Competition Law and Sports

*Written by Kunwar Malhotra

Introduction

Sports, one of the largest industries worldwide, extends beyond gaming activities to encompass recreational, political, cultural, and business purposes. Over time, globalization and other developments have contributed to the commercialization of the sports industry. Economic aspects within this industry have flourished, turning sports from a mere game into a lucrative business. With commercialization, competition naturally arises. Wherever commercialization exists, competition law becomes relevant. This branch of law aims to regulate and ensure fair competition among businesses operating in the sports industry. In this context, competition law plays a crucial role in maintaining a level playing field and promoting fair practices among sports organizations and stakeholders.

Sports contribute significantly to the economic development of countries. For instance, the sports industry contributes around 2.12% to the GDP of the European Union and employs approximately 5,666,195 people. In India, the Indian Premier League (IPL) alone contributed $182 million to the country's GDP in 2019. The growing economic and social importance of sports has led to various regulatory issues, including labor law, contract law, and intellectual property rights. Courts in different jurisdictions have started addressing competition law matters related to sports due to the increasing influence of sports bodies. Competition law addresses anti-competitive behavior, such as agreements and abuse of dominant positions, which can arise in sports due to the control exerted by sports bodies. This intersection between competition law and sports is observed globally, including in India, the European Union, and the United States.[i]

At the international level, the primary objective of the Competition Act is to prevent anti-competitive practices within the market. However, some well-known sports organizations have been accused of monopolistic behavior and exploiting their dominant position in the industry. The absence of a specific regulatory body to oversee their actions grants these organizations the freedom to act arbitrarily. Allegations include the imposition of various economic restrictions, such as revenue-sharing, spending caps, drafts, and non-tampering clauses, raising concerns about fair competition within the sports industry.[ii]

Competition Law in India

Competition law in India, as enshrined in Articles 38 and 39 of the Indian Constitution, upholds the principle of distributive justice, aiming for just allocation and efficient distribution of goods to create a society without inequalities. Prior to the Competition Act of 2002, the Monopolies and Restrictive Trade Practices Act (MRTP) of 1969 and the MRTP Commission were in place. However, over time, it became apparent that the MRTP Act couldn't achieve its desired objectives. To address the shortcomings, the government formed the Raghavan Committee, which recommended the establishment of the Competition Commission of India and the enactment of the Competition Act, 2002, to overcome the deficiencies of the MRTP Act.

The Competition Act, 2002 establishes the Competition Commission of India as a quasi-judicial body with various powers, including inquisitorial, investigative, regulatory, adjudicatory, and advisory functions. The Commission can initiate inquiries based on its own knowledge, information, references from the government, state authorities, or complaints received. To hear appeals against the Commission's directions and adjudicate on claims for compensation arising from its findings, the Competition Appellate Tribunal was formed on May 15, 2009.

The primary focus of Competition Law in India lies in three areas:

· Preventing anti-competitive agreements,

· Addressing abuse of dominant positions by certain undertakings, and

· Regulating combinations like mergers and acquisitions to safeguard fair competition in the market.

It aims to ensure that no agreements adversely impact competition and that mergers do not harm the structure of competition in the market.[iii]

Competition Law in Sports in India

Competition law plays a crucial role in addressing the challenges posed by the commercialization of sports in India. The primary objective of competition law is to ensure fair competition and protect the market from anti-competitive practices. However, certain prominent sports organizations like BCCI, AICF, and AFI have been accused of adopting monopolistic practices and imposing economic restraints that hinder fair competition.

While sports have evolved into a global business due to the forces of globalization and commercialization, they differ significantly from other business entities. The nature of sports organizations being monopolistic and the need to maintain competitive balance between teams have led to the emergence of various economic restraints like revenue-sharing, spending caps, drafts, and non-tampering clauses. These economic restraints, often employed to maintain competitive stability, can potentially hinder fair competition and innovation in the sports industry. Consequently, competition law plays a crucial role in ensuring that these organizations do not abuse their dominant positions and engage in anti-competitive practices, thus fostering a level playing field and promoting healthy competition in the sports sector. By enforcing competition law, the aim is to strike a balance between sports commercialization and maintaining fair competition to preserve the integrity and growth of the industry.

The intersection of competition law and sports in India is evident from legal cases like Hemant Sharma & Ors v. Union of India and Ors. Here, the All-India Chess Federation was considered an enterprise due to its revenue-generating activities, such as organizing sporting events, granting media rights, and selling tickets. Sports governing bodies, including BCCI in cricket, are also treated as commercial enterprises under the Competition Act, 2002. In the case of BCCI, a complaint was filed alleging infringement of Section 4 of the Act. BCCI's dominant position was challenged when a new entrant, ICL, threatened its market standing. To maintain its position, BCCI allegedly engaged in unfair practices, restricting players from participating in ICL and denying access to stadiums. The Commission ruled that BCCI had abused its dominant position in this context. This highlights the growing significance of competition law in regulating sports and maintaining fair competition within the industry.[iv]

Examining the Legislative Landscape of Competition Law - USA and EU

The legislative framework of competition law in the United States and the European Union provides valuable insights into how professional sports are treated in these jurisdictions. Analyzing these statutory provisions reveals differences in how competition law principles are applied, impacting various fields, including organized sports. Recognizing these dissimilarities helps identify challenges and drawbacks that must be addressed to regulate the sports industry more effectively through competition law.

Insights into the Statutory Framework of US Antitrust Law

Competition law, known as antitrust law in the United States, holds a significant place in American jurisprudence. Legislators and courts have long recognized its importance, dating back to the end of the 20th century. The evolution of antitrust law considers not only market competitors but also the interests of consumers. American senator Al Franken highlighted its relevance for the common man, even though they may not often think about it in their daily lives. The impact of antitrust law extends to various industries, including sports, and its significance is acknowledged nationwide.

The regulatory framework for antitrust law in the United States consists of the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914. The enforcement of antitrust law is overseen by the Federal Trade Commission and the Department of Justice. The Sherman Act prohibits anti-competitive activities, with severe penalties for violations. Section 2 of the Act deals with monopolization, aiming to prevent any individual or entity from monopolizing trade. These provisions serve as the foundation for antitrust scrutiny in the sports sector. The Clayton Act further addresses anticompetitive practices, such as tying agreements and exclusive dealing arrangements, and regulates mergers and acquisitions that could reduce competition or lead to a monopoly. The strict enforcement of the antitrust regime in the United States has consistently held corporations accountable for engaging in anti-competitive practices.

Examining Competition Law In The European Union

Competition law in the European Union (EU) was established to promote free trade and ensure fair market conditions for enhanced development. The EU aimed to harmonize markets within its member states through Articles 81 and 82 of the treaty, which later evolved into Articles 101 and 102 of the TFEU. Article 101 identifies various anti-competitive practices, such as tying agreements and price-fixing, and deems them illegal if they impact trade between member states. Article 102 addresses abuse of dominant position, prohibiting practices like unfair purchasing prices, imposing limits on production, and imposing supplementary obligations unrelated to contract subjects, putting trading parties at a disadvantage. Sports governance bodies and other entities within the EU have often been alleged to have engaged in abuse of dominant position or entering into anti-competitive agreements, as we will further see in the project. This framework seeks to foster competition and drive economic growth in the EU.

Sports Media Rights Revenue

The sale of sports media rights to broadcasters is a significant revenue source for sports teams, particularly football clubs. However, individual clubs cannot independently sell these rights and must collectively do so through league associations. Broadcasting rights have become crucial for their financial success, with considerable revenue generated over the years. UEFA, for instance, earned $451 million from broadcasting rights in the 2003/04 season, increasing to $1.7 billion in the 2016/17 season. Domestic leagues, like the Premier League, have also witnessed substantial revenues, with top clubs such as Manchester City and Liverpool earning around $150 million each from the total revenue pool. The European Commission assessed the collective selling of media rights by UEFA Champions League and German league association, permitting it under specific conditions. Collective selling has proven beneficial for leagues and downstream markets, ensuring fair access and promoting technological advancements in broadcasting, including internet-based platforms.

Ticket Sales Arrangements and Competition Law

Arrangements for selling tickets to sporting events have been subject to scrutiny by the European Commission, particularly regarding credit card exclusivity. Two significant decisions involve the Athens Olympic Games in 2004 and the FIFA World Cup in 2006. In the Athens Games, tickets could only be purchased using VISA cards online, but the Commission found it permissible as alternative payment channels were available. A similar case arose during the FIFA World Cup, with MasterCard being the exclusive payment method. Again, the Commission followed a similar approach, emphasizing the importance of "reasonable access to entry tickets." While some argue that such regulation is excessive, it focuses on the economic aspect of sporting events and their potential impact on related markets, such as accommodation and travel offerings. Ensuring accessible ticket arrangements helps promote fair competition and consumer welfare in the sports industry.[v]

European Super League Case

The European Super League (ESL) saga, which unfolded in April 2021, sent shockwaves through the football world. Twelve major clubs, including those from England, Spain, and Italy, announced their plans to form the ESL, triggering widespread outrage. Football bodies like FIFA and UEFA threatened severe consequences, banning the participating teams from current competitions and national teams. Amidst mounting fan pressure, six English Premier League clubs and several others withdrew from the project within 48 hours, leading to the demise of the ESL.

The saga raised crucial questions about competition law and its role in regulating the sporting industry. This article delves into the aspects of European Union (EU) Competition Law that were at play during the dispute and explores potential future scenarios for both parties involved. Analyzing the matter through EU sports legislation, the unique characteristics of sports, and power disputes in competition law, the article assesses the legality of UEFA clauses that oppose such breakaway arrangements. A progressive interpretation of existing EU sports legislation, including the Treaty on Functioning of the European Union (TFEU), is employed to shed light on the issue. Additionally, the article examines the validity of discriminatory UEFA provisions and the possibility of establishing alternate leagues in European football under EU sports law, taking into consideration the legal criteria discussed within the analysis. [vi]

ESL: Legal Hurdles Ahead

The proposed European Super League (ESL) faced significant legal challenges from various fronts. The ESL's attempt to stop UEFA and FIFA from preventing the competition triggered a legal action. This action likely involved seeking interim relief in domestic courts, such as injunctive relief in England, to prevent the Football Association (FA) from taking measures against the Premier League clubs until the dispute was resolved. However, the ESL itself violated UEFA statutes, as it failed to seek prior approval from UEFA and FIFA for organizing international matches on UEFA's territory, as required under article 49 (3) of the statutes. This failure to obtain permission from the governing bodies could have major consequences for the league's establishment.

Additionally, certain executives leading the ESL were also involved with UEFA's European Club Association (ECA) and had access to confidential and commercially sensitive information. If this information was used to gain an unfair advantage while developing the ESL project, UEFA might have grounds for a cause of action based on breach of confidentiality. At the EU level, both the ESL's formation and the potential actions threatened by FIFA and UEFA could have raised concerns under competition law.

Competition Law in ESL

Competition law plays a crucial role in regulating sports activities and governing bodies within the European Union. The EU courts have consistently held that there are no blanket exceptions for sports or purely sporting rules, subjecting them to competition law scrutiny. To be deemed compatible, a sport body's rules must have a legitimate objective and be proportionate and inherent to that objective. In the context of the European Super League (ESL) case, the measures taken by sporting bodies against the ESL and its member clubs could have attracted competition law scrutiny. Jurisprudence has examined whether such actions could constitute agreements aimed at restricting competition, contravening Article 101 of the Treaty on the Functioning of the European Union (TFEU), or abuse of dominant position, breaching Article 102 TFEU.

The proposed ESL's entry into the market for European club competitions, competing against the UEFA Champions League, raised questions about the permissibility of breakaway leagues under competition law. Moreover, EU law emphasizes promoting fairness and openness in sporting competitions, as stated in Article 165 TFEU and the European Commission White Paper on Sport. Existing case law, like the Bosman and UEFA Champions League decisions, highlights the importance of equality among clubs. Furthermore, the issue of athlete participation in non-authorized events, as seen in the International Skating Union case, is another area where competition law considerations come into play.

As the current European structure of professional sports faces challenges, competition law will remain a significant consideration for stakeholders in the sports industry. The European Commission, national courts, and competition authorities are likely to deal with these issues in the years to come.

Employment Law in ESL

The ESL's potential sanctions announced by UEFA and FIFA, such as banning players from participating in international competitions, could raise employment law issues. Some argue that such bans might violate the principles of 'restraint of trade' under common law in England and Wales, which state that individuals should be free to pursue their trade without undue influence. This situation could also create difficulties for players in relation to their clubs. As the players were reportedly not consulted during the creation of the breakaway league, potential sanctions impacting them directly could lead to a breach of the duty of trust and confidence owed by employers (clubs) to their employees (players).

The creation of a breakaway competition could potentially constitute a serious breach of contract between clubs and players, giving players a cause to terminate their contracts if they choose to do so. However, the commercial realities, such as the financial disparity between ESL clubs and others, might make taking such action unlikely in practice.[vii]

The ISU Case

The ISU case, which took place in 2017, involved a complaint filed by two Dutch professional speed skaters, Mark Tuitert and Niels Kerstholt, against the Eligibility rules of the International Skating Union (ISU). The ISU is responsible for governing figure skating and speed skating on ice globally. The contested Eligibility rules imposed a lifetime ban on athletes and officials participating in competitions not authorized by the ISU, leading to the cancellation of the Dubai Icederby Grand Prix 2014.

The European Commission (EC) examined the case and acknowledged that certain restrictions could be justified to protect the integrity of sports, health and safety, proper conduct of competitive sport, solidarity between participants, and the volunteer model of a sport. However, the EC found that the ISU's adopted and enforced Eligibility rules were not inherent or proportionate to these legitimate objectives. As a result, the EC ruled that these rules violated Article 101 of the Treaty on the Functioning of the European Union (TFEU). The ISU was given 90 days to end the infringement, subject to a periodic penalty payment of 5% of its average daily turnover. The EC chose not to impose a lump-sum fine, considering it was the first infringement decision involving rules set by sports governing bodies.

In a significant judgment on 16 December 2020, the General Court of the European Union upheld the European Commission's decision and ruled that the Eligibility rules of the International Skating Union (ISU) indeed violated EU competition law. The court stressed the potential conflict of interest when a sports governing body performs both commercial and regulatory functions. This conflict becomes particularly concerning when the governing body's prior approval requirements for third-party events unduly restrict market access and distort competition.

The parallels between the ISU case and the potential case of breakaway leagues in football are evident. Both involve a sports governing body regulating its sport and organizing its competitions, while also prohibiting new competitions organized by third parties. Therefore, the ISU case serves as a benchmark for analyzing football breakaway leagues. However, each case has its nuances, and comparative conclusions must be drawn with caution. While commercial motives will likely influence FIFA and UEFA's stance on the Super League, other factors like solidarity within the football pyramid and proper competition organization carry significant weight too. On the other hand, protecting one's commercial interests can be deemed legitimate for sports governing bodies, as explicitly stated by the General Court in the ISU case. An essential aspect considered in the ISU case was the severity of sanctions imposed on athletes. Similarly, in the Super League case, FIFA and UEFA's announcement of banning both clubs and players from their competitions brings their approach closer to the problematic attitude seen in the ISU case.

Competition and Efficiency Dilemma - Article 101 TFEU

The possibility of justifying Article 49 of the UEFA Statutes or the Super League's setup from Article 101 TFEU based on efficiency considerations is explored. Article 101(3) TFEU allows restrictions of competition if they lead to improved production, distribution, technical or economic progress, with consumers benefiting fairly, being indispensable to these objectives, and not eliminating competition substantially.

The European Commission (EC) rejected any possible justification of the Eligibility rules in the ISU case under Article 101(3) TFEU. The rules were deemed inefficient as consumers had a limited choices due to the lack of competing events offered by competitors. Similarly, it might be challenging to demonstrate any efficiencies from UEFA's pre-authorization rules benefiting consumers. While the Super League might meet the first two criteria of Article 101(3) TFEU by offering a new football product, it may struggle to meet the third criterion of indispensability for the semi-closed league's setup. If the semi-closed nature is not necessary for financial viability, it cannot be deemed indispensable for the creation of the new product, reducing the likelihood of justifying it under Article 101(3) TFEU.[viii]

Conclusion

In conclusion, the regulation of sports by governing bodies is a complex and contentious issue. Two primary factors contribute to the conflicts: the unique nature of sports as an economic activity, characterized by interdependence and the delicate balance between cooperation and competition, and the challenges in evaluating potential restrictions under Article 101 TFEU. It is evident that non-compete obligations and closed leagues should be subject to case-by-case scrutiny, as they may not inherently restrict competition and could serve legitimate purposes. Similarly, other rules such as salary caps and player transfer restrictions may be necessary to maintain competitive balance.

The ongoing controversies and frictions around sports regulations reflect changing attitudes towards the activities of sports governing bodies. Traditionally, competition authorities have been cautious about interfering in the internal affairs of sports organizations. However, this hands-off approach might be evolving due to the influence of Article 106 TFEU case law and stricter standards. The pending cases, particularly the International Skating Union and Super League cases, will determine whether these changing attitudes will be reflected in the future case law concerning sports regulations.

*The author is a lawyer from India

(The image used here is for representative purposes only)

References

[i] www.penacclaims.com/wp-content/uploads/2020/02/Saksham-Malik.pdf [ii] https://blog.ipleaders.in/competition-law-sports-commercialization/ [iii] https://lawbhoomi.com/competition-law-a-systematic-review/ [iv] https://lawbhoomi.com/competition-law-a-systematic-review/ [v] www.penacclaims.com/wp-content/uploads/2020/02/Saksham-Malik.pdf [vi] https://www.irccl.in/post/competition-law-in-sports-the-european-super-league-saga [vii] https://cms-lawnow.com/en/ealerts/2021/04/the-european-super-league-an-overview-of-legal-challenges [viii] https://link.springer.com/article/10.1007/s40318-021-00201-2