Business-minded MMA fans have undoubtedly heard of the Federal Trade Commission's (FTC's) 2011 and 2015 investigations into the UFC's business practices as well as the ongoing class-action antitrust lawsuit filed by current and former fighters. Bloody Elbow has led the coverage of the antitrust case, but the FTC investigations are a black box to many. No one really knows what caused them, what the FTC was looking for, and why the investigations ended with no action. We'll try to clear some of that up today, along with the key issues in the antitrust lawsuit, as we're joined by a very special guest.

Dr. Joshua Wright, a former commissioner of the FTC who held the position during the 2015 UFC investigation, agreed to sit down for an interview with Bloody Elbow.

Dr. Wright holds two graduate degrees from UCLA (Ph.D. in economics and J.D.) and was a former college basketball player at UCSD. He's also an avid MMA fan, a former submission grappling competitor, and coaches a youth wrestling club in Virginia. In 2012, Dr. Wright was nominated by President Obama to serve as one of the five commissioners of the FTC, a position he held until stepping down in Aug. 2015. Dr. Wright is currently Professor of Law at George Mason University, Executive Director of the Global Antitrust Institute, and Senior Of Counsel at Wilson Sonsini Goodrich & Rosati. In short, he's pretty damn qualified to talk about antitrust issues in MMA and with the UFC.

There are still some elements of the two FTC investigations that Dr. Wright cannot discuss, but he graciously agreed to share whatever thoughts and expertise he's able to make public. He also answered questions on the fighter antitrust lawsuit currently taking place in Las Vegas. While I frequently report on that case and used to work on similar cases, Dr. Wright is a world-class expert, an Elite Professional Expert if you will (relevant market joke). He trumps me all day long.

Bloody Elbow: Thank you so much for joining us, Dr. Wright.

Dr. Joshua Wright: Thanks Paul. I appreciate the opportunity to discuss these important and interesting antitrust issues. I imagine your readers have been following these cases and investigations closely and I look forward to sharing my views with them.

BE: The FTC first investigated the UFC in 2011 to determine whether the Strikeforce acquisition may have violated either Section 7 of the Clayton Act which deals with mergers that substantially lessen competition or tend to create a monopoly, or Section 5 of the FTC Act which prohibits unfair or deceptive business practices. It then investigated the UFC again in 2015 for possible violations of Section 5 of the FTC Act, but this time with a specific focus on "the use of long-term exclusive contracts or other exclusionary conduct."

How common is it for the FTC to investigate sporting bodies and is there anything in particular about the UFC that would cause it to stand out?

Dr. Wright: FTC investigations into sporting bodies are relatively rare but are not completely unheard of. For example, in 2008 the FTC and MLB Advanced Media announced a settlement to remedy what the FTC considered misleading advertising claims regarding digital downloads of past games. From where I stand, as an antitrust lawyer and economist and as a long-time fan of the sport, there is nothing especially unique about mixed martial arts or the UFC that would cause it to stand out more than other firms or industries. Perhaps the recent consolidation in the MMA industry and growth of the sport in popularity is what initially attracted the interest of some at the FTC. Though I should emphasize that I did not become a Commissioner of the FTC until 2013 and so the Strikeforce acquisition was before my time.

BE: The Strikeforce merger was investigated by the FTC after the acquisition had already been completed. Why was it not investigated before the merger closed? Was the merger disclosed in advance to the FTC or the Department of Justice?

Dr. Wright: You are right that it is typical practice to evaluate deals before they are consummated. This is not only an easier and more practical approach for the agencies, but also for businesses. Due to the deal's value, however, the FTC or the DOJ would not have had the opportunity to review the merger before closing. Only mergers whose value exceeds a certain threshold are reportable to the antitrust agencies under the HSR Act. In 2011, that threshold was $66 million and the UFC/Strikeforce deal was valued at approximately $40 million. When a deal falls below the HSR reporting threshold it is also exempt from the HSR Act's waiting period, which allows the parties to close immediately after signing rather than waiting for the agencies to complete their analysis of the transaction. In addition, the FTC and DOJ do not accept voluntary filings for deals that fall below the threshold. This means the UFC and Strikeforce did not have a mechanism to trigger a pre-closing review - that is, get some kind of approval from the agency - even if they desired one. In situations like this, parties often choose to close the deal and wait to see if the FTC or DOJ will become interested.

BE: We know the Culinary Union was complaining in 2011 following the Strikeforce merger. Can you explain what leads to FTC investigations? Is it tips, complaints, or something else? What was the trigger for the 2011 and 2015 investigations?

Dr. Wright: The FTC regularly hears complaints from a variety of groups, which can include customers, consumer groups, industry groups, and even competitors; but the FTC is not going to open an investigation simply because they receive a complaint. At least, that would not be common. Ultimately, for the vast majority of FTC investigations, these two included, it would be impossible to name a specific "trigger." The FTC will try and collect as much information - including economic data, market observations, customer complaints, and complaints by industry participants - before deciding whether to open a formal investigation. However, it is safe to assume that complaints by entities like the Culinary Union would, other things equal, increase the likelihood of opening a formal FTC investigation.

BE: Describe the process when the FTC investigates an organization like the UFC. How does the investigation start? What evidence is turned over? Are depositions taken? Are customers, competitors, and fighters interviewed? In terms of witnesses and evidence, what does the FTC look for in these types of cases?

Dr. Wright: When FTC staff becomes interested in a matter, they often will reach out to the parties, begin a dialogue, and request certain information. In parallel, staff will examine publicly available information and reach out to various market participants to gauge their reaction to the deal or conduct in question. Many of these informal investigations do not lead to anything significant. However, if the evidence suggests that the parties may have run afoul of the antitrust laws, staff will likely seek the commissioners' approval to open a formal investigation.

Generally, when the FTC begins a formal investigation it will issue a civil investigative demand (CID), which is effectively a subpoena, to the firm(s) it is investigating. Each CID will seek documents that are responsive to certain categories of information - oftentimes, a CID's demands will require a party to produce hundreds of thousands or even millions of documents. In addition, some CIDs will also ask a firm to provide certain data - most commonly pricing and sales data that reveal how closely the two merging firms competed against each other. Once the FTC has had the opportunity to review the information produced in response to a CID, they normally interview several individuals - sometimes including third parties - through investigational hearings, which are basically depositions. During this whole process, the FTC is looking for evidence that the merger or conduct in question would harm consumers through increased prices or decreased innovation.

BE: So it's possible that Dana White, Lorenzo Fertitta, and other UFC/MMA executives have already testified under oath in an investigational hearing? Could this information be included in the current antitrust case and be a part of the FTC documents that have already been turned over to the plaintiff fighters during discovery?

Dr. Wright: It is very possible that multiple UFC senior executives were interviewed by the FTC. The transcripts of these hearings are not made public so they would not have been available to the Plaintiffs before filing suit. However, it is possible that the Plaintiffs will be able to obtain these documents through the fact discovery process.

BE: What happens if people the FTC wants to interview refuse to talk? Was that a problem in either of the UFC investigations?

Dr. Wright: I cannot speak to the specifics of either investigation but the FTC rarely runs into this problem. It is generally in the investigated parties' interest to work with the FTC in an attempt to avoid litigation. In addition, the FTC would be unlikely to request an investigational hearing from a third party unless that individual or firm has expressed that they are willing to testify. However, if this issue ever did arise the FTC can issue a subpoena to compel witnesses to appear.

BE: Many MMA fans looked at the Strikeforce acquisition as the #1 MMA promotion acquiring #2. To them, there was no competition left after the UFC gobbled up its biggest competitor and became a clear monopoly. Why would the FTC not challenge such a merger after investigating? What things about the MMA industry must it have learned or believed?

Dr. Wright: This is a great question. And its answer shows that antitrust analysis - which at its heart is really about whether competition has been reduced in a way that harms consumers - can be more sophisticated than just counting the number of firms on our fingers. No doubt the common intuition for MMA fans - and I count myself as one - is that this was the first and second largest "MMA promotion" combining. But from the antitrust perspective, the question is whether these firms would, if combined, be able to increase substantially the prices of the goods and services they offer to consumers or whether consumers would defeat such a price increase by switching to alternatives.

For certain consumers, many of which may be reading this article, other forms of entertainment are not reasonable substitutes for MMA; however, these so called "core" consumers would only change the FTC's analysis if the post-merger firm can identify them and increase their prices. I count myself as one of those "core" consumers. I am not likely to watch a boxing match or a TV show or a football game as a substitute for UFC 200. But the question is really about whether in response to a price increase, enough "marginal" consumers (those who do consider those other forms of entertainment to be close substitutes to a UFC promotion) would vote against the UFC with their pocketbooks. If there are enough marginal customers, the threat of them switching away from the UFC protects "core" consumers like me. But this also means the post-merger firm will not be able to increase prices because of the constraints of competition. Antitrust is all about identifying and, to some extent, quantifying those constraints to figure out whether a firm will be able to raise prices.

Now, I was not at the FTC during this investigation, but I can safely assume that the FTC came to the conclusion that, while a post-merger UFC would be the leading MMA firm by any reasonable metric, the firm would lack the market power necessary to increase price. In other words, the FTC likely determined that the combination of UFC and Strikeforce could not profitably raise the price of its content to anticompetitive levels because, when faced with a price increase many consumers would spend their money on other forms of entertainment.

BE: I know you can't talk about the specifics of the case, but should we expect that FTC staff also evaluated the input market - the fighter side of things? Many MMA fans upset with the merger were so because they thought UFC and Strikeforce fighters were getting a raw deal with less or no remaining competition for their services. They might not have known the economic term, but they were effectively concerned about enhanced monopsony power.

Dr. Wright: The FTC would examine any evidence supporting or undermining both monopoly and monopsony concerns as part of their investigations. I understand your readers concern about individual fighters. It makes some intuitively believe at first blush that the FTC must have ignored these concerns because they declined to bring suit; but, I would not be too quick to jump to that conclusion. Antitrust laws are ultimately about consumers and whenever the FTC examines a monopsony concern they will seek to determine whether a firm's enhanced buying power will harm consumers. In this circumstance the FTC would not ask whether the UFC's conduct reduced fighters' wages, instead the FTC would ask whether consumers were harmed as a result of that wage reduction. It is important to remember that the antitrust laws are designed to remedy conduct that harms competition, not just competitors. Just because certain market participants view conduct as unfair does not mean that the conduct runs afoul of the antitrust laws. There are, of course, other bodies of law that address working conditions and terms of employment.

BE: Some people are confused as to why the FTC would investigate the UFC in 2015 for its use of exclusive contracts when a private antitrust lawsuit was ongoing for essentially the same conduct. Why duplicate an ongoing private antitrust lawsuit?

Dr. Wright: There are two schools of thought on this topic. The first says that regardless of any private action, the antitrust agencies have a responsibility to investigate and prosecute any conduct that they believe violates the antitrust laws. The second suggests that the agencies should use their finite resources to investigate conduct that may go otherwise unexamined under the antitrust laws. I generally subscribe to the second school of thought. If a private party is already using the courts to bring certain conduct under the scrutiny of our antitrust laws I tend to believe that the additional benefit to society and taxpayers of an FTC investigation is diminished.

BE: The 2015 investigation was for possible violations of the FTC Act through the use of exclusive fighter contracts. The class-action antitrust lawsuit is for possible violations of the Sherman Act with exclusive fighter contracts. Can you explain any differences in what the FTC was looking for under the FTC Act relative to the key elements of the ongoing antitrust lawsuit under the Sherman Act? Were you looking for the same things or are there important differences?

Dr. Wright: I cannot comment on the specifics of this investigation but, based on the FTC's 2015 policy statement on its Section 5 authority, the FTC's analysis should have been uniform regardless of whether they were looking at the conduct under the Sherman Act or FTC Act. The contribution of that Statement, which has only recently got into effect, is that the FTC's Section 5 Authority more or less mirrors the Sherman Act in most settings.

That being said, exclusive contracts have been examined under the Sherman Act on numerous occasions. I personally believe that the FTC should not use Section 5 to investigate conduct for which there is already substantial Sherman Act jurisprudence.

BE: The result of both FTC investigations was that "no further action is warranted." For legal reasons - I'm guessing - both closing letters warn that this shouldn't be construed as a determination that a violation did not occur. In practical terms, what does "no further action" mean? What are the reasons why the FTC might issue a finding of no further action?

Dr. Wright: You are correct. These letters do not mean that the FTC has determined conduct in question to be lawful. These letters simply mean that the FTC has ended its current investigation and decided not to bring suit for one reason or another; they have no other implications.

BE: We're both outsiders when it comes to the current antitrust lawsuit alleging foreclosure of rival MMA promoters through long-term exclusive contracts with fighters, venues, sponsors, and TV networks. As an outsider, but a world-class expert, what were your initial thoughts when you first learned of the lawsuit?

Dr. Wright: The complaint alleges that the UFC has engaged in a "multifaceted scheme" to exclude competitors from the MMA market. This argument resembles so called "monopoly broth" theories, which functionally argue that a firm has engaged in a variety of conduct that collectively violates the antitrust laws, even though no individual piece of conduct could stand as a claim on its own. The complaint, of course, does not concede the latter point.

Putting aside market definition and market power, in order to ultimately succeed, the plaintiffs will need to show two things. First, they will need to show that the UFC's conduct foreclosed its competitors from obtaining an input needed to compete effectively. In this case, the complaint alleges that the UFC foreclosed competitors from venues, sponsors, and certain classes of fighters, all of which are necessary to successfully compete. Second, the plaintiffs will need to show that consumers were harmed as a result of this conduct; even if the evidence suggests that the UFC's contracts make it harder to compete, the plaintiffs will not be victorious unless they can show that actually harms consumers. Resolving these issues often requires data and economic analysis to assess what options allegedly excluded rival MMA promotions have to compete for venues, sponsors and fighters.

As a general rule, I am skeptical of theories of harm that sound like monopoly broth arguments. My experience has been that these arguments glomming together several different pieces of conduct to make a single antitrust violation usually reveal, after the facts are collected and the analysis completed, that the reason for the hodgepodge approach is that none of the individual arguments is very strong. These arguments tend to take the kitchen sink approach to pleading, rather than focusing on specific conduct and their economic support is tenuous at best. However, despite my reservations about the ultimate success of the plaintiffs' case, I was not surprised that it survived a motion to dismiss because pleading an articulable Sherman Act Section 2 theory is a very low bar. The real action will be at the summary judgment stage, and perhaps trial.

BE: Since monopsony is involved, would the plaintiffs have to show harm on the MMA input side to fighters?

Dr. Wright: Under a monopsony theory, the Plaintiffs would still have to show harm to consumers to succeed at summary judgment or trial. The Plaintiffs can argue that the UFC's conduct depressed wages to fighters, which in turn lowered the quality of fighters and harmed consumers; however, simply showing that the UFC's conduct harmed fighters is not enough for the Plaintiffs' claim to succeed.

BE: The fighters suing the UFC still have to clear class certification, summary judgment, and then trial or a possible settlement. In your opinion, what are the key issues yet to be decided in this case? What, if anything, do you think the case will hinge on?

Dr. Wright: I believe there are three key questions that will ultimately determine the outcome of this case. First and foremost, as we have discussed and is often the case in antitrust cases, is the question of relevant market; the UFC will invariably argue that it competes in a broader market than simply MMA - an argument that it appears the FTC found persuasive when examining the UFC/Strikeforce merger. It is hard to foresee a situation where the plaintiffs' win if the court finds that the UFC competes with non-MMA firms.

The second question is whether the plaintiffs can convince the court that the business of MMA is sufficiently different from other sports. The UFC's motion to dismiss correctly points out that the contracts in question can be found in all of the other major sports leagues. In addition, the UFC is likely to argue that consumers prefer a singular elite MMA league and other lesser leagues - the model that the other major sports have gravitated towards. The plaintiffs proactively addressed these arguments in their complaint by arguing that other leagues are differentiated because they have "multiple teams vying for player services," which reduces the anticompetitive effects of these practices. Personally, I am inclined to agree with the UFC's arguments but it will be very interesting to see how the court addresses this issue going forward.

Third, and hopefully most importantly, the case will hinge on what the economic evidence shows. In my opinion, robust economic analysis should be at the core of antitrust cases. Ultimately, I hope that the court answers the two questions above, as well the others that will invariably arise throughout the litigation, by looking first at the economic evidence.

BE: You're talking about expert discovery that we'll probably start hearing about sometime next year?

Dr. Wright: That is correct, the kind of economic analysis that I am discussing promises to be a central issue in expert discovery.

BE: Do you expect the UFC to face additional antitrust suits and agency investigations going forward? Is there anything the UFC can do to mitigate that risk?

Dr. Wright: The UFC's growth and the correspondingly impressive growth of MMA in general are well documented. That growth appears to be derived at least in part to the UFC's willingness to engage in innovative business strategies. Historically, the risk of antitrust scrutiny increases whenever a firm disrupts and grows a market - especially, when other market participants view that firm's actions as "unfair."

You started by asking me about the likelihood of antitrust investigations by enforcement agencies and litigation by rivals. I think most of this action was fairly foreseeable. Assuming MMA and the UFC continue to grow, it will fully enter a new phase of its business cycle - from the lean and mean upstart to the large and successful incumbent. For better or worse, I tend to think the latter, antitrust exposure has become a cost of doing business for large and successful firms in the United States and there is certainly no exception to this rule for sports leagues and promotions. If anything, the target on the back of the successful firm becomes larger. Antitrust issues are not going to leave the MMA landscape any time soon.

Going forward, the UFC and MMA firms generally should be thinking proactively about antitrust risk both in terms of agencies and private litigation and adopt a strategy of action rather than reaction. From this outsider's perspective, it appears to me most of the UFC response to antitrust exposure has been reactive. This is not uncommon. But thinking proactively about minimizing antitrust exposure can go a long way - from meeting with antitrust agencies in advance to explain large business format changes to strategically altering contract terms to minimize liability. These kinds of proactive decisions and strategies can not only generate goodwill at the agency, but also can help keep the target off the back of successful promotions like the UFC and let them focus on the business at hand.

BE: If the UFC hasn't strategically altered contract terms in the past, the amount of money they're likely going to spend on this lawsuit might make them think twice about it in the future.

The phrase "large business format changes" will no doubt cause readers to immediately think of the Reebok sponsorship deal which anecdotally appears to have upset more fighters than not. Is this potentially one of those proactive decisions you were talking about? Might the FTC ever step in on something like the Reebok deal or is the risk more on the private side?

Dr. Wright: Other than what has been publically reported, I do not know the specifics of the Reebok deal. That being said, this is an example of the kinds of agreements I was referring to. I think it is extremely plausible that this agreement could face antitrust scrutiny from both the FTC and private parties. If I was the UFC I would expect fighters and rival promoters to complain to the FTC, which may ultimately lead to another prolonged investigation. As I suggested above, I think this may be an instance where it is in the UFC's interest to proactively meet with FTC staff and explain the procompetitive rationales for the agreement.

Additionally, when entering into agreements like this in the future, the UFC can proactively structure the contractual terms in a way that minimizes antitrust risk while still accomplishing the agreement's business objectives.

BE: Thank you so much for taking the time to talk with us today. Your expert insights will no doubt be an enormous benefit to MMA fans, writers, and industry insiders.

Follow Dr. Wright on Twitter @ProfWrightGMU. Paul is Bloody Elbow's analytics writer and former provider of expert witness support in antitrust cases. Follow him @MMAanalytics.