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On thin ice: restrictive rules of sporting bodies face competition scrutiny

Nick Pimlott
15/01/2018
Should professional athletes and other sports people be allowed to participate in events that are not organised or approved by their sport's governing body? Many sporting bodies would answer "no" and impose rules that prevent athletes from participating in non-approved events. The rationale – or one of them – for such rules is to ensure consistency and integrity within sports and to stop private entrepreneurs from poaching athletes without investing money back into grassroots activities or the development of elite athletes.

Should professional athletes and other sports people be allowed to participate in events that are not organised or approved by their sport's governing body?  Many sporting bodies would answer "no" and impose rules that prevent athletes from participating in non-approved events.  The rationale – or one of them – for such rules is to ensure consistency and integrity within sports and to stop private entrepreneurs from poaching athletes without investing money back into grassroots activities or the development of elite athletes.

However, restrictions on participation in non-approved events are increasingly vulnerable to challenge on competition law grounds.

Recently (8 December 2017), the European Commission found, following a complaint by two skaters, that certain International Skating Union (ISU) rules had breached EU competition law. This was the first Commission-led investigation of an international sports federation since 1999, and the outcome is likely to – and indeed should – concern other bodies which impose similar rules.

The Commission's Decision

The ISU had effectively banned any skater who joined a non-ISU promoted or organised skating competition from ever participating in the Winter Olympics and World Championships. The Commission decided that this breached Article 101 of the Treaty on the Functioning of the European Union 'by object', meaning the provisions were by their nature anti-competitive. This was because (according to the Commission's press release – the full decision is not yet available):

  1. The rival events did not threaten legitimate sports objectives, so there was no legitimate justification for restricting access to them. Federations thus seemingly could justify making the approval of alternative events conditional on them meeting specified safety standards and values, for example by punishing participation in competitions which allow gambling.
  2. The rules allowed the ISU to pursue its own commercial interests to the detriment of athletes, whose commercial freedom and earning power were restricted. The ISU, for example, refused to sanction events which would have offered significantly higher prize funds than normal.
  3. The rules prevented independent organisers from attracting top athletes. As a lifetime ban from ISU events would effectively end a skater's career, any new market player establishing an inaugural event would find entry into and expansion within the market extremely difficult.

Context

This decision is a further sign that national competition authorities and the European Commission are taking a greater interest in the rules of sports federations; indeed, the Commission met with national competition authorities in October 2017 to discuss implementing a coordinated approach. Similar decisions have been taken against Show Jumping Ireland and sports regulators in Sweden (the Automobile Sports Federation and Bodybuilding Association) and Italy (the national motor sports federation and equestrian sports federation).  In all of these examples, the organisations were required to remove the offending regulations.

"By object" restrictions

As mentioned above, the Commission categorised the offending rules of the ISU as restrictions of competition "by object".  These are restrictions that are by their very nature restrictive of competition and are prohibited without detailed consideration of the impact of the restrictions on the market.  "By object" restrictions create a lower bar to enforcement for competition authorities than other types of restriction that will only infringe competition law where there is evidence of actual anti-competitive effects.  It is questionable, however, whether the Commission's analysis in the case of the ISU is consistent with its approach in other areas.  In other contexts, where restrictions have been imposed, in whole or part, to prevent "free-riding", those restrictions have rarely been classified as having the object of restricting competition and may even escape from competition law entirely.  For example, the prevention of 'free riding' is normally considered a legitimate justification for including non-compete obligations in franchising agreements.  Franchisees willingly give up a certain amount of commercial freedom in exchange for the franchisor's support, which helps them to gain publicity and income. Franchisors thus protect their commercial interests at the expense of franchisees.  It is unclear at this point why the Commission appears to have approached sports regulation differently.  The Commission's reasoning will remain unknown until the full decision is published.

Conclusion

The renewed interest of competition authorities in the rules of sporting bodies has attracted disapproval from the President of the International Olympic Committee, who recently criticised competition authorities for excessively interfering in sports regulation. However, the Commission's approach in the ISU case, together with its creation of a new unit specifically for sports antitrust cases, is a clear sign that a more interventionist approach towards rules which restrict the commercial freedom of athletes or the emergence of rival events is here to stay. 

Co-authored by Nick Pimlott and Christopher Eykel

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