Why sports federations are under increasing scrutiny from competition authorities

Published 19 December 2017 | Authored by: Viktoria Tsvetanova

Sport governing bodies are responsible for upholding fair competition in their respective sport, but are they themselves abiding by competition rules? This is a question the European Commission and national competition authorities are seeking to address.

In recent years, competition authorities have demonstrated an increased interest in the sports sector. To date, skating,[1] horse riding,[2] tennis,[3] football[4] and bodybuilding[5] governing bodies have been investigated. Most recently, in October 2017, a meeting was rumoured to have taken place between the European Commission and the European national competition authorities to discuss coordinated investigations into the rules imposed by sport federations.[6] Coincidentally, at the end of October, the German national competition authority (the Bundeskartellamt) commenced an investigation into the German Olympic Sports Federation and, by extension, the International Olympic Committee (IOC),[7] which sets the rules that the national body enforces.

To examine this issue, this article will look at:

  • The application of EU competition rules to sport governing bodies;

  • What sparked competition authorities' increased interest in the rules implemented by sport governing bodies;

  • The German national competition authority's investigation of the German Olympic Sports Federation;

 

How do EU competition rules apply to sport governing bodies?

The European Commission and national competition authorities aim to safeguard competition and maintain a level playing field on the market place. Bodies which engage in an economic activity (“undertakings”) are subject to competition rules in relation to those activities. Sport governing bodies typically hold events and run competitions which are commercial activities in themselves, and have valuable commercial opportunities associated with them. Accordingly, it is widely accepted that sport governing bodies are considered “undertakings” for the purposes of EU competition law with respect to such activities, and are subject to sanctions if they act anti-competitively.[8]

European and national competition law reaches beyond geographic borders. Competition authorities have jurisdiction when competition is affected in their geographic market, regardless of where the infringement originated.[9] Accordingly, international sporting bodies will not fall outside the European competition authorities' enforcement radar just because they are geographically based outside its borders. In particular, therefore, the fact that most international federations have their seat in Switzerland does not provide them with immunity against the application of EU competition law.

Competition law prohibits agreements between undertakings and decisions by associations of undertakings which have the effect or the objective of distorting competition (Article 101(1) Treaty  on the Functioning of the European Union (TFEU)).[10] An agreement may be exempted from the Article 101(1) TFEU prohibition if it can be shown that (1) it creates benefits, (2) these benefits can be passed on to consumers, (3) the agreement (and each individual restrictive provision) is necessary for the achievement of these benefits, and (4) the agreement does not eliminate competition.[11] In a regulatory context, an agreement may also fall outside Article 101(1) if it is justified, as explained below.

Sport governance typically operates on a pyramid structure, where an international federation sits at the top of the pyramid, with continental federations underneath, followed by national governing bodies. Each organisation oversees the implementation of the rules set by the higher organisation(s), and sets its own rules to regulate its region. International governing sport bodies usually set rules with the consent of the continental and national federations; the latter are then responsible for the implementation of those rules. Accordingly, these rules may be considered decisions by associations of undertakings for the purposes of Article 101 TFEU (and equivalent national rules).[12]

Competition law also prohibits unilateral abuse of a dominant position (Article 102 TFEU).[13] An undertaking is “dominant” if it is in a position of economic strength and has the power to prevent effective competition on the market. An undertaking is considered to have this power when it is capable of behaving independently of both its competitors and its customers. Sport governing bodies are in this position of strength since they hold sole jurisdiction over their sport in their territory, implementing rules and organising events. They are thus likely to be considered dominant.  However, being dominant in itself is not illegal. Conduct becomes illegal when it constitutes an unjustifiable abuse of this dominance. An example of an abuse of dominance could be the complete foreclosure of a market to competitors.

Generally, a sporting rule capable of restricting competition may be justified if it pursues a legitimate objective, and if it is proportionate and necessary for reaching that objective (thus remaining compatible with EU competition law, both in terms of Article 101 TFEU in the regulatory context and 102 TFEU).[14] The test may not be met if the objective pursued can be achieved by the imposition of a less restrictive rule.

 

What triggered competition authorities' increased interest in the rules of sport governing bodies?

Competition authorities' interest in sport governing bodies is not novel, either at national sport federation level[15] (bottom of the pyramid) or international sport federation level[16] (top of the pyramid).

For instance, at international level, the European Commission concluded that the International Skating Union's (ISU) rules were anti-competitive.[17] The ISU prohibited athletes from participating in unauthorised (by them) speed skating events, and penalising them with a ban from participating in international events, including the Olympic Games, if they failed to obey. The Commission deemed that the restriction on athletes effectively prevented independent bodies from organising speed skating events in competition with the ISU because they knew that athletes would not attend under threat of a ban from the biggest and most important competitions. Similarly, the Belgian National Competition Authority opened an investigation relating to the International Horse Riding Federation for its alleged anti-competitive exclusivity clause which prevented riders, horses and officials from taking part in non-approved events for a period of six months prior to an event organised by the Federation.[18]

While these cases only relate to sport governing bodies' exclusionary practices towards competing events, they seem to have sparked competition authorities' interest in the wider rules of sport governing bodies. In the author’s view, it is unlikely to be a coincidence that a meeting may have taken place between the European Commission and national competition authorities to discuss coordinated investigations into sport federations at the same time as the International Skating Union case was nearing its conclusion. The European Commission and national competition authorities seem to now be gearing up to assess whether rules implemented by sport governing bodies might also be anti-competitive.

 

Rule 40(3) Olympic Charter under assessment

Prompted by a complaint from the Federal Association of the German Sporting Goods Industry,[19] and coincidently only three weeks after the rumoured meeting between the European Commission and the national competition authorities, the German national competition authority (the Bundeskartellamt) initiated an investigation into the rules of the German Olympic Sport Federation. Specifically, the Bundeskartellamt will examine the potentially anti-competitive effects of the controversial Rule 40(3) of the Olympic Charter. The Olympic Charter is an instrument created by the International Olympic Committee (IOC) and implemented by the national Olympic committees (NOCs), amongst which is the German Olympic Sport Federation.[20] Therefore, while the investigation officially targets the German Olympic Sport Federation, it is indirectly focused on the IOC.

Rule 40(3) of the Olympic Charter generally applies from nine days prior to the Opening Ceremony of the Olympic Games, to three days after the Closing Ceremony (the “blackout period”), and states that:

except as permitted by the IOC Executive Board, no competitor, coach, trainer or official who participates in the Olympic Games may allow his person, name, picture or sports performances to be used for advertising purposes during the Olympic Games”.[21]

In practice, this rule prevents athletes from mentioning their personal sponsors during the blackout period, unless that sponsor is an official Olympic Games sponsor. On their part, during that period non-official Olympic sponsors are prohibited from using their sponsored athletes’ photos in combination with their brand, and from using Olympics related logos and words (such as “Olympics”, “gold”, “effort”, “performance” and “victory”) in marketing material.[22] Ultimately, this rule seeks to grant official Olympic sponsors exclusive access to the Olympic Games, and to prevent the impression of a commercial connection between non-official sponsors and the Olympic Games.

Athletes have long called for this rule to be overturned[23] in a bid to allow their sponsors to openly support them during the (arguably) most important competition of their career, and to show their gratitude to their sponsor in return. In view of this outcry, the rule was relaxed prior to the London 2012 Olympic Games. Since then, sponsors have been able to use their athletes' images in advertising campaigns during the blackout period provided the advertising campaign does not include any Olympic Intellectual Property (such as logos or wording), it was approved by the IOC, and it started sufficiently in advance of this period to avoid the impression of a commercial connection between the sponsor, and the Olympic Games.[24]

The IOC argues that the purpose of the rule is to prevent over-commercialisation of the event, to allow the focus of the Games to remain on the athletes’ performance and to preserve the sources of funding invested by official sponsors.[25] In terms of competition law, the German Olympic Sport Federation and the IOC are likely to rely on the protection of commercial interests as a justification for this rule.

Based on European case law, it seems more likely that the Bundeskartellamt will review the implementation of this rule as a potentially anti-competitive agreement between the German Olympic Sport Federation and the IOC (i.e.: within the parameters of the national equivalent to Article 101 TFEU), rather than as a potential abuse of the IOC's (alleged) dominant position of restricting the advertisement market to a select few (i.e.: within the parameters of the national equivalent to Article 102 TFEU). It is likely that the key determinative factor of the case will be whether the IOC’s justification meets the high test for escaping a finding of anti-competitive conduct.

 

Comment

Whilst most recently many competition probes in the sports sector concerned governing bodies' exclusionary practices towards competing events, enforcement authorities seem to now be gearing up to investigate the wider rules set by the sport federations.

It is likely that the German competition probe is only the beginning of a pending in-depth competition analysis in the sports sector. It is yet unclear what the scope of such investigations might be. In terms of authority, the European Commission and national competition authorities have the powers to target all sports simultaneously, through a market investigation, and/or to target specific sports, through individual probes. They can also decide whether to conduct the investigation at national, continental and/or international sport federation level.  The scope of the investigation is at the Commission's and national competition authorities' prerogative.  In the author’s experience, their decision is often based on (1) the evidence already available, (2) the evidence they believe they will be able to obtain during their investigation, (3) the ability to work closely with other competition authorities outside the EU and (4) the resources available.

Realistically, the competition authorities are unlikely to conduct a market investigation, unless they suspect that very similar anti-competitive practices are undertaken in every sport. Accordingly, we are more likely to see an increase in targeted competition investigations in the sports sector.

Should a sporting body be found to have acted anti-competitively, it could be subject to a fine of up to 10% of its annual turnover, a reputational hit, and a mandatory amendment of its rules to comply with competition law. [26]

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About the Author

Viktoria Tsvetanova

Viktoria Tsvetanova

Viktoria is a trainee solicitor in the Competition Law department at Dentons in Glasgow. Prior to joining Dentons, Viktoria obtained a Master’s degree in European Law from the College of Europe, majoring in competition law, and worked in the EU Competition and Antirust departments at two international law firms in Brussels.

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