In the wake of the ISU and Super League hearings: why the focus on ‘conflicts of interest’ is potentially problematic (and unfair)
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 introduced 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.
Chillin'Competition 
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
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
For various reasons, too tedious to explain, I am only able now to post this response to Pablo’s post (“the Blogpost”).
I began this response, several weeks ago now, with a degree of trepidation because I admire Pablo and have great respect for his integrity and his intellect. Indeed I struggle to recall many occasions on which I have seriously disagreed with him. However I would suggest that the “specificity” of sport means that it is risky to apply to it a classic antitrust analysis without also taking into account the peculiar structural features, particularly those that stem from the “European model”.
Pablo always famously and correctly declares every time he writes that he has no conflict of interests himself. I wish that others followed his example so consistently. I should therefore respond in the same spirit of honesty. I am currently an external consultant to Flint Global. They are (and it is a matter of public record) involved in advising the promoters of the European Super League (ESL). But I can note that connection while also asserting that in what follows I am expressing my own personal opinions. And there is ample evidence from what I have written and conferences at which I have spoken over many years on the subject of sports federations and antitrust, to make that crystal clear.
Over the years I have done a great deal of work in the intersection between sports and antitrust. Indeed, and this is very relevant to what I will come onto, for many years I advised both the world motorsport federation (the FIA) and the commercial rights holder of the Formula One racing championship. They were famously and aggressively investigated by the European Commission in the late 1990s and ultimately I brokered the settlement that led to the European Commission approving an agreement involving the sale of the broadcasting rights for Formula One for a period of 100 years. I believe that still remains the record in terms of an EU clearance. The Commission also had to apologise, in a press release that I drafted, for the leaking of documents and for making seemingly prejudicial comments regarding my clients (see https://ec.europa.eu/commission/presscorner/detail/en/IP_99_564). Those actions arose from the then Commissioner’s own conflict of interests between his Commission mandate and his continued involvement in Belgian politics. The Commission also agreed to make a voluntary contribution to my firm’s legal costs, which might seem irrelevant to this discussion but I introduce it to demonstrate just how unusual that case was.
Nevertheless what also ultimately helped us to resolve the dispute with the Commission was that we agreed, indeed we volunteered on behalf of the FIA, that it would avoid any future perceived conflict of interests by making sure that the organisation of Formula One was entirely separated from the exploitation of that sport, in particular from the sale of media rights. We then set up a Governance in Sport initiative and I sat on a panel with the then Presidents of the International Olympic Committee, the FIA and Commissioner Mario Monti to launch it (see https://www.fia.com/sites/default/files/basicpage/file/governance_sport.pdf). We all agreed that a clear separation of regulation and commercialisation was essential in the interests of all who cared about the fair and transparent operation of top level sport.
The Blogpost asserts that an allegation of a conflict of interests is “problematic …. because it suggests that the fact that a firm protects its own economic interests is somehow a concern under competition law” [my emphasis]. In doing so it confuses a “firm” with what UEFA really is – a federation that has an overriding public interest mandate, and which where it also engages in commercial activities is inevitably required to reconcile a hierarchy of interests. And it is this confusion regarding which interests we are talking about that leads to an unsustainable conclusion.
There are many definitions of what is meant by a conflict of interests but I thought it appropriate to look at how that is applied in relation to a person or body exercising a public interest function. I found a report from the Congress of Local and Regional Authorities of the Council of Europe from 2018, which identified that, in relation to public authorities, the principal danger comes when there arises a tension between the duties owed to the public and the private interests of a body charged with exercising authority. In the case of sports federations, most of them either de jure or de facto possess the power to regulate all commercial and non commercial exercise of the particular sporting discipline. Indeed in the ESL case, the Judge when making his reference from the Spanish Court to the European Court, cites provisions of the FIFA and UEFA statutes. For instance, Article 2c of the UEFA statutes asserts a right to “control the development of every type of football in Europe”. In doing so it arrogates to itself a monopoly which the Judge points out also brings with it a special responsibility not to abuse that power.
It is also helpful to consider what the Judge said in relation to UEFA and FIFA when making his reference:
“The statutes…make the creation of alternative sporting competitions to the organisation of these private bodies subject to authorisation, with the possibility of adopting punitive measures against those football clubs that do not submit to such authorisation and violate the aforementioned statutory precepts. The prior authorisation is not subject to any kind of limit or canon or objective and transparent procedure, but to the discretionary power of the private bodies concerned, which, by reason of their monopoly on the organisation of competitions and exclusive management of the economic returns derived from those sporting competitions, have a clear interest in the refusal or authorisation of the organisation of those competitions. There are indications of a clear conflict of interest. (Reference paragraph 38, our translation)
It should be noted that the reading of [the] statutes does not reveal any transparent procedure or control to avoid such a conflict of interest or to justify the refusal of authorisation on grounds of general interest. Everything is left to the absolute discretion, without objective and transparent criteria, of bodies that exercise a monopoly in the relevant market and have a direct interest in restricting potential competitors. In the absence of an objective and transparent procedure, there is the possibility of absolute partiality and arbitrariness in the refusal of authorisation to organise football competitions or in the decision to take disciplinary or retaliatory measures against football clubs…..There is not even an authorisation procedure or a maximum time limit for resolving the authorisation for the organisation of football competitions. There is a complete lack of legal certainty, which does not seem to be in keeping with the rule of law and which could conflict with free competition within the European Union. (Reference para 47, our translation)”
Sports federations have a unique status and most of them actively promote the idea that they are the only body entitled to lay down the rules that will govern their sport. It follows, and again most of them explicitly recognise this, that they owe a wider duty to the public and to society that goes beyond defending a narrow self-serving interest. Even UEFA in Article 2g of its statutes provides that one of its objectives shall be to “ensure that sporting values always prevail over commercial interests”. Yet the Blogpost collapses these notions into a single interest and asserts that “in reality, ‘conflict of interest’ is another way of saying that governing bodies have put in place mechanisms aimed at defending their economic interests” [again, my emphasis] which it states is therefore not necessarily anti-competitive.
This is not so much to put the cart before the horse, as to ignore the entire existence of the horse. It is not simply that in abusing its power to eliminate those who would compete with it in the commercial sphere, a sporting body is committing a straightforward breach of competition law, but that it is undermining its principal duty which is to ensure that it acts in the interests of the sport as a whole, driven solely by what will help the sport to grow and will maximise participation. Therefore, when a sporting federation exercises its powers to prevent the emergence of other outlets for those who would pursue that sport, it faces a very high burden to demonstrate that it is not allowing its secondary commercial interest to trump its primary public interest.
The Blogpost also points out that it can be difficult sometimes to determine whether a matter is of purely sporting interest or is an economic interest. While that may be true at the margins and in some circumstances, that does not mean that it is futile to recognise distinctions when they are clear and stark. To move from the abstract to the concrete, what is the legitimate reason for a sports federation preventing certain clubs who play in its tournaments from also playing against each other in distinct tournaments? If the aim is to ensure that all clubs continue to devote themselves appropriately to the existing competition, that can be achieved by the imposition of positive obligations. If it is to avoid the schedule becoming overloaded, discussions can take place regarding the calendar. If it is to stop “free riding”, one could find ways of sharing the proceeds, though you would have to ask whether the value in a UEFA tournament is generated by UEFA or by clubs like Manchester United and Barcelona who bring to the spectacle their talents, their reputation and their fans. But if the aim is merely to deter anyone from offering an alternative, why should that not simply be treated as an output-limiting measure that would be condemned in any other sphere? And in any event, should it not be necessary to prove that a refusal to authorise a tournament is proportionate in the pursuits of an overriding public interest?
To sum up, there is always and inevitably a conflict of interests if a regulatory body which sets the rules, defines the sporting terrain, deals with disciplinary issues and every other aspect, is also and at the same time up to its neck in commercialising that sport and selling the broadcasting rights. Sadly a series of unedifying stories and court cases have shown what happens when the power to do both is placed in the hands of a small number of unaccountable individuals, often headquartered in Switzerland and resistant to external scrutiny or judicial controls.
Stephen Kinsella
31 October 2022 at 8:19 pm