Contractual Consequences

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The term “non-compete” took on a new life with the recent fallout from the cancellation of UFC 151. For the first time in Zuffa history, the Ultimate Fighting Championship canceled a show because the main event failed to materialize after injuries caused new opponents to be both introduced and then rejected.

A much more salient definition of non-compete occurs before a fighter even steps into the cage. Often embedded within fighter contracts is a non-compete agreement which has potential ramifications that can occur even when the contracted period ends. A non-compete agreement, also known as a non-competition clause, is an agreement between the promoter and the fighter that places professional restrictions on the fighter after the professional relationship ends.

The issue of non-compete and restrictive covenants within contracts came up recently when Dave Meltzer of The Wrestling Observer stated that fighters within Strikeforce’s ranks could not crossover into the UFC. The news set the mixed martial arts blogosphere ablaze with concern that fighters may not be able to realize their full potential by being prevented to fight for the world’s premier fight organization. While it is understandable why this concern became ubiquitous, the reality is that promoters use non-compete agreements for a variety of legitimate reasons.

In traditional companies, non-compete agreements allow a company to safeguard its proprietary information, intellectual property and trade secrets from competitors. Within the MMA realm, non-compete agreements enable fight promoters to safeguard their largest investments -- their fighters -- from jumping to another competitor immediately after a breach of contract or a huge marketing push.

Building a fighter into a known quantity can be a very expensive endeavor. Traditional advertisements cost substantial amounts of money to produce, direct and air. Enterprising media adverts such as a “UFC Primetime” can cost $1.7 million just to produce. Embedding non-compete clauses within fighter contracts helps assure fight promoters that their asset will not jump ship to a competitor shortly after a large investment.

Non-compete agreements are unique in that they can prevent an able-bodied and willing participant from earning a living. The ramifications of preventing an individual from practicing his or her trade is generally viewed as both inefficient and inequitable by courts, and, thus, strict guidelines for crafting non-compete agreements must be met if they are to be enforceable.

The law governing non-compete agreements is heavily dependent on the jurisdiction under which the contract is governed. A forum selection clause is incorporated within most fighter contracts in order for both parties to be aware which forum or jurisdiction will govern the contract. Most employers choose a governing forum within the state in which they actively do business. The governing state law of a contract is imperative in determining the enforceability of non-competes. For example, many states permit non-compete agreements; however, in the state of California, non-compete agreements that restrict post-employment behavior are presumptively invalid and only permitted under very limited circumstances such as in the sale of a business.

Beyond jurisdictional issues, there are four tenets of non-compete construction: duration, geography, scope and necessity.

Durational concerns are paramount in reviewing non-compete agreements. Generally speaking, shorter durations such as less than six months will be presumptively valid, and longer durations beyond two years will be presumptively invalid. Within Nevada, non-competes are difficult to enforce beyond a two-year duration. Tito Ortiz had a 60 day non-compete clause following his May 24, 2008, loss to Lyoto Machida at UFC 84. At the time, Ortiz was rumored to have interest from Affliction Entertainment and was poised to compete at its upcoming second show. Affliction Vice President Tom Atencio, however, stated the company could not speak to Ortiz until his 60-day non-compete clause had passed. Geographical limitations in non-compete agreements must be reasonable in light of the business activities of the employer, meaning if a fight promoter is regional and based primarily in the Southwest, it would be unreasonable for a non-compete clause to prevent a fighter from fighting in a regional fight promotion in the Northeast.

Unlike other contractual provisions, the language governing the scope, or depth, of the agreement must be limited and specific. Broad language drafting within non-compete clauses is disfavored by courts and will often be held unenforceable. Within MMA, it may be reasonable to place a time limitation on a fighter from participating in a competitor’s promotion, but it would not be reasonable to prevent the fighter from training fighters at a gym or working within an industry that is a non-competitor of the employer.

Necessity is always considered by courts when evaluating the enforceability of a non-compete clause. An employer should be able to demonstrate harm from the prohibited activity in order for a non-compete to be reasonable. Dovetailing with the previous element of scope, a non-compete that seeks to be vindictive or punitive to an employee’s ability to earn an income will likely be held as unenforceable.

One of the best examples of non-compete agreements affecting the world of mixed martial arts lies within one of its former top stars. One of the biggest MMA draws in history, Brock Lesnar, almost never entered the Octagon due to a non-compete imposed within his contract with World Wrestling Entertainment. According to the February 2005 complaint against the WWE, Lesnar’s original WWE “booking contract” contained a typical non-compete clause that prohibited him from working for another non-WWE professional wrestling entity for the period of one year in the event of a breach.

Lesnar wanted out of his WWE contract in order to pursue an opportunity to try out for professional football. In order to be granted his release, Lesnar and the WWE entered into a settlement agreement that substantially broadened the scope of his original non-compete agreement. Under the new settlement agreement, Lesnar was prohibited from participating either directly or indirectly with professional wrestling, ultimate fighting or sports entertainment companies until the term of the original contract expired on June 30, 2010.

These new post-employment restrictions were substantially broad in both scope and duration. Since this new non-compete ran the life of Lesnar’s original contract, his post-employment restriction was effectively raised from one year to six. Lesnar’s complaint was cognizant of the short lifespan of a professional athlete and stated: “On June 30, 2010, when the purported restrictions on competition expire, Lesnar will be 33 years old, which for a professional athlete is an age at which many consider retirement due to the physical demands of their chosen occupation.”

After nearly a year-and-a-half of legal wrangling, Lesnar and the WWE settled their case on June 16, 2006. Within a year, the former NCAA Div. I wrestling champ made his MMA debut in June 2007 and was able to a have a lucrative career in the UFC before retiring this past December.

The essence of Lesnar’s lawsuit against the WWE was the same as any challenge to a non-compete. It disputed that the employer’s post-employment restrictions were unreasonable. Reasonableness is the standard around which most legal decisions revolve. While many fans may be upset if some Strikeforce fighters do not materialize in the UFC, it is important to understand that, relatively speaking, Strikeforce fighters are being compensated well for their efforts and restrictions.

Gilbert Melendez earned a disclosed $175,000 base salary for his fight against Josh Thompson at Strikeforce “Barnett vs. Cormier” in May. It may surprise many fans that his salary is the highest disclosed United States base salary of any MMA lightweight, although, unlike Strikeforce, UFC lightweights have the opportunity to earn fight night bonuses and pay-per-view cuts which can add a substantial amount of income.

The important take away of non-compete clauses is that they provide some certainty and control in the case of a breach of contract. At its core, a fight agreement is a personal services contract. Regardless of the nature of the breach, courts will never order specific performance -- i.e. ordering the fighters to fight. Instead, a court will refer to the contract to determine money damages and may issue an injunction preventing the fighters from competing elsewhere.

Jeffrey Aris is an attorney living in New York City and is experienced in matters relating to the business of MMA. This article does not provide legal advice, and any opinions expressed in this article are solely those of the author.