Legal issues surrounding the English and French rugby clubs dispute with the ERC
European club rugby is in the midst of a destabilising power-struggle which has called into question the governance and ownership of its competitions and put in jeopardy the future of the Heineken Cup.
The announcement by Premier Rugby Ltd (“PRL”), the company that represents the 12 Premiership rugby clubs in England, together with its French counterpart, Ligue Nationale de Rugby (“LNR”), that they are to withdraw from the current Heineken Cup, European club rugby’s most valuable and prestigious competition, and set up a new competition has caused serious concern for European club rugby stakeholders and unveiled a number of complex political, commercial and legal issues which will need to be resolved in order to limit the potential damage from this fall out.
The PRL and LNR made their feelings known back in June 2012 upon serving the organisers of the Heineken Cup, European Rugby Cup Ltd (“ERC”), with the required notice to leave the competition once the agreement governing their participation runs out.1 Over 16 months have passed since then but it appears that the English and French remain determined to move forward with plans to revolutionise European club rugby competition.
Since its inception in 1995, European club rugby competition has had to overcome various stumbling blocks, such as the infamous refusal of the English and Scottish clubs to take part in the first year of the competition and then a few years later the decision of the English clubs not to participate in the 1998-99 season due to concerns with the way in which the competition was organised.2 The recent announcement by the PRL and LNR may, however, end up being more than a mere stumbling block, as there is the potential to significantly alter the structure of European club rugby competition and impact directly on the financial stability of clubs across Europe.
This article is going to investigate the underlying reasons for an Anglo-French breakaway. It will assess the implications that an Anglo-French departure from current ERC competitions may have for the various stakeholders, whilst also considering what the future might look like for European club rugby competition.
Reasons for the Anglo-French Rebellion
As professional club rugby has become increasingly more commercial, tensions have developed between the English and French clubs on one side and the ERC on the other. The PRL and LNR have long questioned the structure of the tournament and whether the distribution of revenue is fair. As a result, proposals have been put forward for a new tournament, provisionally named the “Rugby Champions Cup”, which will see a new three-tier tournament which will apparently have as one of its main objectives, a meritocracy in qualification and distribution of revenues.3
The issue of meritocracy in qualification has long been a frustration of the English and French clubs who have argued that the qualifying system of the current competition is inherently flawed. The PRL and LNR’s frustration stems from the fact that teams from the RaboDirect PRO12 league (i.e. Celtic and Italian club teams) can automatically qualify for the Heineken Cup regardless of where they have finished in their respective league based solely on the country in which they are located.4 This, it is argued, means that the best teams are not necessarily competing in the best competition i.e. the Heineken Cup. Indeed without fear of relegation in the RaboDirect PRO12 League, the Celtic and Italian teams are able to rest players on a regular basis to ensure that the key players are kept fit for what is considered the more important European matches. This is not the case in the English and French leagues where clubs are generally required to field the strongest team possible week in week out in order to compete in their respective domestic leagues and finish high enough in the table to ensure qualification for the following year’s Heineken Cup and also to avoid relegation.
(b) Revenue Share
Another source of dissatisfaction for the PRL and LNR has been with respect to the revenue distribution under the current format. English and French clubs have deemed this to be both unjust and unsustainable, particularly with respect to the correlation between their participation and the income they receive. Under the current competition it is claimed that the RaboDirect PRO12 league receives 52% of total revenues with the Aviva Premiership and French Top 14 each receiving 24%. Under the new competition it has been suggested that the English and French leagues would stand to more than double their incomes, whilst the clubs in the RaboDirect PRO 12 league would not be unduly affected.5 Some commentators have, however, questioned the revenue forecast to be generated and argue that the PRL and LNR will in fact benefit at the expense of the nations with fewer clubs involved.6
Implications of Departure
1. Governance of European Competition
It is envisaged that a new competition in the form of the Rugby Champions Cup will be governed by the clubs rather than the ERC. Proponents of a new competition point to the commercial nature of club rugby in Europe and argue that such a competition would prosper by being run by those entities actually involved in the competition.7 However, this has been criticised by some and most notably by the IRB. It is seen as an attempt by the clubs to usurp the role of the ERC (and the Unions) with regards to the commercial decision-making involved in running a European club competition including in respect of broadcasting rights and sponsorship. This may effectively reduce the Unions responsibilities to just dealing with disciplinary and refereeing matters. The concern with the Unions ceding control of the governance of the competition is that they will not only lose the day to day running of European competition but may also see a reduction in their income which will inevitably result in less funding available for the grass-roots of the game. It is arguable therefore that the desire for a club run competition, fuelled by the clubs striving to be profitable businesses, could in actual fact hamper the development of the game of rugby in the long term.
2. Impact on Calendar
The format of the new competition remains unclear at the current time. Suggestions are that the current Heineken Cup and Amlin Challenge Cup would be replaced with two tournaments consisting of 20 clubs in each (with a third competition for developing European nations). It has even been suggested that the European competitions may run from March to June, with the domestic leagues finishing in February.8 Whatever the format, a new competition may impact upon the rugby calendar both domestic and international. Such changes in the rugby calendar would likely accentuate the conflict of interest between, on one hand, the clubs attempting to run a profitable business and on the other, the Unions who have a vested interest in regulating and maintaining a successful national team. In recent years relations have at times been somewhat strained between the clubs and Unions, particularly in England and France, with respect to the release of players for International duty. A club run European competition may cause further problems between the two sides.
It is also likely that a change to the format and timings of European competition will have wider ramifications for the clubs’ commercial partners who may stand to have the value of their rights affected. If they lose value or suffer material detriment, they may look to invoke termination or refund provisions in their existing commercial agreements, if any such applicable provisions exist.
3. Club's Commercial Partners
One commercial entity that will have a significant interest in how the current situation unfolds is BT. Regarded as the “biggest deal in the history of club rugby”, BT entered into a four year agreement with PRL in September 2012 for the right to broadcast live Premiership matches, as well as the rights to European matches involving English clubs from the start of 2014-2015 season.9 With the value of the agreement worth approximately £152 million it is perhaps unsurprising that the PRL was willing to depart from the current broadcasting deal with BskyB (Sky Sports).
However, the purported BT agreement has caused controversy due to the fact that Sky claim to hold exclusive rights to broadcast Heineken Cup games in the 2014-15 season.10 In an agreement which was renewed in September 2012 (at the same time as the BT agreement), Sky purchased the rights to show exclusive live matches from the Heineken Cup and Amlin Challenge Cup for a further four seasons across the UK and Ireland. Questions have therefore been raised about the validity of the BT contract. Indeed the ERC was, it seems, granted the exclusive right to sell the broadcasting rights to its tournaments on the Unions’ behalf.11 IRB Regulation 13.2 prevents any ‘Rugby Body, Club or Person’ from agreeing a broadcasting deal except with the express written consent of the Union within whose territorial jurisdiction such Match is to be played and therefore the Unions’ position on this could be decisive.12
PRL, however, maintain that the BT agreement is valid and that there has not been a breach of the Sky agreement. Although the authors have not had sight of the Sky agreement, one would have thought that the Sky agreement would stipulate the number of matches to be played and require the involvement of clubs from England.
PRL claims that the ERC’s right to negotiate broadcasting deals on behalf of the Unions was only valid for television broadcasting rights up until the end of the 2013 - 2014 tournament and as such the extension of the Sky agreement was not legally valid because, having been given its notice by the PRL and LNR, the ERC did not have a tournament to sell. Furthermore, in an agreement dating back to 2007, the RFU agreed to grant PRL sole responsibility for ‘negotiating their own TV, media and sponsorship rights.’13
PRL also argue that, as its proposal is for a new European competition distinct from the Heineken Cup, it is not infringing the broadcasting rights of Sky as its Rights are in relation to the Heineken Cup. Therefore, the BT agreement offers the English Clubs the ability to break away from the Heineken Cup (where live games are broadcast on Sky Sports) and still ensure that the European matches which involve them are televised live on the BT Sport channel.14 Without this BT agreement it is arguable that the PRL would not be in a position to propose such a new competition.
There may also be questions raised from a competition law perspective if the way in which broadcasting rights to any new tournament are licensed is not deemed to have been done in an open and transparent manner. The precedent for this comes from a decision handed down by the European Commission in 2003.15 In an attempt to increase competition for the sale of television rights for football events, the European Commission held that all media rights for football events should be sold via a tender procedure consisting of packages which were limited in scope and length. Although the guidance from the European Commission was in the context of selling rights to the UEFA Champions League, the European Commission might take a similar approach here as this is an important competition in a major sport.16
4. Celtic and Italian clubs on the periphery?
The effects of an Anglo-French club breakaway is likely to have significant implications for the Celtic and Italian clubs. The Heineken Cup and Amlin Challenge Cup have been instrumental in developing the professional game in these countries. The concern for the Celtic and Italian Unions over a restructuring of European club rugby is that it will inhibit their clubs ability to compete against the top club sides in Europe which will inevitably cause a deterioration in the quality of rugby available and a gulf in the standard being played in different countries.
Without the attraction of European competition, club sides in Italy, Scotland, Ireland and Wales may struggle to attract the big name signings, and with it the valuable commercial partners, that they have been able to in past seasons. This may also accelerate the current trend which has seen players move to clubs in England and France in order to secure increased remuneration and arguably exposure to a higher quality of rugby on a more regular basis.
It is perhaps unsurprising therefore that the four Welsh clubs have recently expressed their intention to join the English and French clubs in the breakaway competition. It is a move which is contrary to the stance taken by the Welsh Union which has, with the support of the French, Irish, Scottish and Italian Unions, backed the continuation of the Heineken Cup albeit in a revised format without the participation of the English clubs.17 It is significant that the recent meeting between the five Unions, in which they claimed to stand “side by side” in support for the Heineken Cup, excluded the RFU. It is perhaps a sign that the RFU, and by association the PRL, are in danger of becoming isolated in this matter.
As it stands, without any certainty as to European competition going forward, the clubs and the Unions will be unsure of their budgets from next season onwards and may consequently struggle to offer the financial security that professional players will be looking for.18
Future of European Club Rugby?
Whether the actions of the PRL and LNR are a serious threat to the current format or merely a negotiating tactic remains to be seen. What is clear is that the ERC remains determined to find a solution to the current impasse. A mediation meeting between the six Unions chaired by the lawyer and mediator Graham Dew was held at the end of October in an attempt to resolve matters. Although the meeting was perceived to have brought about a, “consensus among those present on two key principles of competition format and distribution of revenues,”19 it was perhaps significant that neither the PRL nor the LNR had a representative present. The parties present at the meeting agreed that:
- the Heineken Cup would be re-formatted so that it would consist of 20 teams (rather than the current 24) with six from the Premiership, six from the top 14 and seven from the RaboDirect PRO 12 league. In the first year, the 20th club would be the winner of a play-off match between 7th place clubs in the Premiership and the Top 14; and
- revenues would be distributed evenly between the leagues rather than the Unions with a stipulation that “monies to be received by the PRO 12 countries would not be less than current levels”.
The absence of two key stakeholders from the meeting raises questions with regards to the relevance this consensus may have, particularly as an effective European competition will inevitably rely on the participation of the English and French clubs. The longer this impasse continues the greater the possibility that there will be rival competitions being played, which is likely to be both financially and commercially difficult to sustain as well as being of less interest to rugby audiences (both live and TV).
With the possibility that a lack of one Europe-wide competition may cause the Celtic and Italian clubs to go into serious financial difficulty, the PRL and LNR will no doubt recognise that it is not necessarily beneficial for them to break away entirely from the teams competing in the RaboDirect PRO12 League. It is expected that the Rugby Champions Cup, if it materialises, will reflect this. One only has to look at the teams that have won the Heineken Cup in the past 10 years to recognise that these nations, and in particular the Irish clubs, have been highly competitive and would increase the overall standards and help maintain the interest of the fans who have become accustomed to seeing Europe’s top clubs battle it out in a single Europe-wide competition over several years.20
It is not necessarily the case that all English and French clubs share a unified support for the new proposals by PRL and LNR. Some clubs, particularly in France, would rather concentrate their efforts on the domestic league. Maourad Boudjellal, the president of the current Heineken Cup champions Toulon, has stated that he would pull his club out of a new Anglo-French competition as a reaction to attempts by the LNR to limit the number of foreign-trained players eligible for Top 14 clubs.21 It is also unclear whether the French Union (“FFR”) shares the same outlook as the LNR. Under French Law, “no meeting or international competition involving French clubs can be organised outside the framework of the FFR and without its prior agreement.”22
It will be interesting therefore to see what the RFU’s and FFR’s final standpoint is given that a breakaway competition would have potentially greater commercial benefits and at the same time be more meritocratic in nature. This said, the conflicting views and proposals may prove to be academic in the long run due to the fact that a new competition would also need to be ratified by the IRB. The IRB may, therefore, hold the trump card in all of this. The RFU and FFR would have to approve their respective clubs’ departure from the Heineken Cup in its current format before the IRB would consider supporting the introduction of a new competition.23
If any of the Unions do block their clubs from playing in a new “Rugby Champions Cup” then this could end up restricting the quality of rugby competition available and therefore harm the Unions in the long run. It also raises the issue of whether such action by the Unions could amount to a restraint of trade on the players. On the other hand if the Unions allow the clubs to form their own competition outside of its (and the ERC’s) control then its raison d’etre will come into question. The RFU (and the FFR) is therefore in a difficult situation. As an ERC shareholder it would want the ERC to succeed and it could be argued that it has a fiduciary duty to act in the ERC’s best interest. However, under Rule 4.10 of the RFU regulations the RFU has a duty to promote and organise competition for its clubs which would inevitably involve supporting the Anglo-French proposals for a new European competition.24
The future of European rugby is currently at a crossroads. It is difficult to put any accurate timeframe on when these matters will be resolved.25 However, what is clear is that the longer the uncertainty continues the harder it will become for clubs and commercial partners to plan for next season and commit to expenditure, which could damage the long term health and reputation of the European club rugby game.
Update 29 November 2013: There have today been reports that the French clubs have voted to stay with the ERC. An update will be provided in the next few weeks.
1 The current agreement with European Rugby Cup Ltd provides that participation of clubs is due to finish at the end of the 2013-2014 season.
2 Paul Rees, “Big Boys plan for more lucrative Heineken Cup”, 30 March 2006, https://www.theguardian.com/sport/2006/mar/30/rugbyunion.gdnsport3, accessed 2 October 2013.
3 Gavin Mairs, “Heineken Cup rebels reject last-ditch talks with European Rugby Cup”, (23 September 2013), https://www.telegraph.co.uk/sport/rugbyunion/club/10329528/Heineken-Cup-rebels-reject-last-ditch-talks-with-European-Rugby-Cup, accessed on 4 October 2013.
4 Gavin Mairs, “English Premiership clubs open rift with Celtic nations over Heineken Cup qualification” https://www.telegraph.co.uk/sport/rugbyunion/club/9298558/English-Premiership-clubs-open-rift-with-Celtic-nations-over-Heineken-Cup-qualification, accessed on 28 September 2013.
5 Paul Rees , “English and French clubs agree to play in new tournament in 2014”, (10 September 2013) https://www.theguardian.com/sport/2013/sep/10/heineken-cup-clubs-new-competition, accessed 24 September 2013.
6 Nic Verdier and Jeff Probyn, “Proposed Heineken deal leaves Rabo with Peanuts”, (30 August 2013), https://www.therugbypaper.co.uk/features/columnists/jeff-probyn/10722/jeff-probyn-proposed-heineken-deal-leaves-rabo-with-peanuts/, accessed 28 September 2013.
7 Tom Hamilton, “Wray says Heineken Cup statement ‘irrelevant’,” https://www.espn.co.uk/heineken-cup-2013-14/rugby/story/206899.html, accessed 25 November 2013.
8 Premiership Final to be played in February, The Guardian (17 September 2013).
9 Andrew Baldock, “BT Vision boss Marc Watson reveals plans for ‘dazzling new European tournament”, (13 September 2012), https://www.independent.co.uk/sport/rugby/rugby-union/club-rugby/bt-vision-boss-marc-watson-reveals-plans-for-dazzling-new-european-tournament-8135256.html, accessed 30 September 2013.
10 “New European Rugby deal for Sky”, (12 September 2012), https://www1.skysports.com/rugby-union/news/12332/8074296/New-European-rugby-deal-for-Sky, accessed on 24 September 2013.
11 “Row Brews over new European Deal” (12 September 2012) https://m.bbc.co.uk/sport/rugby-union/19580339, accessed 16 October 2013.
12 IRB Regulations, https://www.irb.com/mm/document/lawsregs/regulations/04/23/23/42323_pdf.pdf
13 “RFU and PRL sign new eight year agreement” (15 November 2007), https://www.rfu.com/news/2007/november/news%20articles/rfuandprlsignneweightyearagreement, accessed on 3 October 2013.
14 “Row brews with ERC over Premier Rugby European TV deal”, (12 September 2012), https://www.bbc.co.uk/sport/0/rugby-union/19580339, accessed on 3 October 2013.
15 European Commission decision of 23 July 2003, (2003/778/EC) accessed at https://new.eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32003D0778 on 25 November 2013.
16 https://ec.europa.eu/competition/publications/cpn/2003_3_47.pdf, accessed 25 November 2013.
17 “Heineken Cup backed by Celtic, French and Italian Unions”, https://www.bbc.co.uk/sport/0/rugby-union/25045015, accessed 25 November 2013.
18 “Sam Warburton: Heineken Cup row stalls new Cardiff Blues deal”, (30 September 2013), https://www.bbc.co.uk/sport/0/rugby-union/24322797, accessed on 3 October 2013.
19 https://www.ercrugby.com/news/25300.php, accessed 20 November 2013.
20 Leinster and Munster have won 5 of the last 9 Heineken Cup competitions.
21 Gavin Mairs, “Heineken Cup holders Toulon threaten to boycott breakaway Rugby Champions’ Cup”, (17 October 2013), accessed on 20 October 2013.
22 Mark Souster, “French leave no doubt as to stance on cup proposal,” (23 September 2013), www.thetimes.co.uk, accessed on 24 September 2013.
23“Unions must approve alternative plan - IRB”, (18 September 2013), https://www.bbc.co.uk/sport/0/rugby-union/24149742, accessed on 3 October 2013.
24 https://www.rfu.com/thegame/~/media/files/thegame/regulations/rfu_rules_2013.ashx, accessed on 14 October 2013.
25 Paul Rees, “Premiership Rugby defies IRD to block plans for new ‘Champions Cup”, (22 September 2013), https://www.theguardian.com/sport/2013/sep/22/premiership-rugby-champions-cup, accessed on 3 October 2013.
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- Tags: Broadcasting | Commercial Law | Competition Law | Contract Law | Europe | France | Governance | Regulation | Rugby | United Kingdom (UK)
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Michael advises on a wide range of commercial and regulatory matters relating to the sports industry and has particular expertise in advising on all forms of sponsorship. He also specialises in event staging arrangements and image rights exploitation and has experience of working with clients operating in a wide range of sports including football, cricket, rugby, golf, tennis, boxing, athletics, F1, sailing and powerboat racing.
Derry is a Trainee Solicitor, undertaking his final seat in the Sports Group at Harbottle & Lewis LLP. He has worked on a range of commercial agreements for clients within the sport industry and has a particular interest in matters relating to the acquisition of rights. Derry has worked with sports governing bodies, professional football clubs, Olympic athletes and sports managements agencies on a variety of matters.