Mayweather v McGregor: Bargaining Power
In late August, boxer Floyd Mayweather faced off against mixed martial artist Conor McGregor in a showing that raked in millions of viewers, and yet the fighters earned starkly different amounts—Mayweather took $300 million, while McGregor only took $100 million. The explanation, as the piece points out, rests in the power that outside options hold in bargaining situations, and how they ultimately determine what the stable outcome will be.
Mayweather, as a wholly undefeated fighter, has earned in the tens of millions of dollars in all his previous fights. Meanwhile, McGregor’s greatest earnings in other fights have never been beyond $10 million. According to the basic principles of network exchange, the power in bargaining comes from the values of each party’s outside options. Mayweather’s track record of extremely high payments assured that he would be able to hold much more leverage over McGregor, since he holds an immense ability to turn down the opportunity for some other higher paying outside option. However, Mayweather did not walk away with all the money, as McGregor would never settle for $0 since his “outside option” is usually at least a couple million. Thus the 75:25 ratio is a stable outcome since both fighters earn at least as much as they would earn in any other fight. According to the guidelines for a balanced outcome, this would make sense as the values in the relationship would begin to satisfy the Nash Bargaining Outcome, as both values are at least their outside values (Mayweather received more than just tens of millions, and McGregor received more than just $10 million). While we don’t know the exact surplus amount since we don’t have full access to exactly how much they usually get paid, we can still see that Mayweather’s extremely high outside options give him extraordinary bargaining power over McGregor.