Analyzing the legal, economic impact of MMA legalization in New York state

With the passage of Bill No. S05949, legalizing MMA in New York state, it’s likely only a matter of time before Madison Square Garden and other major New York venues feature some of the biggest names in the sport.

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19 years after New York banned mixed martial arts, the state on Tuesday moved one major step towards becoming the 50th and final state to legalize the sport in the U.S. The New York Assembly voted 113-25 to pass Bill No. S05949 and lift the 1997 ban. Gov. Anthony Cuomo’s signature of the bill—or simply the governor not vetoing the bill—would trigger the bill becoming law. Cuomo has 10 days (not including Sundays) to sign, veto or take no action on the bill. If the bill becomes a law, it would take effect 90 days thereafter. The 58-year-old Democratic governor has indicated that he supports S05949, meaning it’s likely only a matter of time before Madison Square Garden and other major New York venues feature some of the biggest names in MMA.

For MMA organizers, including the UFC, Bellator and the other MMA leagues, the legalization of MMA in all 50 states will be a watershed moment. The sport will be fully legitimized. Assuming S05949 becomes law, no longer can MMA carry an asterisk or some other belittling distinction that dismisses MMA as not quite a “sport.”

Those days are about to end.

• MORE MMA: MMA fighters react to New York legalization

Overcoming the critics

Although MMA has surged in popularity in recent years, it has nonetheless attracted skeptics and doubters. Some regard MMA as unacceptably dangerous, particularly in an era where neurological injuries suffered by athletes are of paramount concern. Some of the scientific research on the neurological health of MMA fighters only amplifies these concerns. In 2014, a study published by the American Journal of Sports Medicine found that MMA fighters suffer a traumatic brain injury in almost one out of every three fights and are exposed to a higher risk of traumatic brain injury than are boxers and football and hockey players. At least one retired MMA fighter, Gary “Big Daddy” Goodridge, has gone on record to assert that his career in MMA led to him suffering long-term neurological problems. 

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​The absence of pensions and long-term disability plans for MMA fighters only make treating health problems more difficult. As I have written about on SI.com, a group of UFC fighters are suing the UFC in federal court on antitrust grounds over what the fighters consider to be oppressive contracts. The case, which was originally filed in federal court in California in 2014 and is now in the U.S. District Court for District of Nevada, could eventually lead to better pay and retirement improvements for fighters. Until then, however, worries about fighters’ health and accompanying worries about retired fighters’ financial wherewithal to afford medical care will remain.

Other critics regard MMA as barbaric and unregulated. This critique may have had some merit back in the 1990s when several states prohibited or severely restricted MMA. At that time, MMA was sometimes dismissed as “no-holds barred” fighting, a distinction that effectively equated MMA with street fighting. This characterization of MMA led to New York banning “combat sports,” which the 1997 ban defined as neither boxing nor martial arts but as sports where “the contestants deliver, or are not forbidden by the applicable rules thereof from delivering kicks, punches or blows of any kind to the body of an opponent or opponents.” This definition was aimed at MMA.

To their credit, the UFC and other MMA leagues have effectively countered critiques about the mayhem of MMA. They have done so by establishing clear and detailed rules of play. Many of these rules are expressed in the Unified Mixed Martial Arts Rules as well as other sources. The adoption of rules of play has clearly worked well for the UFC. Since 2002, the UFC has surged from a modest $2 million operation into a league worth as much as $3.5 billion today. With a growing fan base across the globe, the UFC should only continue to enlarge its economic value and social impact.

Legalized in New York—but in a regulated and taxed form

The MMA ban in New York will soon be over, but it won’t come free for MMA organizers. For one, MMA fighting will be regulated by the New York State Athletic Commission, which will adopt regulations that set forth rules for MMA promotion and that restrict participants, outs and exhibitions. MMA organizers will need to obtain a license from the Commission in order to host an event.

MMA will also be taxed in New York and at a rate higher than boxing or wrestling. According to the language of the S05949, the state will impose an 8.5% tax on receipts on ticket sales to MMA fights, whereas gate receipts for boxing and wrestling matches are only taxed at 3%. S05949 also imposes a 3% tax on the combined gross receipts from broadcasting and Internet streaming rights (with a cap of $50,000 in tax payments). For boxing and wrestling matches, in contrast, the 3% tax on broadcasting rights does not extend to receipts from Internet streaming.

Assembly Majority Leader Joseph Morelle speaks on his mixed martial arts bill in the Assembly Chamber at the Capitol on Tuesday, March 22, 2016, in Albany, NY :: AP Photo/Mike Groll

​These taxes on MMA fights could generate substantial revenue for the state, particularly if the major New York arenas host MMA fights. Madison Square Garden, for instance, seats a maximum of 20,000 while First Niagara Center seats up to 19,468 and Barclays Center seats up to 19,000.  If you’re wondering if an MMA fight would fill so many seats, consider that 56,214 showed up to watch Holly Holm knockout Ronda Rousey in UFC 193 in Melbourne, Australia last November.

The legalization of MMA fighting in New York will also create opportunities for industries that can profit by organized fights. One such industry is the insurance industry, which, assuming Cuomo permits S05949 to become law, would see its members compete to insure MMA events hosted in New York.

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New York’s ability to regulate and tax a sport is not limited to MMA. Earlier this week, DraftKings and FanDuel reached a settlement with New York Attorney General Eric Schneiderman whereby Schneiderman agreed to table his case against the two leading daily fantasy companies while they lobby the New York legislature. DraftKings and FanDuel hope to convince legislators to pass a bill that would allow them to conduct business in NY as a taxed and regulated entity.

Improved positioning for negotiating TV deals and globalizing MMA

For the UFC in particular, access to the New York market means it can attract more fans and more corporate sponsors. This will help the UFC negotiate its next TV deal. In 2011, the UFC and Fox signed a seven-year deal that is worth approximately $700 million and that will expire in 2018. With MMA legal in all 50 states and thus fully legitimized, the UFC should be in a superior position when negotiating its next TV deal, as well as accompanying Internet, radio and video game deals.

Dana White speaks at a press event with UFC superstar Ronda Rousey :: Brendon Thorne/Zuffa LLC/Zuffa LLC via Getty Images

The UFC, along with other MMA leagues, should also soon be in a better position to lobby the governments of other countries to make MMA legal. Several countries, including France, have banned or severely prohibited MMA. MMA’s mixed-legal status in the U.S. worked against MMA leagues in attempting to persuade other countries of MMA’s merits. With a fully legal status in the U.S., MMA should be in a better position to assert that it is common practice to recognize MMA as a full-fledged—and fully lawful—sport.

• MORE MMA: McGregor on fighting for Ireland, weight class, more

Michael McCann is a legal analyst and writer for Sports Illustrated. He is also a Massachusetts attorney and the founding director of the Sports and Entertainment Law Institute at the University of New Hampshire School of Law. He also created and teaches the Deflategate undergraduate course at UNH, serves as the distinguished visiting Hall of Fame Professor of Law at Mississippi College School of Law and is on the faculty of the Oregon Law Summer Sports Institute.