Governing bodies – winning or losing?

The Impact of Competition Law on decisions, finance and your business

Trevor Watkins, Head of Sport,

Pinsent Masons

Introduction

• Background and overview

• And why should sport be concerned?

• The business of sport

What is it?

• Competition : noun “the activity or condition of striving to gain or win something by defeating or establishing superiority over others”

The basics

• The sports governing body

• European legislation

• Domestic legislation

• The balancing act – economic interests

But isn’t sport special ?

• Yes

• No

• Maybe

Key principles

• Freedom of movement of workers• Freedom to provide services• Free movement of capital• Abuse of a dominant position• No discrimination on grounds of nationality• Not abusing the public/private divide on £• The role of the OFT

The application

The club owner/governing body:

• Team ownership (restrictions on multiple stakes)• Team selection (limiting nationality)• Commercial rights (prohibiting distribution methods)• League membership (setting criteria)• Team remuneration (restrictions on payment)• Team investment (preventing capital injection)• Securing finance (limitation on state aid)

The London Welsh case, 2012

• London Welsh members of Championship

• RFU set down detailed rules requiring audit process

• London Welsh belatedly begun process

• Qualified for play-off final – then the sky fell in....

The decision and challenge

• Minimum Standards Criteria – requirement for Primacy of Tenure

• The history of the clause

• The justification

The competition law basis of challenge

• Article 101 Treaty on the Functioning of the European

Union (“TFEU”) prohibiting anti-competitive collusion

• Article 102 TFEU prohibiting abuse of a dominant position

• Largely same as Competition Act 1998

London Welsh argument

• The Primacy of Tenure rule as an unjustified restriction of competition, with Art 102 only if 101 fails

• If so, the rule provisions are void and unenforceable (Art 101 (2) and 102)

• Brought case via RFU dispute resolution panel but note alternatives and consequences

The accepted position

• The RFU is an undertaking to which TFEU applies• It is in a dominant position• The decision to exclude London Welsh was a prima facie

breach of competition• And similarly an abuse of a dominant position

• London Welsh accepted it had not met the Primacy of Tenure requirement and exclusion was the automatic consequence if competition law claim failed

The test

• What is at face value a breach does not automatically lead to restitution

• “....[a breach needs to be considered]...first of all...[in] the overall context in which the decision...was taken or produces its effects and, more specifically of its objectives. It has then to be considered whether the consequential effects restrictive of competition are inherent in the pursuit of those objectives and are proportionate to them.” Meca-Medina [2006] ECR I-6991

• The burden is on the applicant to establish a restraint but it then shifts to the respondent to demonstrate justification

The debate

• The rule was essential for maintaining and increasing the health and popularity of the sport of rugby (that is not an economic purpose) and inherent in the organisation of sport

• So the RFU should have a “wide margin of appreciation”

• Or it was entirely commercial in nature and concerned only with maximising the value of broadcasting rights

• The sporting justification – the last round complication

The decision

• RFU exceeded the margin of appreciation it was allowed, disproportionate to objectives and so the rule was void

• MSC found to amount to an unjustified distortion of competition contrary to 101 (1) and 102 TFEU

• As a consequence, the Primacy of Tenure rules are void

• A close decision – witness the facts of the case• The history of the rule was critical to the outcome

The key lessons

• Governing bodies have a margin of appreciation• The more commercial in nature a rule, the greater the

need to demonstrate why any affront to competition law is allowable

• Bodies likely to get substantial latitude in making decisions

• Constant review and action needed

• Note the effect of a decision made as against competition law principles – the ongoing claim

In closing...

• A grating tension with fault lines drawn

- the transfer system

- financial fair play

- broadcasting and new media sales

- doping

- club ownership

- financing development / accepting assistance

Pinsent Masons

Trevor Watkins

Global Head of Sport

Pinsent Masons

trevor.watkins@pinsentmasons.com

(o) 0207 490 6614 (m) 07970 793886

(t) @ PMSportlaw

Combining the experience, resources and international reachof McGrigors and Pinsent Masons

Pinsent Masons LLP is a limited liability partnership registered in England & Wales (registered number: OC333653) authorised and regulated by the Solicitors Regulation Authority, and by the appropriate regulatory body in the other jurisdictions in which it operates. The word ‘partner’, used in relation to the LLP, refers to a member of the LLP or an employee or consultant of the LLP or any affiliated firm of equivalent standing. A list of the

members of the LLP, and of those non-members who are designated as partners, is displayed at the LLP’s registered office: 30 Crown Place, London EC2A 4ES, United Kingdom. We use ‘Pinsent Masons’ to refer to Pinsent Masons LLP and affiliated entities that practise under the name ‘Pinsent Masons’ or a name that incorporates those words. Reference to ‘Pinsent Masons’ is to Pinsent Masons LLP and/or one or more of those

affiliated entities as the context requires. © Pinsent Masons LLP 2013

For a full list of our locations around the globe please visit our websites:

www.pinsentmasons.com www.Out-Law.com

Workshop locations