Welcome to ‘Who’s Competing’ …

‘Who’s Competing?’ is a Competition Law & EU Law Blog maintained by Angus MacCulloch of Lancaster University Law School created to support and inform my competition law research and teaching. Should a legal development strike me as interesting or important I’ll use this blog to explain what’s going on.

The European Super League: All for Some, and None for All

By Angus MacCulloch, Barry J Rodger, and Bev Williamson

The proposal to establish a European Super League (ESL), announced by Twelve ‘Founding Clubs’, breaking away from the current UEFA structures lasted for less than 48 hours before fan outrage, political controversy, and threats from football’s governing bodies led to its collapse. The ESL would have seen 20 clubs play midweek fixtures in two groups of 10 clubs. The twenty sides would be formed from fifteen teams that were permanent fixtures in the ‘competition’ joined by with 5 other teams brought in through an undisclosed process.  

We, as competition lawyers, had a particular interest in aspects of this doomed plan. There are potentially two main competition angles to this story. The first issue is whether the agreement between the individual football clubs to set up the ESL could be anti-competitive and fall foul of the Chapter I prohibition, under the Competition Act 1998, in the UK, or be contrary to the equivalent EU competition prohibition found in Article 101 TFEU. This piece will focus on this first competition law issue. Basically, if an agreement is considered to restrict competition and is caught by the prohibitions, the UK and EU competition authorities may take enforcement action, and require the parties to desist from participating in the agreement and, if implemented, could impose a substantial fine.  Following Brexit parallel action may be taken by the UK Competition and Markets Authority (‘CMA’) under UK competition law and simultaneously by the European Commission under EU competition law, applying similar rules in both jurisdictions. Furthermore, any commercial arrangement which falls foul of the competition rules is void and would be unenforceable in the domestic courts of the UK or any EU Member State. The second potential competition issue arising from the creation of a break away League concerns whether the football’s existing governing bodies, the national FAs, UEFA, and FIFA can legitimately adopt retaliatory sanctions, by expelling teams from competitions or barring players from playing international football. We don’t have time today to discuss that issue, but we may return to it.  

Creating a Competition by Restricting Competition 

To create any professional sporting competition you need an agreement between all the competitors. The agreement sets out the sporting ‘rules’ of the competition. That is not problematic in competition law terms. The competition problem comes from the ‘commercial’ aspects of many of these agreements. Both UK and EU competition law have specific rules (Chapter I 1998 Act and Article 101 TFEU) which prohibit agreements between undertakings (i.e. businesses undertaking commercial activities) which in any way restrict or limit competition. We didn’t see the detail of this proposal but it would, no doubt, include the joint selling of broadcast and commercial rights associated with the competition, and inevitably other terms that set out how that income is to be distributed to the ‘Founding Clubs’ and other participants. Football clubs are competing commercial entities in their industry, and the assumption implicit within free markets is that the competing undertakings should be competing with each other; not only on the field, but also in all the commercial aspects of their business. Jointly pooling their commercial interests, in a body such as the PL or ESL, is a clear and obvious agreement to restrict commercial competition between them. They pool and jointly sell those commercial rights to maximise their income. In any ‘normal’ competition analysis this would be a cartel. So how do sporting competitions get away with it? 

Here we turn to the ‘specificity of sport’ (Art 165 TFEU) – essentially sport has been recognised under EU law as being different or requiring special treatment to some extent. For sports to work there need to be competitions – the value in sport comes from structured competition, and to produce successful competitions the law accepts that some mechanism of solidarity, or pooling of resources, is necessary to ensure that all the sporting participants benefit from that competition.  Individual teams are unable to produce the end product alone. Teams are therefore dependent upon their rivals for their own sporting and commercial success, and cooperation (or collusion) between teams is required and permitted. That is not a controversial proposition. But the competition authorities also recognise that there must be limits. Allowing enough cooperation for sporting competition to thrive, but not permitting exploitation of commercial rights that would create a monopoly resource to exploit their consumers. The main commercial limitation on competition found in such agreements is the joint selling of broadcast rights. Joint selling would not normally be permitted between ‘competing’ businesses. We can see that balance being stuck in cases like UEFA Champions League, FA Premier League, and Bundesliga. Joint selling stemming may be the only effective means to exploit those commercial rights (see The Racecourse Association v OFT [2005] CAT 29), but there will usually be some limitation on the extent of that right. 

The Specificity of Sport 

So, it’s something that gets approved all the time – what’s the difference between the Champions League and the ESL? Well, fundamentally, the ESL proposal was nothing like any other football competition! 

In most leagues the pooling of rights and other commercial restrictions may be justified as necessary to allow the ‘sporting’ benefits to flow from the competition. This is a form of solidarity between the participants for the wider benefit of the sport, its participants, and its consumers. The financial value created by the competition is used for the benefit of the sport, by creating a viable and sustainable mechanism for sport to be enjoyed. In professional sport you will often see other solidarity arguments whereby ‘elite’ competition, which is more commercially marketable, is used to generate income that can then be used to support and develop the wider sport, either through the sporting ‘pyramid’ and support for lower level leagues, or through direct grassroots funding. One can easily see how that argument would seek to compensate the downside of the restriction of competition, through the positive ‘sporting’ benefits of a sustainable competitive structure, the benefit of the participants and the consumers (the fans) of the sport, and financial support for the wider good of participatory sport at all levels. The distribution of benefits is important for competition law. The test employed for assessing harm, or benefits, is ‘consumer welfare’. The consumer of sport is supposed to be at the centre of this assessment. It was the lack of concern for the wider football community that was the ESL proposal’s downfall. 

Show Me The Money 

The fundamental problem with the ESL proposal is identifying what the ‘sporting’ benefits of the new competition are. It’s clear that there are financial benefits for the ‘big’ clubs setting up this structure. But a financial benefit to a group of businesses which should be competing but come together, as cartelists would do, is exactly the competitive harm that competition law seeks to control. It is the extraction of a monopoly profit from the fans who have to pay to access the product. If there is ‘harm’ on that side there must be a sporting benefit on the other side to counterbalance it. It is very hard to see where that may come from. Every aspect of the proposal seems designed to secure financial advantage for the ‘Founding Clubs’. The design of this closed league reserves to them the commercial benefits of their current status for all time, and protects them from other clubs entering their valuable commercial operation. Entry is controlled by them for their advantage. Mechanisms of promotion and relegation, which are considered central to the European model of sport, ensure that entry to valuable commercial leagues is open to clubs on sporting grounds – the ESL is gated for purely financial reasons. We have seen little evidence of what the ESL intended to give back to the wider sport, but their vague reference to the future launch of a women’s league, would be unlikely to fulfil this obligation of solidarity. One argument that the ESL may make is that it would bring an exciting new ‘product’ to the market. But it is hard to see how that ‘product’ would be better for the consumer, the fans, than the existing product that we already have. It merely recreates many of the aspects of an existing product, like the Champions League, but secures more of the financial benefits that come from that product for a smaller number of clubs. That is not a consumer benefit that competition law can recognise to justify a further restriction of competition. 

Cartel or Mechanism of Solidarity 

The only way that an agreement, like the ESL proposal, which creates a fundamental restriction of competition, can be maintained is by making a compelling argument that the competitive restrictions put in place are justified on sporting grounds, are indispensable to the achievement of those sporting objectives, and are no more than is necessary to achieve those objectives (see Meca Medina).  As we have indicated above there is very little so see so far that would convince either the CMA or the European Commission that this proposal like this is anything other than an attempt to secure more financial benefits for those that have proposed it. 

Legal challenges to proposals like this are likely. Any entity which finds itself impacted by a new arrangement, be that a club excluded from the competition, a national League or FA, or a supporters’ group, could bring a challenge directly to the courts in the UK or the EU. In either context the burden of proof comes into play. Under the Chapter I/Article 101 TFEU prohibitions a party challenging an agreement must prove that the there is a restriction of competition for the prohibition to ‘bite’. In the case of an agreement like this the restriction is plain and well understood. At that point the burden shifts to the party seeking to rely on the agreement to prove that the all the restrictions are necessary for the sporting benefits of the agreement to be achieved. That is a significant task.  A task that many of the Founding Clubs have now recognised they cannot overcome. Now that the collapse of the ESL looks likely, the focus will turn to UEFA and FIFA’s response to the Founding Clubs. That is where the question of potential sanctions come in, but that is another story … 

Full Disclosure: Angus MacCulloch is the Club Secretary of Bowerham Juniors FC, a club affiliated with the Lancashire FA entering teams in the Lancaster & Morecambe STY League. Bowerham Juniors FC have not been asked to join the ESL. 

Two Wrongs Making Sporting Media Rights

It was big news that DG Comp officials, supported by their domestic counterparts, raided a number of sports broadcasters, including Fox in the UK, in relation to an investigation into a suspected cartel in relation to ‘media rights and related rights pertaining to various sports events’. As the investigation is ongoing there is relatively limited public information about the broadcasters who are targets of the investigation or the particular sports rights which are involved – of course there may be no cartel involved and the Commission may find nothing awry. However, as a great many dawn raids are triggered by a leniency application there may well be something afoot.

It is clearly too early to discuss the actuality, but it may be interesting to raise a, potentially heretical, question about one potential type of cartel in relation to sports media rights and ask some interesting questions.

Surveillance and Civil Enforcement: Lessons from Balmoral Tanks

The CAT judgment in Balmoral Tanks [2017] CAT 23 is the latest in the Galvanized Steel Tanks Cartel – the UK cartel case that just keeps giving. It brought us the first UK based guilty plea under the original UK cartel offence, and then the first proper cartel offence trial which resulted in acquittals. This is the appeal against the CMAs ‘Information Exchange’ Decision that Balmoral had been party to an Art 101 TFEU concerted practice during a single meeting in July 2012. The appeal gives us a fascinating insight into the interaction between the criminal and civil investigations in this case, and the nature of unlawful information exchanges.

The Law Society: on course for future breaches of UK competition law?

By Diana Johnson, Senior Lecturer, University of the West of England

Case 1249/5/7/16 Socrates Training Limited v The Law Society of England and Wales [2017] CAT 10, 26 May 2017

The Law Society of England and Wales has been successfully sued by a provider of online training, Socrates Training Limited for breach of both the Chapter I and II prohibitions of the Competition Act 1998.

Uber Judgment – You are workers, but we are not a cartel …

The Uber judgment from the UK ET, which was released, this afternoon is the first stage in what will no doubt become and important litigation for the future of the ‘gig economy’ in the UK. Employment lawyers will be the first to feel its impact (if my colleagues schedule of hastily arranged press interviews is anything to go by) but if this interpretation of the arrangement between Uber and its drivers stands in the UK it will also have an impact on competition law.

The first impressions of the judgment. on twitter at least, suggest that when a driver has the app switched on and they are accepting rides they are ‘workers’ for the purposes of UK employment law. This is controversial as Uber have always argued that the drivers are self-employed independent contractors and do not have a ‘worker’ relationship with the firm. If they are workers it will caused issues for Uber as workers have certain rights, for instance in relation to minimum wage and holiday pay, which Uber must ensure.

The finding of worker status for Uber drivers has an interesting positive for Uber outside the employment context. It protects Uber from a raft of potentially difficult competition law issues. The biggest ‘win’ for Uber in this regard is that the difficult question of how it is lawful for the Uber app to fix prices for ‘independent contractors’ is avoided. As the Uber drivers are now workers any agreement/arrangement they have with Uber on pricing takes place within an undertaking and competition law scrutiny under ART 101 TFEU, or its domestic equivalent, is no longer relevant.If Uber drivers were independent Uber would have had to make a difficult Art 101(3) argument that the common pricing structure, essentially a hub-and-spoke cartel of sorts, was a necessary part of its business model, and even with such a hard-core competition restriction the agreement worked to the benefit of consumers. It is not impossible to contemplate such an argument, but it would not have been any easy task.

Given that this is only an ET judgment there is still plenty to play for, as it is bound to go to appeal. The only certainty is that if the employment lawyers don’t get Uber, the competition lawyers will …

CLaSF Workshop on ‘Competition Law and Enforcement Priorities’

The next CLaSF workshop on ‘Competition Law and Enforcement Priorities’ will be held in association with UCD Sutherland School of Law, Dublin on Friday 16 September 2016.

The full programme for the Workshop can be seen on the CLaSF website. One of the highlights will be a keynote speech from Professor William E. Kovacic, George Washington University Law School.

#NotMyBrexit and Competition Law

The last few days have been whirlwind of bad news and questionable choices. Both major UK political parties are in disarray, and the only forceful political voice with a clear way forward comes from the SNP.

It will be of no surprise to anyone that I supported Remain. My support was with a heavy heart; not because I have less than full support for EU Membership, but because the campaign itself was woeful. There was a failure to make a positive case for EU Membership – no doubt because the Tory leaders of the Remain campaign had taken every opportunity to blame the EU for all the UK’s ills in the decade before the referendum.

We can see now that what Leave dubbed as ‘Project Fear’ is becoming ‘Unfortunate Reality’. The consequences of a political decision to leave the EU will be dwarfed by the consequences should we ever actually do so.

The only chink of light going forwards is that the UK has not yet decided to Leave the EU, never mind the more consequential step of notifying the European Council of its formal intention to do so, thereby triggering the withdrawal process under Art 50 TFEU. As there appears to be no ‘Plan A’ for the UK’s post Brexit engagement with the EU 27 I cannot see how there can be any desire for the UK Govt, who exercise such Prerogative powers, to rush towards triggering Art 50, even if they can come to a decision whose hand should be on the tiller.

I that time I hope there is the opportunity for Parliament to exercise its sovereignty and exercise control on the Govt to avoid any rash steps, driven by the internal division within the Conservative Party, that would put the UK’s trading relationship with the rest of the EU in jeopardy. It is perhaps difficult after the tumult of the last few days to hope that wise heads might prevail, but I still hold that hope.

As to competition law I am more optimistic. In substantive terms I don’t think that there would be desire, even from the most ardent Europhobe, to address the EU’s influence on competition law as one of the 1^st pieces of UK reform; there are far more obvious areas where de-regulation might be more appealing. Given the CMAs position in relation to competition policy I also see limited internal push for the UK reforms; although there is perhaps reason to think that the formalistic line taken by the CJEU in relation to Art 102 TFEU, might not be followed so slavishly by the CMA and the UK Court’s if they were freed up from s 60 of the 1998 Act. There are larger questions surrounding the UK’s continued participation in the EU Merger Regulation and within the ECN should the UK leave the EU. While the substantive rules in mergers or antitrust may be very similar in in the UK and EU the loss of effective cooperation between the CMA, DG Comp, and the 27 NCAs will reduce the effectiveness of competition law enforcement across the UK and the EU 27. The loss of the UKs voice in competition policy debates within DG Comp and the ECN could lead towards  a more interventionist stance in EU policy; which would , rather ironically, potentially impact on the the activity of significant UK firms in vital EU markets.

I hope the UK will continue to have a good trading and competition law enforcement relationship with the rest of the EU for a long time coming. I’m not ready to file away my copy of the Treaty quite yet.

For a video that explains the impact of Brexit on Competition Law from Oke Odudu, see:

https://youtu.be/MXWth0e4whQ

Once More unto the ‘Object Box’

Case C-345/14 Maxima Latvija (ECLI:EU:C:2015:784)

The Court of Justice of the EU has once again handed down a judgment which discusses ‘object’ agreements under Art 101(1) TFEU in Case C-345/14 Maxima Latvija. It adds a little clarity to some of the potential confusion that comes from different forms of wording in previous judgments such as Allianz Hungária and Cartes Bancaires.

Steady as Art 102 Goes …

The Court handed down its judgment in Case C-23/14 Post Danmark today. The judgment itself is not particularly surprising, in that it largely follows previous judgments of the Court in earlier Art 102 cases. The main feature of note is what the Court didn’t do: it again declined an opportunity to either follow or discredit the so-called ‘more economic approach’ to the abuse of a dominant position.

First UK Cartel Offence Aquittals

The news broke yesterday that the first fully contest trial in relation to the ‘old’ UK cartel offence results in both defendants being acquitted after the jury deliberated for “only a couple of hours”. As the ‘old’ cartel offence is no longer with us, being substantially amended in ERRA 2013, the wider impact of the acquittal might be perceived as being limited, but there are still lessons to be learned from what we know about the acquittal.