Relaxing whilst doing Competition Law is not an Oxymoron

In the wake of the ISU and Super League hearings: why the focus on ‘conflicts of interest’ is potentially problematic (and unfair)

with 9 comments

Once again, thanks to Lewis Crofts and his reporting abilities via Twitter, I have been able to get a sense of what has been going before the Court this week. If you have not done so, go check his tweeting on ISU and Super League. These two cases will have a major impact on the relationship between competition law and sports governance.

I have been following this topic closely for a while (the updated version of my paper on sports governance can be found here; I am really grateful, by the way, to those who reached out with comments).

Lewis’s reporting gives me the impression that much has been discussed about sports associations’ alleged ‘conflicts of interests’. According to a particular school of thought, it is concerning that governing bodies enjoy the power to regulate the sport and, at the same time, to authorise rival competitions.

I have never really understood why this idea has managed to gain so much traction. It is definitely an astute spin on the issues. As an outside observer, however, I am not sure it makes sense to frame discussions in terms of conflicts of interest. It is, in fact, a problematic way of looking into the underlying substance.

It is problematic, first, because it suggests that the fact that a firm protects its own economic interests is somehow a concern under competition law (of all disciplines). Second, because it is based on the (now discredited) idea that one can meaningfully distinguish between, respectively, sports-related and economic considerations.

Third, and finally, because it would be unfair to sports associations, in the sense that it would demand more from them than from any other entity engaged in an economic activity.

‘Conflict of interest’ is just another way of saying ‘protecting one’s economic interest’ (which has never been presumptively anticompetitive)

Discussions around conflicts of interests in cases like ISU and Super League give the impression that the situation is specific or unique to sports governing bodies, in the sense that it does not arise elsewhere in the economy (or only rarely).

In reality, the only thing that is unique to sports is the vocabulary used to frame the underlying issues. When it comes to the substance of these issues, there is nothing special, let alone exceptional, about the situations described in the abovementioned cases.

In reality, ‘conflict of interest’ is another way of saying that governing bodies have put in place mechanisms aimed at defending their economic interests. And we know from the case law that doing so is not necessarily or presumptively anticompetitive (not even when the firm enjoys a dominant position).

Just to illustrate how pervasive (and, sometimes, even prima facie pro-competitive) so-called conflicts of interest are, consider the following examples.

A franchisor finds itself in a position that is not fundamentally different from that of a sports governing body. It dictates the rules of the system (brand image, quality of the products, look and feel of the stores) and also limits competition: franchisees will typically be subject to a non-compete obligation preventing them from concluding similar agreements with other suppliers, or setting up rival shops themselves.

In spite of the blatant conflict of interest, franchising agreements are prima facie lawful under Article 101(1) TFEU.

Consider also the proverbial refusal to deal scenario. A vertically-integrated firm that produces an input and also manufactures the finished product would also be in a ‘conflict of interest’: this firm would be able to control competition against itself on the downstream market.

It is clear from the case law, however, that the vertically-integrated firm cannot be compelled to deal with rivals absent exceptional circumstances. This is so in spite of the fact that its dual status as supplier and competitor to its own (would-be) customers necessarily creates a conflict.

The ‘conflict of interest’ test would apply a stricter standard to sports governing bodies for no valid reason

To the extent that ‘conflict of interest’ is just another way of saying ‘undertaking acting as expected in a system based on undistorted competition’, there is no reason to make it presumptively anticompetitive.

What is more, seeing with suspicion this alleged ‘conflict of interest’ would lead to governing bodies being treated more strictly than any other undertaking in competition law. There seems to be no valid reason justifying this differential treatment.

As the Court held in Meca Medina, there is nothing that immunises sports associations from the application of competition law. They may be scrutinised under Articles 101 and 102 TFEU, just like any other economic activity.

Conversely, it is not because a case is about football or skating (as opposed to the manufacturing of aminobutanol, or the delivery of newspapers) that so-called ‘conflicts of interests’ should become problematic ipso facto.

As explained in my paper, cases like ISU and Super League are best understood when examined through the lenses of other horizontal co-operation agreements raising similar issues.

Think of Gottrup-Klim. The cooperative in that case faced a ‘conflict of interest’ just as much as the UEFA or the ISU do. In fact, members of the cooperative were prohibited from taking part in competing ventures.

The association decided who was entitled to compete with itself, while regulating the joint purchasing activities. Alas, the Court held that these non-compete obligations were ancillary and did not restrict competition, whether by object or effect (just like franchising).

The divide between economic and non-economic interests is more of an illusion than a reality

I can think of a final reason why the idea of the ‘conflict of interests’ of sports associations is problematic. It seems to be grounded on the premise that one can establish a clean divide between economic and non-economic measures. According to this understanding, governing bodies would combine functions relating to sport and then economic functions.

The problem with this understanding is that it is, at best, an oversimplification of what goes on in the sector. Scratch beneath the surface and you will realise that this clean divide between the economic and non-economic does not reflect the reality.

Think of salary caps, thinks of rules limiting how much money can be spent on transfers, and on how the revenues generated by a competition are to be allocated. Are these measures economic? Certaintly. Do they serve non-economic aims as well? Without any doubt: they will are typically introduce to achieve competitive balance.

The bottomline is the same: to the extent that they relate to the exercise of an economic activity, the rules adopted by governing bodies are best scrutinised, in the usual way, under Articles 101 and 102 TFEU.

As ever: nothing to disclose in this and, indeed, any other case.

Written by Pablo Ibanez Colomo

13 July 2022 at 12:38 pm

Posted in Uncategorized

9 Responses

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  1. Thanks Pablo, very good and convincing arguments.
    One could add that, if anything, there is a reason to expect that sports associations’ agreements may more often than other horizontal agreements fall outside Article 101. Absent a cooperative agreement, farmers can still be expected to continue purchasing fertilizer and producing crops individually. The same for agreements to do joint R&D. It is in general rare that without the (horizontal) agreement the economic activity at issue would otherwise not take place. However, for sports competitions that is different: cooperation between competing teams is necessary to have national leagues and cooperation between national associations to have supra-national competitions.
    This leaves open why the ‘conflict of interest’ argument is pushed? Is it the increased tendency to widen the concept of discrimination, from a concept correctly limited to discrimination between third parties to a wider and convoluted concept that includes self-preferencing, i.e. giving itself a better deal than third parties? Or is it a desire to find more easily ‘by object’ restrictions and types of conduct?

    Luc Peeperkorn

    13 July 2022 at 2:52 pm

    • Thanks, Luc!

      As I explain in the piece, I have the impression that it is a spin by claimants in these cases. And we know from experience that clever spins are sometimes successful in changing the direction of the law.

      I agree with you about what the ultimate goal: impose strict non-discrimination duties on vertically-integrated entities. It would be a substantial expansion of the scope of competition law: it remains to be seen whether the case law will change in this direction.

      Pablo Ibanez Colomo

      13 July 2022 at 4:39 pm

    • Isn’t the problem here – and the reason why sport is a special case – that in sport self-preferencing is achieved by using (global!) monopoly regulatory power to shut out third parties. Your fertiliser co-operative or your franchisor never has that kind of power. You can choose another co-operative or another franchisor. You can’t choose another sport governing body

      Stares Sam

      14 July 2022 at 2:45 pm

      • Thanks for the comment!

        That would not be a reason to apply a different analytical framework, or to make conflicts of interest presumptively anticompetitive.

        The arguments you advance would be relevant when evaluating the actual or potential effects of the rules (the higher the market power, the more likely the impact on competition).

        Pablo Ibanez Colomo

        14 July 2022 at 3:11 pm

      • Sam, you seem to be missing the point I tried to make. My point is that sport regulation/cooperation between competitors may more often than other agreements fall outside Article 101, because cooperation between competing teams is (often) necessary to have sport competitions/leagues in the first place. Of course, to fall outside Art 101 the cooperative agreement and its restrictions must be necessary and proportional (see Wouters and Meca-Medina case law).
        If the restrictions are not necessary and proportional, the agreement may fall within Article 101. In that case, as explained by Pablo in his reply, Art 101(1) and (3) should be applied as for any other agreement, taking into account the degree of market power when assessing the effects.

        Luc Peeperkorn

        14 July 2022 at 3:48 pm

  2. I fully agree that the same principles should apply in a sports and non-sports context. And I think they do. An industry association with quasi-regulatory powers, and able to control access to the member firms’ market, would no doubt also be held to a high standard, which reflects the considerable market power such associations possess. Moreover, most sports governing bodies amount to “associations of undertakings” in the meaning of Art 101, which means that their rule-making is equivalent to a horizontal agreement between the members, which is a difference to the rule-making in a franchise system, which has a vertical nature.

    Fredrik Löwhagen

    15 July 2022 at 3:10 am

    • I think that’s right. And that’s why you find conflicts of interest a lot more in sport than in other sectors – the regulator (governing body) has a lot of power, and also a commercial interest in how and why that power is used

      Stares Sam

      15 July 2022 at 8:50 am

    • Thanks, Fredrik!

      I guess the only caveat is the great point raised by Luc: any restrictive effects would have to be evaluated against the counterfactual. And the counterfactual may tell us that the rules are objectively necessary to attain a pro-competitive aim.

      And it is sometimes the case that inter-firm cooperation allows the parties to offer something that they would not have been able to offer.

      One should not forget that Wouters emerged precisely in this context.

      Pablo Ibanez Colomo

      15 July 2022 at 10:37 am

      • I agree, Pablo. And one needs to give the associations certain leeway in organising their sport as they deem fit; Wouters concerned a bar association rule prohibiting partnerships between lawyers and accountants that didn’t exist in many other EU countries.

        Fredrik Löwhagen

        15 July 2022 at 10:58 am

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