Competition Law Issues faced in the Football Industry: A general Overview

[Author: Anshul Ramesh, a penultimate year student of Law at Jindal Global Law School]

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Introduction

Competition law, now emerging as one of the key facets of corporate law, has made its mark on the sporting world. The objective of competition law in the sports industry, and especially football, is to promote fair competition in the market while also grappling with the issues of anti-competitive behaviour that can take the form of anti-competitive agreements or an abuse of dominant position. This is envisaged in Articles 101 and 102 of the Treaty of the Functioning of the European Union (“TFEU”), formerly Articles 81 and 82 of the European Community Treaty. Article 101 TFEU makes a list of agreements, decisions and undertakings illegal, which includes tying agreements, price-fixing agreements, application of dissimilar conditions to equivalent transactions or control on production, if they affect trade between member states or within the countries. Article 102 TFEU talks about the abuse of dominant position whereby an entity may impair fair competition by imposing unfair purchasing prices or trading conditions, limited supply, price discrimination, exclusive contracts, etc. These Articles have been repeatedly held by EU Courts to be applicable to sport.

Issues in the Football industry

To demonstrate that a particular Rule faces competition law issues in the footballing industry, there are some basic considerations, namely:

1. Is the Sports Association that adopted the Rule an “undertaking” or an “association of undertakings”?
2. Does it restrict competition within the meaning of Article 101(1) of TFEU or constitute an abuse of dominant position under Article 102 of TFEU?
3. Is trade between member States affected?
4. Does the Rule fulfill the conditions of Article 101(3) of TFEU (if applicable)?

In the following section, the Author has discussed some of the leading or upcoming competition law issues in the footballing industry.

Financial Fair Play Regulations

The UEFA Financial Fair Play Regulations (“FFP Regulations”) are a set of “austerity measures” in place to dictate the spending and purchasing power of various clubs across Europe. The FFP Regulations have a “break-even requirement“, wherein football clubs cannot spend more than they earned in previous seasons’ matches. Failure of clubs to adhere to these Regulations leads to an imposition of fines or a possible disqualification from UEFA competitions. The purported justifications of this rule is to ensure long-term financial stability and promoting fair competition amongst clubs. While these aims prima facie seem quintessential to the footballing world, it has raised competition law concerns.

Firstly, the break-even rule cements, freezes, solidifies the clubs’ existing financial positions. As a result, the “big” clubs are given an unmatched advantage over the “small” clubs because the latter can no longer use debt to make investments similar to the former. This goes against the very justification of the FFP Regulations i.e. promoting fair competition. Secondly, the genuine anticompetitive nature of the break-even rule hits the sweet spot of the prohibition rule found in Article 101 of the TFEU. Article 101(d)  prohibits any limitation on investments regardless of its magnitude or effects, and any such measure is unlawful.

These rules were challenged before the Court of Arbitration of Sport (“CAS”) in Galatasaray v UEFA whereby the CAS held that the object of the FFP Regulations is not to distort the competition. It found the evidence insufficient to hold that the ‘break-even requirement’ to have negative impacts in the market. It further referred to the Wouters criteria for being “inherently and objectively necessary” and held that the FFP Regulations fulfilled these criteria. While the legal authenticity of these Regulations may temporarily have been held as not violative of competition law, there could be several other cases in the near future which may eventually decide the fate of these Rules.

Salary Caps

Salary caps are limits on the amount a club can spend on players or staff. While such a cap is not fully introduced in football, it is a hotly debated issue. Trade gets affected because the caps will control how the resources of a club are allocated. This would also mean that certain mega superstar players (Lionel Messi or Cristiano Ronaldo) or managers (Jose Mourinho or Zinedine Zidane) cannot earn beyond a particular limit. This unfairly restricts the earning of potential wages/bonuses/perks which would be otherwise mutually decided by the club and the player or manager. The Court of Justice of European Union has held that though such caps may restrict competition, the social policy objectives of collective agreements would be seriously undermined if it is subject to the applicability of Article 101(1) of the TFEU.

In competition law terms, a salary cap, whose object is to ensure viability of long-term sustainability of the sport, could escape the competition rules if it demonstrates that it is necessary and inherent for the very functioning of credible competitions along with passing the test of proportionality. Proponents of this salary cap argue that restrictions in the upstream market (for players’ services) are justified on the basis of advantageous effects in downstream markets (such as entertainment, ticket sales). FIFA is in talks to introduce further rules on caps of agents’ fees, and such a move is strongly opposed by agents such as Jonathan Barnett and Mina Raiola.

Broadcasting Rights

Usually, sports media rights are sold collectively by a sporting association on behalf of its various clubs instead of it being sold individually. For example, UEFA and the English Premier League selling it for the UEFA Champions League/Europa League and premier league matches, respectively.

There have been four landmark cases which have dealt with competition law issues pertaining to broadcasting rights. The EU Commission held that joint selling arrangements can restrict competition in upstream markets between football clubs, UEFA and the interested buyers. Further, it has a negative impact on downstream broadcasting markets which are a vital element of their competition for advertisers or subscribers. However, the Commission also found that such joint arrangements had large beneficial impacts in providing a single point of sale, such as reduced transactional complexities, lower costs and risks, higher efficiencies, lower prices for end consumers, etc. The overall view of the EU Commission is that collective selling (subject to certain terms and conditions) can be an important tool for redistributing the income and achieving greater solidarity within sports. In cases where there is an antitrust concern, some common remedies used by the Commission in the EU footballing cases are tendering, limits on duration, unbundling, no unused rights and limitation of exploitation of platform. Therefore, as illustrated above, the Commission has attempted to balance the competition law threats to the benefits, and currently, it believes the continuation of jointly selling of broadcasting rights is more beneficial than harmful.

The “European Super League”

The “European Super League” is a concept not yet introduced in football, but there are strong rumors that it may come into existence in the near future. This Super League is the proposed coming together of the biggest footballing teams across Europe to participate in a league system. This would mean teams such as Manchester United, Bayern Munich, Real Madrid, Barcelona, Paris Saint Germain, AC Milan and Juventus would participate in a league system instead of the Champions League conducted every year by UEFA. Though not in existence, proposals for its inauguration are being reportedly led by the likes of Real Madrid and AC Milan. The incentives for such a league are largely commercially driven, along with the mouthwatering possibility of having billions of viewers (due to the large clubbing of the fanbases) tune in to every game. Further, the “big teams” of each league were frustrated due to the sharing of revenue earned from overseas broadcasting deals when people are only tuning to watch them, and not all the teams. This possibility has been vehemently opposed by FIFA and UEFA. The UEFA President has stated that “UEFA and the clubs are committed to building on such strength, not to destroying it to create a Super League of 10, 12, even 24 clubs, which would inevitably become boring.” Further, both FIFA and the respective confederations have explicitly stated that the League and its teams would not be recognized by them, and it would also impose bans on players of such teams to participate in the prestigious FIFA World Cup.

This raises competition law concerns with respect to whether FIFA and UEFA have the powers to decide the fate of the such a competition, and whether the threat of imposition of penalties is the case of an abuse of dominant position under Article 102 of the TFEU. This issue though not explored, could have interesting connotations in the footballing world. Football governing bodies such as FIFA would have to demonstrate that such measures are in the best interests of the sport and a deviation from the current system would lead to severe impairment to the footballing industry as a whole. If the big teams from the major leagues wish to formulate this League, they would have to allege that such a League would not hamper the best interests of the sport; and any restrictions imposed by FIFA and other continental confederations is in restraint of free trade and competition. Further, they could allege that these governing entities are abusing their dominant position and are advocating their stance due to the possibility of loss of large revenues made due to the participation of these teams itself.

Conclusion

As is evident in the various aforementioned issues, the footballing world is only getting warmed-up to the various competition law aspects in the footballing industry. Many of these problems are still not fully exposed to their maximum potential, and there has to be a much greater scrutiny imposed on some of the rules imposed by large footballing associations along with the sanctity of these organizations itself, namely FIFA and the UEFA. Such scrutiny through the competition law lens is imperative in the midst of the potential inauguration of an “European Super League”.

*For any query, feedback or discussion, the Author can be contacted at [anshulramesh@yahoo.in]

PREFERRED CITATION: Anshul Ramesh, Competition Law Issues faced in the Football Industry: A general Overview, SLPRR, <https://sportslawandpolicyreviewreporter.com/?p=1225> April 17, 2021.