The winner will undoubtedly be in line for a title shot against the winner of GSP vs. Condit.
The 32-year-old Penn—a former welterweight and lightweight UFC champion—is trying to get one more title run under his belt before father time catches up to him.
Nick Diaz—28 years old—is coming off a 10-fight winning streak that has spanned three and a half years at Strikeforce.
Two of those years have been as Strikeforce's welterweight champion.
Oddsmakers give a slight edge to "The Prodigy" BJ Penn for the Halloween weekend fight. However, oddsmakers are like weathermen: very knowledgeable but systematically inaccurate.
Many casual MMA fans are relatively unaware of Nick Diaz. And given that Jake Shields, a Strikeforce middleweight champ, is 1-2 in the UFC, and nowhere near title contention, many will write off yet another Strikeforce cross-over hopeful.
But in Diaz's case, this may be a mistake.
Penn has been fighting at lightweight for three of the past four years. The jump to welterweight is somewhat recent and Penn has only seen two outings at this division. And despite an impressive early knockout of an aging Matt Hughes, Penn is relatively untested at welterweight.
He lost two-straight decisions to a diminutive Frankie Edgar at lightweight, and barely squeaked out a draw against welterweight Jon Fitch in early 2011.
He has not shown the steam roller dominance that marked his earlier, championship days.
In all likeliness, Penn is going to be a tough gatekeeper at either welter or lightweight until he retires in the next two years.
Diaz, on the other hand, has a fairly impressive recent resume in the welterweight category. Although his wins are outside the UFC, they are against bigger, faster and stronger bomb throwers than BJ Penn.
The main reasons Diaz will walk away victorious against Penn are: chin and reach.
When he fought Robbie Lawler eight years ago, Diaz showed a tremendous chin. And recently he's shown that chin to be in top form during fights against Evangelista Santos and Paul Daley. Unless BJ can take Diaz down and damage him from guard, he will not likely be rattling the Strikeforce newcomer in stand-up exchanges.
Penn's chances on the ground are not necessarily fantastic against a Brazilian Ju Jitsu black belt such as Diaz. Not to mention that Diaz is difficult to bring down in the first place, and works well from the back.
Unless Penn can do to Diaz's chin what no one else has been able to do recently, he'll have to resort to submissions or out-pointing the Stockton resident.
Diaz is 6' 1" and has a 74 inch reach. Penn stands 5' 9" and sports a 70" reach.
And this is only one dimension of Diaz's reach advantage. It is his reach "style" that has proved problematic to even well-seasoned strikers.
In victories over a bevy of contenders who are effective boxing-style fighters, Diaz's unorthodox southpaw stance, distracting arm-waving and odd-angled punches have overwhelmed many confident strikers.
BJ Penn has leaned heavily on his boxing abilities over the past three years, not unlike the morph we have seen from Rampage Jackson, who was far more diverse during his Pride days but found early UFC success by accentuating his strengths as a boxer. This comfort zone eventually made him predictable and beatable.
Most likely, a stand up war with Diaz will not work and Penn will have to get busy elsewhere.
Prediction: Diaz by third round TKO (strikes).