Faster, higher, stronger - competition in the sports sector

21 July 2015

Richard Eccles, Will Deller

Competition analysis: How do competition law issues affect the commercial exploitation of sports rights and agreements? Richard Eccles, a competition and EU law partner and Will Deller, an associate in the sports group at Bird & Bird LLP, examine the direction in which the law is heading.

How does competition law affect the organisation of sport?

As a general rule, purely sporting rules adopted by governing bodies will fall outside the remit of competition law provided they are proportionate. Such rules would include:

Anti-doping rules

In Meca-Medina and Igor Majcen v Commission of the European Communities C-519/04, [2006] All ER (D) 296 the Court of Justice of the European Union (CJEU) held that anti-doping rules did not infringe the Treaty of the Functioning of the European Union (TFEU), art 101, despite the fact that the penalties for infringement could restrict competition by excluding the infringing athletes from participating in sports events.

Nationality clauses for national teams

In BNO Walrave and LJN Koch v Association Union cycliste international, Koninklijke Nederlandsche Wielren Unie and Federación Española Ciclismo C-36/74, the CJEU stated that a rule of the International Cycling Union requiring a team's pacemaker to be of the same nationality as the relevant team complied with EU law.

Transfer windows

In Jyri Lehtonen and Castors Canada Dry Namur-Braine ASBL v Fédération royale belge des sociétés de basket-ball ASBL (FRBSB) C-176/96, [2000] All ER (D) 534 the CJEU held that transfer windows/deadlines can be important in maintaining the competitive balance and effectiveness of a competition.

However, where the rules adopted by governing bodies are not purely sporting and/or are disproportionate, the European Commission (EC) and CJEU have intervened.

FIA

In 2001 the EC reached a settlement with the Fédération Internationale de l'Automobile (FIA) – the international association of national motor sport authorities and, an organiser and promoter of certain motor sport events (most notably Formula One) following an investigation into the FIA's rules.

Under those rules, drivers and race teams holding an FIA licence were prohibited from participating in non-FIA authorised events and circuit owners were prohibited from using their circuits for events that could compete with Formula One. The EC stated that these rules infringed TFEU, arts  101, 102 as they allowed the FIA to block the organisation of races  which competed with its own events and from which it derived a commercial benefit. The settlement limited FIA's role to that of a governing body, rather than commercial organiser/promoter,  while also allowing any racing organisation to access motor sport and any circuit owner to organise other races provided safety standards were met.

Bosman

In 1995 the ruling in the famous Bosman case (Union Royale Belge des Sociétés de Football Association ASBL v Jean-Marc Bosman C-415/93 [1995] All ER (EC) 9) stated that two UEFA rules infringed free movement of workers rules and TFEU, art101, these were:

• a rule permitting national governing bodies to limit the number of foreign nationals in a club team, and

• a rule requiring payment of a transfer fee between clubs when a player's contract expired

How does competition law affect the commercial exploitation of sports rights/commercial agreements in the sports sector?

As with most other industry sectors, competition law impacts upon several contractual agreements that sports organisations will routinely enter into, including ,for example, distribution and agency agreements (e.g. pricing and non-compete restrictions) and merchandising and trade mark licensing agreements (e.g. restrictions on passive sales).

There are three particular areas in which sports organisations will encounter competition law issues:

Sponsorship agreements

The grant of certain designations to sponsors and obligations to exclusively purchase the sponsor's products, both of which are common in sponsorship agreements, may raise concern.

In the case of the Danish Tennis Federation [(COMP/33.055 and 35.759)] the use of the designation ‘official supplier’ in relation to Slazenger, a tennis ball supplier, was held to give an anti-competitive advantage to that supplier. Regarding exclusive purchasing obligations, these should be limited to five years.

Media Rights

Particularly in the wake of the recent record breaking Premier League television rights deal, media rights are becoming an increasingly significant means of generating revenue for governing bodies and clubs. Two competition law issues—collective selling arrangements and territorial exclusivity—have also caught the headlines in respect of the sale of media rights in recent years.

Collective selling by sports bodies on behalf of participating clubs, of exclusive audio-visual rights to sporting contests, has to be carefully controlled, as shown by the EC's investigations into the Premier League, UEFA Champions League and German Bundesliga, so that the commercial benefits to consumers of selling on a collective basis are not outweighed by anti-competition concerns.

In particular, at least for such high profile sports content, tendering of exclusive rights, a three-year limit on the duration of the exclusivity, and the division of the relevant rights into packages, which allows the distribution of rights between two or more broadcasters, is required.

In Karen Murphy v Media protection Services Ltd C-429/08 [2011] All ER (D) 26 the CJEU held that certain contractual provisions and indeed national legislation that prevents viewers in one EU Member State from importing satellite decoder devices from another member state, in order to watch the services of a foreign broadcaster, infringed EU competition rules and free movement of services respectively. While the claimant (the Premier League) was still permitted to grant rights on a territorial basis, the relevant provisions in the Premier League's broadcasting licence agreements prohibiting the supply of decoding devices outside of the contracted territory (Greece), had the effect of making that territorial exclusivity ’absolute’, therefore infringing TFEU, art 101.

Ticketing

Governing bodies have been held to account for anti-competitive practices in relation to ticketing. For example, the EC held that an agreement granting one private entity the exclusive right to sell tickets to the 1990 World Cup was anti-competitive. In addition, the requirement that purchasers of tickets to the 1998 World Cup had to provide a French address for delivery was held to be discriminatory against non-French European citizens. 

More recently, the EC investigated whether the requirement that tickets to the 2004 Olympics and 2006 World Cup could only be paid for with one type of credit card if purchased direct from the respective tournament organisers infringed competition law. In both cases the investigation was closed without punishment as it was found that there was an alternative supply channel for the public or the organisers set up an alternative payment mechanism.

What are the future developments in this area likely to be?

Particularly in the wake of the Murphy case, broadcasters and rights holders will be anxious about their ability to grant territorial exclusivity when licensing their media rights. While legislators have frequently stated that licensing rights on a territorial basis is not inherently anti-competitive, the move by the EC in its recently published Digital Single Market Strategy communication, to call for a ban on ’unjustified’ geo-blocking, and the focus on geo-blocking in the recently announced competition law E-commerce sector enquiry, will raise concern.

Meanwhile, the outstanding Ofcom investigation into the selling arrangements for the Premier League television rights (following a complaint by Virgin Media) and the series of Pay TV complaints/cases involving BT and Sky concerning the regulatory obligations imposed by Ofcom whereby Sky has been required to make Sky Sports 1 and 2 available to other broadcasters at specified rates (the ’wholesale must offer’ remedy), also demonstrate how media rights are a hot topic from a regulatory perspective.

On the organisation of sport, there has been speculation about whether several recent/proposed rule changes by governing bodies would infringe competition law. Examples include:

• UEFA's planned ‘home grown players’ rules, whereby clubs will have to include a minimum number of locally trained players in their squads for UEFA-sanctioned competitions

• the introduction of salary caps, either on a per-player or per-team basis or both

• FIFA's rule that players must be released by their clubs to play for their national team when requested to do so

In addition, a decision is currently pending from the Belgian first instance court, following a hearing in February 2015, on whether to repeal UEFA's Financial Fair Play Regulations on the basis that they are anti-competitive and infringe fundamental principles of EU law.

What advice would you give to lawyers working in this field?

As is clear from the brief discussion of some of the most relevant issues above, competition law has a pervasive influence on sport at both an organisational/rule-making level and at a more general commercial level. As such, specialist advice should be sought when dealing with issues that have either a national or European-wide competition aspect.

Given the apparent focus of the EC on restricting geo-blocking, and the uncertain validity of contractual geo-blocking obligations following the Murphy judgment, we would advise that both rights-holders and licensees anticipate these changes by including provisions in their licence agreements to cater for a potential ban.

Such provisions might need to address, for example, both the reduced rights value that would result from such a ban and the position concerning cross-border transmissions within the EU following such a ban.

In the area of sponsorship, rights holders and sponsors should be careful when considering using designations such as ‘official supplier’, ‘endorsed supplier’, ‘official technical partner’ etc. Designations such as ‘approved supplier’ and ‘official sponsor’ carry less risk. Meanwhile, exclusive purchasing obligations should be limited to a period of five years.

Richard Eccles is a partner in the Competition and EU law group at Bird & Bird LLP, and Will Deller is an associate in the sports group at Bird & Bird LLP.

This article was orginally published on LexisNexis and has been reproduced with kind permission.