Competition Law

06 Oct 2010

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Competition is the Name of the Game – On and Off the Sports Field

There is no longer any doubt that competition regulators and courts across the world are significant players in the international sporting industry. Sporting clubs, associations, competitions, players, and other participants cannot turn a blind eye to the powers of competition regulators whose decisions can have wide-ranging impacts on the manner in which sporting entities interact with each other.

This FYI profiles a number of recent international competition law decisions in a sports context. These decisions cover a broad range of matters including merchandising and broadcasting rights, the licensing of intellectual property and exclusive arrangements, and highlight how competition laws can apply in the commercial sports arena.

Exclusive Licensing - United States of America

An arrangement between the member teams of the National Football League (NFL) and Reebok International is under the competition spotlight. Under an exclusive licensing arrangement with Reebok, the teams agreed not to compete with each other in the licensing of team products, and not to grant licenses to any of Reebok's competitors for a period of ten years.

American Needle, a company which had previously licensed intellectual property from the NFL and its teams, complained that the arrangement was an illegal restraint of trade on the basis that it excluded any competition for the licensing of NFL-related intellectual property, and gave Reebok a monopoly in the lucrative market for NFL team products.

The NFL is the highest level of professional American football in the United States and currently consists of 32 teams from across the United States, divided into two conferences. Each of the NFL member teams is individually owned and controlled, and the teams compete vigorously with each other in a number of markets. The NFL itself is organised as an unincorporated association of its member teams.

A preliminary issue, which went all the way to the US Supreme Court, was whether arrangements entered into between the NFL member teams (in relation to the NFL competition) were subject to competition law scrutiny. The NFL teams argued that they were not, while American Needle asserted they were.

This translated into a question of whether the NFL teams, when acting collectively in the context of the competition, were to be treated as a single economic entity or were to be considered "independent economic enterprises" and therefore capable of entering into anti-competitive arrangements (as individual members of the NFL joint venture).

The NFL's contention was that the "NFL football product" it seeks to market and sell cannot be produced by any member club acting alone, and as a result the teams have no economic significance separate or distinct from their participation in the NFL. On this basis, the teams (acting collectively) are to be considered a single economic enterprise, meaning decisions are immune from competition law scrutiny.

American Needle argued that the competition joint venture would only be a single economic enterprise if the participants were owned and controlled by the same person or entity. The US Department of Justice, which filed an amicus brief on the issue, suggested a variant on the approach proposed by American Needle - that a joint venture be treated as a single entity in circumstances only where the parties had effectively integrated or merged their internal operations in relation to a distinct issue.

The trial court at first instance awarded summary judgment in favour of the NFL, concluding that the NFL and the teams act as a single entity in licensing their intellectual property. This decision was affirmed by the Seventh Circuit courts and subsequently appealed to the Supreme Court.

The Supreme Court heard arguments on the issue in January, and in May ruled that the lawsuit against the NFL could proceed. The Supreme Court concluded that the actions on the part of the NFL teams constituted "concerted action that is not categorically beyond the coverage" of competition law. The case has been referred back to a lower court for a determination on whether the deal entered into between the NFL teams and Reebok is an illegal restraint of trade.

The outcome of this case will be of significant interest to all commercial joint ventures, both within the sporting industry and beyond.

Exclusive Marketing arrangements - France

Exclusive contracts are also a focus of competition regulators. Concerns arise when these types of arrangement "lock up" otherwise competitive markets for extended periods of time and so substantially lessen competition in those markets.

The French Football Federation and the sports agency Sportfive were fined €7 million in October 2009 by France's Competition Authority for anti-competitive behaviour in relation to marketing rights associated with the French national team and matches in the French Cup.

Between 1985 and 2002, the parties had entered into marketing agreements that contained exclusivity and automatic renewal clauses. The parties had also engaged in the practice of extending existing agreements long before the agreements were to expire, eliminating any potential for a competitive bidding process.

In response to the decision, and in order to reduce the fine imposed by the Authority, the French Football Federation agreed to establish an open, transparent and competitive process for the award of future contracts.

Exclusive Broadcasting Rights - Spain

Restrictions on the length of exclusive contracts that football clubs can enter into with wholesalers to sell the broadcast rights to football games were introduced by Spain's National Competition Commission in April of this year.

The decision means future contracts with a term of more than three football seasons will automatically be deemed anti-competitive. Existing contracts with a term of longer than three seasons will remain valid up to the 2011-2012 season and be declared void afterwards.

The National Competition Commission also concluded that the "pooling" arrangements between several wholesalers, Sogecable, Audiovisual Sport, Mediaproducción and Televisió de Catalunya, to sell rights to broadcasters contained non-compete arrangements and were also anti-competitive. Fines of between €25,000 - €150,000 were imposed on each of the four wholesalers.

Resale of football broadcasting rights is also under scrutiny in Spain. In September 2010, the National Competition Commission launched a further investigation into Mediaproducción, which is accused of bundling its production and signal transmission services with the broadcasting rights it sells to third parties, in breach of the dominance and restrictive articles of the Spanish Competition Act and the Treaties of the European Union.

Broadcasting Distribution Agreements - France

The French Telecoms operator, Orange, recently faced claims relating to its exclusive distribution right to broadcast premium sports on its Orange Sport channel. Competing internet service providers (ISPs) had argued that Orange breached competition law by offering its premium football content solely to its internet customers.

The Supreme Court of France concluded that, contrary to the anti-competitive claims, Orange's distribution system enhanced competition between ISPs by providing the consumer with an opportunity to choose between providers based on the different service offerings.

The Supreme Court was concerned that allowing the claims would have limited the ability of ISPs to differentiate themselves, and their service offering, from competitors. It was also concerned not to reduce incentives for Orange (and any other potential purchaser) to bid on exclusive football rights, which would result in a decline in the value of the rights sold by professional sporting leagues.

Broadcast Prices - United Kingdom

The wholesale price that BSkyB charges its competitors for access to its sports channel has come under scrutiny from the United Kingdom's media regulator, OFCOM. OFCOM has ordered BSkyB to reduce the price it charges rivals by more than 20%. As part of the decision, OFCOM imposed a 'wholesale must-offer' obligation (obligating BSkyB to offer non-exclusive, non-discriminatory access to its services to those meeting certain criteria) and also set maximum prices for access by competitors to BSKyB's services.

This decision has since been appealed to the United Kingdom's Competition Appeal Tribunal by BSkyB, Virgin Media and the Football Association Premier League.

Tournament Organisation & Planning - United States of America

The Association of Tennis Professionals (ATP) has been cleared of engaging in anti-competitive behaviour following claims arising from decisions it made in relation to a tournament to be held in Hamburg.

The claims were brought by the Tennis Federations of Germany and Qatar, the co-owners of a tennis tournament in Hamburg, after the ATP "downgraded", and changed the date of, the tournament. The downgrading of the tournament reduced the amount of prize money available and had a corresponding impact on the quality of players that the tournament was likely to attract.

In dismissing the appeal, the US Third Circuit Court of Appeals in Philadelphia held there was no evidence to suggest that the ATP had made the changes to the status and timing of the tournament with a view to creating barriers to entry to the market for top-level tennis players. The Court also concluded that the board of the ATP had not breached any duty of loyalty to the German and Qatar Tennis Federations.

Authors

Elisabeth Welson

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Anne Callinan

Partner - Dispute Resolution

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James Craig

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Peter Hinton

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