From a competition law standpoint, the regulation of sport presents a difficult conundrum. On the one hand, sports regulations may limit the ability of economic actors (including sportspeople) to win business through unrestricted competition. On the other hand, without such regulations, the essential core of the sport (and the business interests built around it) may be undermined.
Competition authorities in the UK and EU have sought to develop policies that manage this difficulty by focusing on two key issues: the management of conflicts of interest and the application of proportionality to rule making.
Conflict of interest for sports governing bodies
Given that many sports governing bodies have a dual role in, first, regulating the relevant sport and, second, carrying out commercial activities related to the sport, there is scope for conflicts of interest to arise.
Thus, for instance, a governing body will typically establish rules for the organisation of, and participation in, sporting events and may also be concerned with organising such events. In that scenario, there is a risk that the governing body may use its rule making authority in order to confer an advantage on its events business over those of other events organisers.
Competition authorities will typically take action (including through the imposition of sanctions) against governing bodies that fail to manage such conflict of interest risks.
This point was illustrated by the Italian Competition Authority (the ICA), in 2019, when it made the decision to impose a €450,000 fine on the Italian Federation of Equestrian Sports (FISE) for conferring advantage on its own equestrian events over others and, ultimately, abusing its dominant market position.
FISE has exclusive jurisdiction to organise national professional competitions in various equestrian disciplines. Importantly, FISE holds the regulatory powers to define the concept of professional sport activity. Therefore, while amateur competitions are organised by other sport bodies, through its regulatory powers FISE can unilaterally determine the range of competitions which only it may exclusively organise.
Following an initial ICA investigation in 2007, FISE committed to define the concept of professional sport activity on the basis of technical rules only, leaving amateur competitions open to other organisations.
However, FISE breached this commitment, using its powers to restrict the activities of amateur organisations by introducing two restrictive regulations and defining the concept of professional sport activity extremely broadly so as to include many amateur activities. Additionally, FISE began to render amateur competition organisation to its discretionary approval, sending letters of formal notice to the organisers of amateur competitions. In light of its failure to manage this conflict of interest and the resulting abuse of dominant position, the ICA found that FISE had violated EU competition law and imposed a large fine.
Proportionality (I) – impacts on core activity
The competition authorities recognise that sports governing bodies must have the ability to lay down rules (on such topics, for instance, as anti-doping or equipment standards) which inherently restrict the freedom of sport participants to compete as they wish; indeed, they recognise that the core values of the sport (such as the need for uncertainty of outcomes or the development of sportspeople) are likely to depend upon some degree of restriction.
However, the competition authorities will expect such restrictions to be proportionate, that is to say clearly motivated by a legitimate sporting interest and carefully tailored to achieving that objective without unduly restricting opportunities for competitors to innovate. This expectation calls for an approach to rule making which is transparent, objectively motivated and non-discriminatory.
An example of such behaviour occurred in 2020 in the Portuguese Football League (LPFP) when first and second league football clubs, as LPFP members, adopted a resolution agreeing to refrain from recruiting or hiring players from other clubs who had unilaterally terminated their employment due to the COVID-19 pandemic (the No-Poach Agreement). No-Poach Agreements are horizontal agreements that have negative effects on competition since they disturb the freedom of individual companies to hire, and deprive workers of labour mobility. Therefore, in August of last year, following investigation, the Portuguese Competition Authority (the AdC) ordered the LPFP to immediately suspend the agreement. The AdC determined the No-Poach Agreement to distort the normal functioning of the market and, notwithstanding the pandemic, there was still a prohibition on companies from entering into such anti-competitive agreements.
A long-running case relating to the proportionality of sporting regulations concerned the Ice Skating Union (ISU). As the sole regulator of ice figure skating and speed skating worldwide and composed of individual national associations (ISU Members), the ISU has the ability to impose binding eligibility rules on participants and competitions globally. This power came under scrutiny in 2017, when two professional ice skaters brought a complaint on the basis of the ISU’s Eligibility Rules. These imposed a lifetime ban on speed skaters who participated in any event not authorised by the ISU or ISU Members. As a result the ISU and ISU Members were essentially forbidding athletes from participating in non-ISU events. They justified this by suggesting that the pursued legitimate objectives, including:
- protecting the integrity of the sport;
- protecting the health and safety of the athletes; and
- permitting the proper organisation and conduct of competitive sport.
Following an investigation into the Eligibility Rules, the Commission concluded that the ISU justification was unsuitable and that the restriction of competition imposed by these rules was not inherent in the pursuit of the above objectives nor proportionate to achieving them. Consequently, the Commission ordered the ISU to end the infringement.
In 2020, the ISU appealed the Commission’s decision to the General Court arguing that the Commission had erred in finding that the Eligibility Rules restricted competition. However, the General Court upheld the Commission’s decision finding that “whilst it was legitimate for sporting bodies to ensure common standards for sporting events by means of a pre-authorisation system to protect the integrity of the sport, the key was to avoid unduly depriving third-party organisers from market access, and ensuring the rules were fair and proportionate”.
Proportionality (II) – wider market impacts
The rule making and standard setting activities of sports governing bodies may not simply constrain the competitive freedom of those engaged directly in those sports; they may also have impacts in related markets. Thus, a rule which imposes minimum equipment standards may restrict competition not only among the sportspeople using such equipment, but also among the manufacturers of the equipment.
The competition authorities will expect governing bodies to tailor their rule making activities so as to mitigate such wider market distortions, for instance, by taking steps to avoid discriminating unfairly in favour of certain firms or creating a situation in which certain firms may acquire undue market power.
There is an ongoing discussion in the sailing arena, regarding the Commission’s antitrust investigation into World Sailing, which started in 2018, aiming to ensure there will be fair and open competition for sailing equipment used at Olympic events. The investigation follows an initial complaint brought by Devoti, a European boat manufacturer, concerned by the actions of World Sailing’s move toward a system of single-manufacturer one-design for boats. This move meant that, following a tender process, World Sailing would choose a unique boat design for each competition. The one-design rule would dramatically restrict the accessibility of manufacturers which were unable to produce certain types of boats and could be forced to request licences from competitor manufacturers in order to be able to compete in the tender.
Usually, anti-competitive conduct is avoided where an open tendering process is followed. However, as some boat models have open intellectual property (IP) rights and others do not, Devoti argued that the tender process, which led to a choice of boat design rather than choice of manufacturer, gave advantage to manufacturers with effective monopolies on exclusively licensed designs.
In an attempt to address the complaint, World Sailing adopted a new licensing approach aimed at managing these tensions between competition law and intellectual property rights – the fair, reasonable and non-discriminatory licensing terms (Frand Terms). This move suggests that members will have to vote for a boat design that is available on Frand Terms for all manufacturers and seems aimed at encouraging monopolising manufacturers to make their boat designs available on fair and reasonable licensing terms.
However, the practicalities of the policy and the results of the Commission’s investigation are still awaited. It is hoped that this will shed more light on the Commission’s approach to the anti-competitive effects of restrictive sporting equipment standards and IP rights.
In 2020, the Belgian Competition Authority (the BCA) imposed measures on the Belgian Bumper Pool Association (the BGB) for anti-competitive conduct. The BGB imposed rules on the specification of balls that could be used in official competitions and matches, meaning that only balls produced by manufacturer Saluc could be used. Another ball manufacturer, HCSD BVBA, brought a challenge before the BCA over the exclusivity deals between Saluc and the BGB.
As an interim measure, the BCA permitted the BGB to stipulate the balls’ objectively determinable characteristics but to suspend the obligation to exclusively use Saluc’s bumper balls and to have the authorised balls determined for a maximum of two seasons on the basis of a non-discriminatory tender.
The interim measures imposed act as a suspension of the anti-competitive practices and ensure that any damage to the market is overcome urgently. This provides some insight into how restrictive equipment standards may be imposed whilst still ensuring competition rules are met.
For more information please contact Gordon Downie, a partner in our regulation and markets team, at gordon.downie@shepwedd.com, or Ella McIntosh-Farrelly, a trainee solicitor in our commercial disputes team, at ella.mcintosh-farrelly@shepwedd.com.