Case 2:15-cv-01045-RFB-BNW Document 596-7 Filed 09/21/18 Page 1 of 158 Exhibit 5 Expert Report of Andrew Zimbalist in Cung Le, et al. v. Zuffa, LLC (August 30, 2017) PUBLIC COPY - REDACTED Case 2:15-cv-01045-RFB-BNW Document 596-7 Filed 09/21/18 Page 2 of 158 Expert Report of Andrew Zimbalist in Cung Le, et al. v. Zuffa, LLC TABLE OF CONTENTS I. Introduction and Assignment ....................................................................................................... 1 II. Qualifications ............................................................................................................................. 5 III. Zuffa’s Fighter Contracts ......................................................................................................... 6 IV. History of Restrictive Contracts in Other Sports .................................................................... 18 A. The Use of Reserve Clauses and Related Restrictions in Team Sports/Leagues ...................................................................................................... 18 i. Major League Baseball ............................................................................. 21 ii. National Football League .......................................................................... 26 iii. National Hockey League ........................................................................... 34 iv. National Basketball Association ............................................................... 40 B. Collective Bargaining and Modern Restricted Free Agency ................................ 44 C. The Effects of Intra-League Competition on Popularity and Profitability ........... 48 D. The Conditions and Effects of Inter-League Competition .................................... 53 E. History of Restrictive Contracts in Boxing ........................................................... 54 V. Estimation of Damages ............................................................................................................ 66 A. Zuffa Benchmarks its Athlete Compensation to Other Sports. ............................. 67 B. Evaluation of Potential Benchmarks for UFC Fighter Share of Revenue ............ 69 i. Boxing ....................................................................................................... 69 ii. Professional Team Sports: NFL, MLB, NBA, NHL ................................ 72 iii. European Soccer ....................................................................................... 77 C. Damages Calculation and Results ......................................................................... 78 D. My Selected Benchmarks Are, If Anything, Conservative ................................... 82 VI. Conclusion .............................................................................................................................. 91 I. INTRODUCTION AND ASSIGNMENT 1. Zuffa LLC, doing business as Ultimate Fighting Championship (“Defendant,” “Zuffa,” or “UFC”), is a promoter of live professional mixed-martial-arts 1 PUBLIC COPY - REDACTED Case 2:15-cv-01045-RFB-BNW Document 596-7 Filed 09/21/18 Page 3 of 158 (“MMA”) bouts. Plaintiffs are Professional MMA Fighters1 who have fought for the UFC. Plaintiffs allege that Zuffa used anticompetitive conduct (the “challenged conduct”) to establish, maintain, and enhance monopoly and monopsony power. The challenged conduct includes, among other things: (a) entering multi-fight exclusive contracts with a large share of the top Professional MMA Fighters, thereby keeping this allegedly necessary input from other MMA promotions; (b) acquiring multiple actual or potential rival MMA promotion companies; and (c) impairing other MMA promoters by using its alleged dominance to threaten sponsors, promoters, and fighters who worked with or considered working with the UFC’s potential rivals.2 2. Plaintiffs have brought this case on behalf of two proposed classes of similarly situated Professional MMA Fighters: the “Bout Class” and the “Identity Class.” The “Bout Class” includes: “All persons who competed in one or more live professional UFC-promoted MMA bouts taking place or broadcast in the United States during the Class Period. The Bout Class excludes all persons who are not residents or citizens of the United States unless the UFC paid such persons for competing in a bout fought in the United States.”3 3. The “Identity Class” includes: “Each and every UFC Fighter whose Identity was expropriated or exploited by the UFC, including in UFC Licensed Merchandise and/or 1 I use the term “Professional MMA Fighter” as defined in the Complaint to mean “a person who is compensated as a combatant in a Mixed Martial Arts bout.” Cung Le, et al. v. Zuffa, LLC, d/b/a Ultimate Fighting Championship and UFC, No. 15-cv-1045, Consolidated Amended Antitrust Class Action Complaint (Dec. 18, 2015) (hereinafter “CAC”). I sometimes use the term “fighter” synonymously. 2 CAC ¶¶ 109-113, 116-118, 125-126, 128-134. 3 CAC ¶ 39. 2 PUBLIC COPY - REDACTED Case 2:15-cv-01045-RFB-BNW Document 596-7 Filed 09/21/18 Page 4 of 158 UFC Promotional Materials, during the Class Period in the United States.”4 Plaintiffs define the “Identity of a UFC Fighter” as “the name, sobriquet, voice, persona, signature, likeness and/or biographical information of a UFC Fighter.” Plaintiffs have defined the “Class Period” as beginning December 16, 2010, and continuing until the challenged conduct ceases.5 The challenged conduct, according to the CAC, began at least as early as December 2006.6 The period of my damages analysis is from December 16, 2010 through December 31, 2016. 4. Counsel for Plaintiffs have asked me to determine: a. whether the challenged conduct is anticompetitive in character and thus would have anticompetitive effects if engaged in by an entity with monopoly or monopsony power; b. whether pro-competitive justifications that have been offered in defense of conduct similar to the challenged conduct that was historically engaged in by owners in other professional sports (i) have any validity, (ii) have any theoretical applicability to Mixed Martial Arts (“MMA”), and (iii) assuming arguendo that some would apply, whether any such alleged procompetitive benefits could be achieved with less restrictive alternatives; and c. whether a class-wide method is capable of computing the aggregate amount members of the proposed “Bout Class” were undercompensated due to the challenged conduct, and if so, to calculate the total amount of undercompensation that members of the bout class suffered. 5. I first conclude that the challenged conduct is anticompetitive in character. To reach this conclusion, I first chart the history of athlete contracts and level of competition in a variety of professional sports including baseball, football, hockey, basketball, and 4 Id. ¶ 47. 5 Id. 6 Id. ¶ 129. 3 PUBLIC COPY - REDACTED Case 2:15-cv-01045-RFB-BNW Document 596-7 Filed 09/21/18 Page 5 of 158 boxing. Many of these sports have historically included clauses similar to those currently employed in UFC fighter contracts. Studying the changes in clauses in other sports similar to those Plaintiffs are challenging in this case illustrates the anticompetitive nature of the challenged conduct. In particular, the dramatic increases in athlete compensation that accompanied the expansion of free agency7 in other sports, and the presence of competitive options in those sports, demonstrate the wage-suppressing effect of limitations on free agency that the challenged conduct imposed. 6. Next, I conclude that many of the pro-competitive justifications that have, over time, been offered in defense of similar conduct historically engaged in by owners in other professional sports are not valid and were not reasonably necessary for the success of such leagues or sports. These other sports and leagues have survived, and indeed have gone on to thrive, after the elimination or restriction of the use of contract terms similar to those challenged here. In addition, many of those procompetitive justifications, such as those relating to so-called competitive balance, have no direct relevance for an individual sport such as MMA. Finally, I conclude that even assuming some of these justifications could apply in MMA, the experience of these sports also shows that less restrictive contracting practices can accomplish similar aims. In fact, these other sports provide natural experiments that offer concrete empirical evidence of the beneficial competitive effects that result from lifting the restrictive conduct of the employer on both: (1) athlete compensation; and (2) the popularity and profitability of the sport as a whole. 7 Free agency is generally understood to refer to the ability of players who have played out their existing contract to offer their services on the labor market to other employers in the industry. See Deposition of Joe Silva, June 7, 2017, (hereinafter “Silva Dep.”) at 183:4-9. 4 PUBLIC COPY - REDACTED Case 2:15-cv-01045-RFB-BNW Document 596-7 Filed 09/21/18 Page 6 of 158 7. I then provide a classwide method that computes the total aggregate amount that members of the bout class were undercompensated during the Class Period due to the challenged conduct. In particular, my method measures damages to the Plaintiff bout class in this case by comparing (a) the fighters’ share of Zuffa revenue to (b) athletes’ share of revenue in a variety of other professional sports. I use these other professional sports as a conservative yardstick to evaluate the likely level of fighter