On Wednesday, TKO Group Holdings Inc., the parent company of the Ultimate Fighting Championship, agreed to a settlement on two ongoing class action lawsuits for a combined total of $335 million USD.
The settlement has not yet been finalized and there are still many details to come.
In order to help explain the ramifications of this pending settlement, Vancouver-based Erik Magraken of Combat Sports Law offered his legal expertise to best answer my questions that pertain to what comes next.
Sportsnet: What does Wednesday's filing mean and where do things go from here?
Magraken: This was a securities filing with the SEC and in that filing, all that was revealed was that the parties agreed to a $335 million settlement last week. What this means is, it's not over yet, just because the parties agreed to the settlement doesn't mean that they are just able to settle, because this is a certified class action and the court themselves must approve the settlement.
The parties are going to come to the court and say that they would like to settle based on these terms and the court must then have a preliminary hearing about whether they're leaning towards approving it, and if so, all the class members have to be notified about this proposed settlement. Then a final hearing is set and any of those class members (the fighters) have a chance to object to the proposed settlement. If they don't like it or think that it is unfair, they tell the court and then the court must decide whether it is an adequate settlement that is representing everybody's interests. Once they agree that it is adequate, the settlement is finalized.
SN: Will certain athletes be paid out more than others based on certain factors or is the sum divided equally?
Magraken: Surely, the parties worked out a formula about how everybody is going to be paid out and I doubt that everybody will receive an even amount. My (educated) guess is that it is going to be prorated based on fighters’ earnings, because not everybody has the same market value. For example, Conor McGregor has a greater market value than some guy that came in on a 10 and 10 contract and got cut after two fights. My guess is that the money is going to be distributed based on a percentage of how much the fighters earned relative to each other and not everybody is going to get the same amount. That will get revealed once the parties make their filing with the court for the approval of the settlement.
SN: Will the percentage of money that the class action lawyers are getting be public information? I've read that it can be anywhere from 30 to 60 per cent.
Magraken: I doubt that it would be 60 per cent. One of the court’s oversights is to make sure that the lawyers are not lining their pockets at the expense of their clients. Whatever the lawyers are going to be paid is subject to Judge (Richard) Boulware’s oversight. They put in a decade of litigation and there are a lot of lawyers involved who put forth ample time and money. I imagine that there is going to be a substantial fee.
SN: Will we find out whether there will be any sort of injunctive relief as part of this settlement?
Magraken: Whatever the finer details of the settlement are, they are going to be made public record because the court is going to discuss it. They're going to notify all the fighters and then there is going to be a public hearing about whether the court approves the settlement.
There won't be any mystery to it. The court's going to lay out exactly what the terms of the settlement are and then decide whether to approve it. There is a chance the court doesn't approve it. I'm not guessing that the court won't, but it's not unheard of for courts not to approve class settlements. The court is given the task of making sure the settlement adequately looks after all the fighters’ interests and the judge had some pretty strong views about the merits of the case.
The details are going to be very transparent and resolved in the public eye.
SN: Had this lawsuit been settled before it was certified, could the terms of the settlement be agreed upon privately and does that mean the (Kajan) Johnson et al vs. Zuffa terms may not be made public because it was not yet granted class action certification?
Magraken: With Johnson (et al vs. Zuffa), they could settle with Johnson directly. However, the way that the SEC filing reads leads me to speculate that they're going to certify that second class action (Johnson).
That would mean it is going to include many more people besides Johnson and the settlement is going to apply to all those parties as well, in which case, it would go through public scrutiny. My guess is everything is going to be in the public eye.
If it becomes certified, then the settlement affects many more people than just (Johnson) who is bringing the lawsuit.
SN: Hypothetically, if there was no injunctive relief as part of the settlement, would that close the door on future injunctive relief?
Magraken: If there is no injunctive relief, the UFC are basically off the hook from 2010 onwards with all of their business practices and then moving forward, they've got all their fighters signing agreements, saying that they won't participate in class action lawsuits.
If that’s the case, they are getting a very good deal for themselves and if you looked at the stock market today, the TKO stock went through the roof like the moment that this news became public.
The UFC can never fully insulate themselves from antitrust scrutiny. Even if they settle the fighters’ claims, they are still vulnerable to an antitrust lawsuit from competing promoters.
If they settle the lawsuit from the fighters and give themselves some immunity on that front from 2010 onwards, they've done themselves a big favor.
SN: You had mentioned earlier that, at some point, fighters who signed contracts with the UFC had agreed not to participate in any class action lawsuits. How will the courts determine who is eligible from Johnson et al vs. Zuffa, which represents those who competed between June 20, 2017 and the present day?
Magraken: I wish that I could intelligently answer that, but I would speculate that the class action lawsuit would be certified on the precondition that they approve the settlement and that all of those who signed a waiver are not participating. Then they would identify the individuals that did not sign that waiver and they're going to share the $335 million settlement award on a prorated basis along with all the people in the Le et al vs. Zuffa class action. That would be my guess, but one sentence in an SEC filing does not tell me enough about the fine details of it.
SN: Why is the settlement amount tax deductible?
Magraken: I am not an expert on the accounting side of things. My guess is that they have $335 million leaving the company and going to the fighters to settle the lawsuit, basically, in lieu of fight purses, so the argument is that they should not have to pay taxes on it.
Erik Magraken’s insights on the legal side of combat sports can be found at combatsportslaw.com and you can follow him on X at @erikmagraken
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