media strategy of many sports entertainment companies is complex and intertwined, mixing at a minimum print, online, music, movies, pay-per-views, TV shows, live events in a tight, focused promotional engine.

No one does it better than the WWE. One media outlet feeds the next. In both professional wrestling and MMA, television shows often serve as de facto infomercials, driving traffic to online merchandise sales and creating demand for pay-per-view events and live performances. Typically, a story line, steeped in dramatic conflict, is set up on television and resolved on a pay-per-view. Even in the UFC, where the fight is the story line, the two “coaches” on The Ultimate Fighter meet in a pay-per-view fight or special

17 I am inferring that this is the case. I can only infer because I’ve never seen an actual WWE contract.

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primetime event at the end of the season. The television show introduces a new set of

cage fighters to a TV audience and generates interest in the pay-per-view resolution at the

end of the season.

As in the beer industry, which saw new local breweries emerge in response to a

homogeneous Bud and Miller world, boutique wrestling companies like Total Nonstop

Action Wrestling (TNA Wrestling) and have sprouted, filling gaps in taste

and niches, attempting to be RC Colas to the Coca Cola of wrestling sports entertainment

companies, the WWE. The WWE’s market domination invites smaller, nimble micro- competitors like Ring of Honor and TNA Wrestling.

Case law documents some of the intellectual property battles leading to the

WWE’s eventual domination. In examining the WWE’s path, one can predict some of the issues the MMA industry is likely to deal with as it matures.

On its way to global wrestling / sports entertainment hegemony, the WWE (then

known as Titan Sports) competed with Turner Broadcasting’s World Championship

Wrestling (WCW). One of these skirmishes was actually a very real shooting war (at

least in terms of ratings) which took place on the airwaves and in the courts from 1995 to

1999. These were known as the Monday Night Wars.

The Monday Night Wars: Razor, Diesel, and Billionaire Ted (1995 – 1999)

The graph below shows the intense competition existing between Titan Sports and

Turner in the mid and late 1990’s. The centerpiece of this was the weekly Monday night

competition between WCW Monday Night Nitro and WWF Monday Night Raw, going

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head-to-head in the same time slot. Competition between the two was bitter and

destructive. TNT would regularly tell viewers the results of matches slated to take place

on RAW, just to preempt and spoil the WWF’s story lines.

The ratings18 documented the competition between the two companies, charting a heated competition which only faded in 1999. Signing Terry Bollea (aka ) in

1994 the two promotions fought tooth and nail over the wrestling fan’s hearts, minds, eyes, ears, and dollars. Today, the ratings for Monday Night RAW barely crest over 4

points. This is misleading given today’s entertainment choices for the delivery of media.

Luckily, the promotion has diversified itself with more programming on alternative networks and the worldwide web in line with the viewing habits of its clientele.

18 http://en.wikipedia.org/wiki/Monday_Night_Wars (last visited May 13, 2008)

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In 1995, Razor Ramon and Diesel (aka and ), important and

popular WWF performers, left Titan for Turner. Maintaining the fiction that they were still WWF performers, they appeared on Turner’s TNT Nitro which, in a world before

Tivo, was programmed at the same time as Monday Night RAW. This spawned a lawsuit

by Titan against the WCW, alleging copyright infringement and torturous contract interference.

Titan was not shy to strike back with its own form of over the top programming.

The two promotions played off each other, often crossing over the boundaries of TV land

to meet in federal court. Titan went so far as to stage so-called “attacks” at WCW events

“during which WWF wrestlers verbally denigrated plaintiff and its wrestlers, accosted

plaintiff's fans while they were waiting in line to see plaintiff's show, and claimed that

Hall and Nash wanted to return to the WWF, but were being prevented from doing so by plaintiff.”19 Vince McMahon, not only the CEO of WWE, Inc. but a driving force in the

company’s creative team, went so far as to create a character called “Billionaire Ted,”

mocking Ted Turner. In 1999, the Connecticut District Court refused to dismiss Turner’s

claims against Titan.20

It didn’t matter since events had turned in Titan’s favor. Purchased by Time

Warner AOL, Turner lost its will to fight. Personnel changes and political infighting

19 World Championship Wrestling v. Titan Sports, 46 F. Supp. 2d 118, 121 20 Id.

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doomed the WCW. In 2001, the WWE purchased what was left of WCW from Time

Warner AOL, ending the Monday Night Wars.

RICO, videogames, THQ and the WWE (2004, 2007, and beyond)

Arguably the most important licensing and merchandising case in sports

entertainment this decade is WWE v. Jakks Pacific Inc. and THQ.21 THQ publishes a

videogame WWE SmackDown vs. Raw 2008 which allows players to play as WWE

performers, create story lines, and perform signature wrestling moves. The WWE accused THQ management of doing everything but shoplifting Actifed to make bathroom meth. Accusing THQ of crimes under the RICO statute, bribes, kickbacks, and conspiracies, all in the name of negotiating a favorable licensing deal, the WWE believes that the videogame licensing rights were licensed illegally by a bad seed within the WWE ranks. James Bell is alleged to have received kickbacks and bribes from THQ through a limited liability shell company until he was terminated as head of the WWE licensing group in 2000. In an October 2004 seventy-three (73) page filing, the WWE sought to void the contract between itself and THQ/Jakks. In December 2007, THQ was able to successfully argue that the RICO allegations were time-barred and all RICO allegations were dismissed.22

21 W.W.E. v. Jakks Pac. Inc. and T.H.Q., 2007 U.S. Dist. LEXIS 93775 22 Id.

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In spite of the lawsuit, the two companies enjoy tremendous success. THQ’s

WWE 2008: RAW vs. Smackdown has sold six (6) million units since its release. The

WWE has even broadcast faux matches on Monday Night RAW with the game, pitting

Barack Obama against Hillary Clinton.23

So what is going on behind the closed doors in meetings between WWE and THQ

management? Will there be a divorce or reconciliation? Insiders at THQ are tightlipped, but odds are the relationship, fueled by mutual success, will continue. As long as the

economics work, THQ and the WWE will probably remain bedfellows.

MMA is soon following suit into the videogame arena. The “octagon,” the eight-

sided ring synonymous with cage fighting and MMA, will be represented by a THQ title

slated for release in the Spring of 2009. This title should add to THQ’s 33% share in

“fight” videogames.24

MMA, like boxing before it and wrestling today, needs story lines. They need the

good, the badass, and the ugly. Without it, they will peak. A videogame can help with

this. Chris Leben urinating in a fellow fighter’s bed in the first season of The Ultimate

Fighter created a character that either had a screw loose or was pure evil, depending on your opinion. Either way, you remember Chris Leben. and Stephan

Bonnar, two other competitors on the same program, pounded each other bloody for three

23 http://xboxmovies.teamxbox.com/xbox-360/6678/Hilary-Clinton-vs-Barack-Obama/ (last visited May 13, 2008) 24 http://investor.thq.com/phoenix.zhtml?c=96376&p=irol-newsArticle&ID=1140787&highlight= (last visited May 13, 2008)

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solid rounds. , UFC’s CEO, was impressed enough to offer each a contract with the UFC on the spot even though only the winner, Forrest Griffin was supposed to be offered a contract.

Vince McMahon knows that legends and stories sell. If an angle doesn’t work, they trash it. If Steve Austin says “You sit there and you thump your Bible, and you say

your prayers, and it didn't get you anywhere! Talk about your Psalms, talk about John

3:16 ... Austin 3:16 says I just whipped your ass!” they see it catch on, gauge people’s

positive reaction to the character, and put it on a t-shirt – and it gets licensed and merchandised. MMA lacks this today. MMA is too real. The hideously deformed and calcified cauliflower ears are real. The blood and inch wide cuts exposing flesh are real.

Big Dog Wins - 2003

In WWF Entertainment v. Big Dog Holdings, the WWF sued for copyright and

trademark infringement.25 The court papers describe in detail what the WWE considers to

be its intellectual property, including the Rock’s “People’s Eyebrow” and Stone Cold

Steve Austin’s 3:1626 “says I just whipped your ass.” Big Dog sold T-shirts and other

25World Wrestling Fed’n Entm’t v. Big Dog Holdings, 280 F.Supp.2d 413 26 Id. I include the entire text excerpt below as I find it simply too good to just cite. My apologies to Bluebook citation, most of these facts below were stated in the WWE’s amended complaint. “B. WWE's Intellectual Property "THE ROCK", portrayed by , "", portrayed by Steve Williams, and the "UNDERTAKER", portrayed by Mark Calloway, have been three of the WWE's most popular wrestling characters over the past five (5) years. WWE alleges that it has developed and promoted THE ROCK since 1997, and has created and developed a unique trademarked name, persona and trade dress for THE ROCK. Similarly, a unique trademarked name, persona and trade dress has been created,

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paraphernalia with slogans such as "Bone Cold Steve Pawstin.”27 Big Dog’s defense was that its creations were parodies – a defense to copyright infringement. The court agreed.

developed and promoted by WWE for STONE COLD STEVE AUSTIN since 1996, and since 1990. WWE further contends that it owns trademarks and service marks in THE ROCK, STONE COLD STEVE AUSTIN, and the UNDERTAKER. In addition, WWE claims ownership in trademarks and service marks for: (1) registrations for WWF; (2) the WWF scratch logo; (3) WWF Smackdown! design mark; and (4) AUSTIIN 3:16. In conjunction with its registration of THE ROCK mark, WWE alleges that it has acquired common law trademarks in THE ROCK's signature catch phrases and slogans: "Know Your Role"; "Jabroni"; and the "Brahma Bull". WWE also contends it has acquired a common law trademark in THE ROCK's Brahma Bull design mark. Integral to WWE's portrayal of the STONE COLD STEVE AUSTIN character is the use of catch phrase slogans and symbols, including: "Open Up a Can of Whoop Ass"; "Austin 3:16"; "Rattlesnake" 3; "Cause Stone Cold Said So"; and the Skull design. WWE contends that it has acquired a common law trademark in the "Open Up a Can of Whoop Ass," "Rattlesnake," and the "Cause Stone Cold Said So" marks and the Skull design mark. In addition to their unique persona and character, WWE has portrayed THE ROCK, STONE COLD STEVE AUSTIN and the UNDERTAKER characters with unique and distinctive trade dress. A central component of THE ROCK's trade dress is the Brahma Bull symbol. Not only is THE ROCK often referred to as the "Brahma Bull," but he has a tattoo of a Brahma Bull on his right arm, and his clothing, including his wrestling trunks, t-shirts and black leather jacket, bear the image of a Brahma Bull. THE ROCK is generally portrayed wearing tinted sunglasses, which are often tipped down to reveal THE ROCK's signature facial expressions, most notably, the "People's Eyebrow." THE ROCK's signature facial expression is known as the "People's Eyebrow," in which he raises his right eyebrow while staring, with intimidation in his eyes, at his opponent or the crowd. STONE COLD STEVE AUSTIN is generally depicted with solid black wrestling trunks, black wrestling boots, no shirt and an open black leather vest with an image of a white skull on the left side and the name "AUSTIN" written vertically in white lettering down the right side. To further the "menacing persona" of the UNDERTAKER, he has been generally portrayed in all black clothing with black leather designs on the legs, a black leather vest with silver buckles, and tattoos covering his body. The UNDERTAKER also wore black elbow pads, black leather fingerless gloves, black leather boots, and often entered the ring wearing a long black cape. The persona, trade dress and character traits of THE ROCK, STONE COLD STEVE AUSTIN, and the UNDERTAKER are used by WWE in its merchandising of a myriad of products, including photographs, shirts, posters, videos, and action figures.” 27 Id.

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Superstar of Stuporstars - 2006

Albert Patterson, a small time wrestling promoter, sued both the WWE and TNA

on five counts 1) unfair competition, 2) false designation 3) willful violation of 15 U.S.C.

§ 1125(a), 4) misappropriation of methods of advertising, and 5) a common law statutory

claim of trademark infringement. At its raw essence, the claim had to do with the use of terms like “Wrestling Superstar” by the two wrestling promotions. The WWE successfully (and thankfully) sought and received summary judgment in its favor. 28

TNA Wrestling, misled by Patterson that he had prevailed against the WWE in a similar action, mistakenly settled the case under false pretenses.29 When informed that

Patterson had misrepresented the claim, TNA filed a motion reinstating the request for

summary judgment, which was quickly and emphatically granted by a judge whose anger

was transparently dripped from the published ruling.30

Copyright: Zuffa v Showtime Networks – 2007

This seemingly innocuous dispute, over less than a minute of video presented by

Showtime at an MMA event, may have been the opening skirmish in a thermonuclear

battle between EliteXC and Zuffa. allowed EliteXC to show a video

highlight of a fight he had participated in for the UFC. Unfortunately, Shamrock didn’t

own the copyright to the video and Zuffa, UFC’s parent, sued EliteXC and Showtime in

28 Patterson v. W.W.E., 2006 U.S. Dist. LEXIS 7453 29 Patterson v. T.N.A. Wrestling, 2006 U.S. Dist. LEXIS 13425 30 Patterson v. T.N.A. Wrestling, 2006 U.S. Dist. LEXIS 78629

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Nevada.31 The battle disintegrated into one of jurisdiction, with every case but

International Shoe32 cited in the opinion. The court ruled for Elite ProXC and deferred a

ruling for Showtime pending discovery on the extent of the contacts in the Nevada

jurisdiction.

By suing and seeking jurisdiction in Nevada, Zuffa made it clear that they were

taking the enemy to task in their home court. Elite ProXC has joined forces with

Strikeforce to put on MMA shows. They have an exclusive deal with Showtime and have

just signed with CBS33, the first promotion to escape the earthly bounds of cable. They

feature Ken Shamrock (’s younger stepbrother), (a San Jose

based fighter who broke Shamrock’s forearm with a well placed kick in their last fight),

and , a frightening streetfighter who was discovered through YouTube. They also probably aim to sign , a fighter currently embroiled in a lawsuit with

Zuffa over his contract.

31 Zuffa v Showtime Networks, 2007 U.S. Dist. LEXIS 60711 32 Int’l Shoe Co. v. Washington, 326 U.S. 310 33 http://sportsline.com/mcc/blogs/entry/5815454/6673449 (last visited May 13, 2008)

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V. CONTRACTS

Sports entertainment has had its share of contractual squabbles. Because of

WWE’s hegemony, few WWE contracts are litigated. However, in MMA, contracts seem

to be disputed every day. MMA has more than its share of breach of contract suits

because fighters are trying to follow the money. Big money players, like Mark Cuban and

HDNet, are starting MMA promotions and trying to lure the top talent. The highest

visibility dispute in play today is that between Randy Couture and the UFC.34

Bash at the Beach - Bollea v. World Championship Wrestling – 2002 - 2005

The only wrestling contract case in this section features two of the most colorful characters in professional wrestling – Terry Bollea, better known as Hulk Hogan, and

Vince Russo, a booker and writer known intimately to wrestling insiders but unknown to

the world outside the ring. Russo, who now works for TNA Wrestling, is known for gimmicks and ridiculous twists that seem to go nowhere. He is the Ed Wood of sports

entertainment.

This dispute was reduced to a breach of contract case once all the defamation and

false light charges were cut away by the trial court. Hogan was supposed to give up his

title to , another performer in a show for WCW called Bash at the Beach.

Jarrett refused to fight Hogan and lay down on the mat. Hogan, confused, left the arena

34 See Sorting out the issues in Couture's wake by , Yahoo! Sports http://sports.yahoo.com/mma/news?slug=dm-couture101507&prov=yhoo&type=lgns (last visited May 13, 2008)

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with the championship belt. Russo then climbed into the ring and exacerbated Hogan by

doing a promo where he “called Hulk Hogan a "god damn politician" "who doesn't give a

shit about this company" [who always] "wants to play his creative control card."” Russo

promised everyone in the arena that “they would "never see that piece of shit again."” He

closed by saying “Hogan you big bald son of a bitch ... KISS MY ASS!” 35

Hogan claimed that the WCW was contractually bound to advise him of the

content of any promos.36 The court eventually saw things Hogan’s way in terms of the breach of contract claim ruling that there was enough question of fact for the case to proceed. No record of a trial exists adjudicating this issue which infers that it was settled out of court. Here’s a first person account from Hulk Hogan’s perspective.

Chiapparelli v. Henderson – 2005

Henderson, an MMA fighter, hired Chiapparelli to 1) procure fighting contracts,

2) procure merchandise contracts, 3) train Henderson to compete in such contests; 4)

provide general assistance and look out for the best interests of Henderson, and 5)

procure other employment, such as MMA training engagements. In consideration, the

plaintiff was to receive 15% of Henderson’s gross revenue.

35 Bollea v. W.C.W. , 271 Ga.App. 555 36 Id. “Bollea claims WCW breached [his] Agreement when it allowed Russo to do a "promo" which was not approved by Bollea. WCW claims that the promos were used to develop the story lines and there is nothing in the Agreement that gives Bollea the right to approve the story lines which relate to his fictional character.

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Henderson left the US and went to Japan to fight, earning $335,000, booking his own bouts through his own connections. Chiapparelli brought the case before a

Washington state arbitrator and won a judgment against the defendant MMA fighter.

Henderson then sued in a California court, claiming that the contract was void because 1)

Chiapparelli did not comply with the Miller-Ayala Act37, 2) Chiapparelli was not

licensed under the Boxing Act38, and 3) MMA was illegal in California. The California appellate court ruled against the plaintiff, overturning the arbitration decision because he was not a sports agent as set out in the statute of with the Miller-Ayala Act. The significance of this case is that in its dicta, the court set out that the revised Boxing Act,

enacted after the filing of the suit, empowered the California State Athletic Commission

to regulate MMA in California.39 The court never ruled on the validity of the contract in

terms of the illegality of MMA. The court instead chose to attack the plaintiff’s standing

as a sports agent.

37 Miller-Ayala Athlete Agents Act, Cal Bus & Prof Code § 18895 (Deering, LEXIS 2007) 38 Boxing Act, Cal Bus & Prof Code § 18640 (Deering, LEXIS 2007) 39 Id. The amended statute now reads "The commission has the sole direction, management, control of, and jurisdiction over all professional and amateur boxing, professional and amateur , all forms and combinations of forms of full contact martial arts contests, including mixed martial arts, and matches or exhibitions conducted, held, or given within this state. No event shall take place without the prior approval of the commission. No person shall engage in the promotion of, or participate in, a boxing or martial arts contest, match, or exhibition without a license, and except in accordance with this chapter and the rules adopted hereunder." ( § 18640, as amended by Stats. 2004, c. 691 (SB 1549) § 30, amendments italicized.)

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Hall v. Shamrock - 2006

While the illegal contract claim failed for Henderson, it worked for Ken

Shamrock in 2006. Ken Shamrock is a legendary fighter who has fought both in

professional wrestling for the WWF and MMA for PRIDE and the UFC. In 2000, he allegedly beat Mark Hall badly in a barroom fight at an MMA event at a casino resort in

California. The fight had not been part of the night’s fight card. As part of a settlement

agreement with Hall, Shamrock agreed to fight him in an MMA match in Japan. Hall’s

purse for the fight was to be $30,000.

Shamrock reneged on the terms of the contract and the fight never occurred. Hall

sued for breach of contract. Shamrock prevailed, the court finding that their agreement

was “void and unenforceable on the ground it had an illegal purpose in violation of Penal

Code section 412.”40 Shamrock avoided Hall in the ring and won his fight in the courts.

Did he know when he signed the settlement agreement that the contract was void?

Probably not, but his lawyer used the California Penal Code to his benefit.

The shape of things to come: Sapp v. K-1 Corporation

Probably the most celebrated contract dispute in MMA, before the Couture

controversy, was between Bob Sapp and the K-1 promotion. K-1 is a Japanese-based

MMA promotion, alleged in some circles to be affiliated with the infamous Japanese mob

– the Yakuza. An ex-NFL lineman known as “The Beast,” Sapp created a persona for

40 Hall v. Shamrock, 2006 Cal. App. Unpub. LEXIS 2027

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himself and earned far more in promotional and sponsorship fees than he ever earned in

the ring.41 K-1 filed suit against Sapp in on November 7, 2006 over breach of

contract when he refused to fight in an MMA event in Amsterdam. Sapp countersued on

December 14 and sought a preliminary injunction.

As with many cases, this one was decided along jurisdictional lines. In an opinion hearkening back to Asahi Metal Industry v. Superior Court42, the court ruled that the

contract should be adjudicated by the Japanese courts, in spite of Sapp’s insistence that

the he had no choice but to sign the standard K-1 contract which dictated the forum.

This case is chockfull of rich background information and briefs that make up the public record, giving an interesting perspective on the MMA industry and its players.

Sapp wanted to get out of his contract and join the burgeoning MMA scene in the United

States while he was still young enough to fight and draw top dollar. K-1 wanted to maintain control, and saw Sapp as the centerpiece of their promotion, almost as a

character of their creation, as Vince McMahon sees in his performers. Ultimately, K-1

prevailed and the parties eventually reached a compromise. Sapp was last seen fight in an

EliteXC / Strikeforce event in in March 2008. He lost badly.

41 The Beast Goes East http://www.time.com/time/asia/2003/bob_sapp/story.html (last visited May 14, 2008) 42 Asahi Metal Indus. v. Super. Ct., 480 U.S. 102

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VI. CONCLUSION: THE LEGAL FUTURE OF SPORTS ENTERTAINMENT

Government Regulation

Professional wrestling may start seeing more government regulation issues crop up than it has experienced in the last 40 years, mainly because of the perceived rampant steroid use and early death of many of its performers. In spite of the publicity, I believe

that the federal government will take a more hands off approach and continue leaving

regulation to the states. The WWE and other promotions have begun to implement a

wellness policy, if only to keep the government and the legislatures from reacting to well-

publicized cases, such as the double murder suicide committed by .

Drug testing and wellness is dictated by state athletic commissions who are used

to regulating prize fights. Wrestling is attempting self-regulation in order to prevent outside agencies from coming in and regulating them. The MMA industry, after a long struggle in the 1990’s for acceptance, have almost achieved it. MMA is now considered the moral equal of boxing, and state athletic commissions have taken on the monitoring and regulation of MMA, including post-bout drug testing. A great example is the New

Jersey State Athletic Control Board website, which allows promoters to find license

applications online. David Meltzer, reported on May 9, 2008 that the UFC is actively

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involved lobbying New York to legalize MMA.43 If New York accepts MMA, the rest of

the country who have not legalized it will likely follow New York’s lead, as they did with

professional boxing. The MMA industry, led by Zuffa understands this and is lobbying

hard to effect this change.

Intellectual Property

The WWE has nurtured and developed the concept of Intellectual Property throughout its history. The more we liked the Rock, the more the WWE pushed the Rock, the sunglasses and the catchphrases (“The People’s Eyebrow” and “The People’s

Elbow”). These translated into merchandising, t-shirts, cargo pants, sunglasses, books,

DVDs, the ring tones, and the videogame character. That is the power of intellectual property in sports entertainment.

Zuffa is just starting to fathom these waters. They secretly aim to be the WWE, but can MMA performers be actors? MMA fighters may fight three times a year in real, honest matches; WWE performers perform 150 times a year in choreographed matches, physical skits and routines. Until Zuffa can master the art of harnessing their performers’ character and merchandising it, they risk not breaking out of the box, remaining a company dependent on live shows and pay-per-view buy rates. Though buy rates for

43 Serra, UFC in a New York groove, by David Meltzer, Yahoo! Sports http://sports.yahoo.com/mma/news?slug=dm-ufcny050908&prov=yhoo&type=lgns (last visited May 13, 2008)

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MMA continue to grow, their growth is not infinite. Zuffa will need to mine its intellectual property to sustain growth.

Contracts

Unlike professional wrestling, where the terms of performer contracts are dictated by the WWE, MMA contracts are more susceptible to interpretation. Contract performance is often based on the number of fights in a given period of time. Wrestling has developed farm systems. Anyone performing at the national level has been trained, tried, groomed, and tested in front of audiences. While MMA has dojos and stables, there is no real farm system. Though top performers draw top dollar, most MMA fighters need to do more than fight to make a living. Some create stables of fighters, others teach MMA, as others embark on individual promotional tours and exhibitions to make ends meet.

The bottom performers lack sustainable careers. In wrestling, story lines and the performer’s popularity and Vince McMahon dictate your longevity in the sport. There’s wear and tear that comes with performing, but there’s usually no encounters with other performers who intend to “choke you out,” bleed you dry, or beat you senseless into unconsciousness or submission.

In conclusion, professional wrestling and MMA are two ends of a continuum defining the business of sports entertainment. Both sides watch each other and privately lust after the parts of each other’s business. The WWE sees the growth in MMA’s popularity and pay-per-view rates and drools. Zuffa looks at the growing licensing and merchandising revenue and wonders how it can produce a Steve Austin or Duane

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Johnson who they can license and merchandise. Either way, the business known as sports entertainment continues to grow, competing for the international entertainment dollar. A look at the case law has taken us down a path that only leaves more questions about two facets of sports entertainment that have established a beachhead and are here to stay.

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