Sponsorship: Financial Fair Play and Competition Rules
Published 01 August 2011 By: Andrew Nixon
The multi million pound sponsorship and naming rights deal just announced between Manchester City and Etihad Airways has raised the issue of clubs seeking ways to circumvent the Financial Fair Play Regulations (FFP), which are due to be phased in by UEFA during the 2011/2012 season. It also provides an interesting debate about the impact of Competition Laws on long term sponsorship deals.
The impact on FFP
The focus of the regulations is to encourage responsible spending for the long-term benefit of football and the rules aim to measure "pure" football business, which effectively means gate receipts, broadcasting revenue and sponsorship income. The key regulations are 58 to 63, which impose an obligation on clubs to spend only the sums they generate from “operating income”. Clubs wishing to compete in the Champions or Europa League must meet maximum loss criteria, which is approximately £39m over three seasons. Back in February ' 11, The Sport Lawyer argued that the end of window spending frenzy undermined the whole ethos of the FFP. But does the Etihad deal raise similar concerns?
The first point to consider is whether or not sponsorship revenue falls within the meaning of "pure" football business, and quite clearly it does. Clubs are entitled to utilise their goodwill as sporting brands to generate income. This is entirely different to generating income through sideline business activity such as hotel or property purchases, which will not be taken into account when assessing operating income. The issue raised by many observers with the Etihad deal is that, on the face of it, it seems inflated and some of those same observers (including Arsenal manager Arsene Wenger) have suggested that the deal is an attempt to circumvent the FFP. There is some merit in this argument. Manchester City, along with Chelsea, rely heavily on investment from wealthy backers, so both clubs stand to lose out if they cannot meet the FFP requirements, which inevitably creates a motivation to explore other means of generating the same income. Clearly, and understandably, Manchester City will argue that market forces dictate what they can and cannot command for the naming rights to their stadium, and if a brand is prepared to pay a certain price to align itself to the club, then so be it; however, UEFA would be wise to monitor such deals, and if necessary investigate whether or not they are entirely 'arms length' arrangements. For the FFP to work, it must be credible, and to be credible UEFA must be prepared to police and enforce the rules. It will be interesting to observe how UEFA responds.
A Competition Law angle?
A further interesting academic discussion point from a sports law perspective is whether a sponsorship deal of this type potentially breaches the Competition Act and Articles 101 and 102 of the EC Treaty. It is now accepted that sport is not exempt from competition law. As noted in the European Commission's White Paper on Sport it has long been established (through case-law) that economic activities in the sporting context fall within the scope of EC law, and that includes EC Competition rules.
However, it is rare for a sports sponsorship deal to be caught by these rules as, generally speaking, the same market exposure can be generated through alternative promotional arrangements. Any argument that the Etihad deal breached competition law would be based on the fact that it is for an unusually long period of time, and it is a 'blanket' arrangement, meaning that it encompasses both stadium naming rights and shirt sponsorship. This, nevertheless, would not be sufficient to foreclose the market to potential sponsors, and there are numerous football teams and indeed numerous other sports that a sponsor could use as a platform. An exclusive broadcasting deal of similar term would inevitably catch the Commission's attention, but a complaint about a sponsorship deal, however long and wide ranging, is unlikely to get far.
By Andrew Nixon 'The Sports Laywer', Thomas Eggar.
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Andrew Nixon is a Partner in the Sport Group at Sheridans. Referred to in this year's Legal 500 as a “very bright and talented sports lawyer” Andrew's practice focuses principally on regulatory, governance, disciplinary, arbitration and dispute resolution within the sport sector. Andrew's clients include governing bodies, sports clubs, sports agencies and individual athletes.