Competition Law and Sport (II) – Football: State aids and salary caps
Last Wednesday UEFA published an interesting report which provides thorough and useful information about the financial status of European football clubs. A quick look at the report reveals at least a couple of issues that bear a strong relationship with competition law:
Firstly, UEFA’s report advocates the need for “financial fair play” (in essence: more transparency and financial responsibility) in order to address a problem highlighted in Platini’s foreword: “[t]he many clubs across Europe that continue to operate on a sustainable basis (…) are finding it increasingly hard to coexist and compete with clubs that incur costs and transfer fees beyond their means and report losses year-after-year”.
According to the report, most European football clubs face recurrent losses. The most important leagues, both on the sporting level and economically wise, are the ones with the greater aggregated debt: Premier League Clubs have a net debt of approximately 4000 million euros, followed by Spanish First Division Clubs with a debt of nearly 1000 million.
The inevitable question is: how do clubs operate in spite of such losses? In many instances shareholder’s contributions do the job, but in many other situations clubs subsist thanks to public intervention, which in some cases could qualify as State aid. In the sports sector, as in any other, State aid can appear under multiple guises (e.g. direct subsidization; sponsorship under non-market conditions; non-collection of tax or social security debts; aid for the construction of sports infrastructure; etc). One would expect the European Commission to intervene increasingly more in this sector or, alternatively, to lay down specific rules for the assessment of State aid in the world of sports.
Secondly, the report insists on the fact that the financial perspectives of European clubs presage an even worse future. The report seems to blame the constant increase in player’s salaries, which amount to more than 60% of clubs’ expenses, a proportion that is steadily rising. It is on the basis of this and similar data that UEFA has for some time been proposing to establish a salary cap in European football. The compatibility of a salary cap with EU competition law is unclear. In fact, it was listed as one of the “main pending and undecided issues” in Annex I to the White Paper on Sport: sport and EU competition rules.
All the above seems to confirm something I mentioned on a previous post: the world of sports will be an important and growing source of interesting and complex competition-related issues in the very near future.
Conference announcement
The University of Louvain organizes a conference on international antitrust litigation in March. See here for more.
Google Books Settlement- It’s the search market, stupid!
As in most instances, this snowclone is a bit of an oversimplification: to be sure, the GBS brings to the fore extremely interesting issues such as those related to copyright law, privacy, or the function and limits of the class action mechanism, which are unrelated to the competitive impact of the GBS on the search market. However, also like in most instances, it helps us not lose sight of the important stuff. Indeed, the antitrust objections to the settlement raised by the DOJ other than those dealing with the search market (fundamentally those related to the ASA’s pricing system) seem to me somehow weak (see first comment to this post below).
As Gary Reback –one of the most prominent leaders of the opposition to the settlement- noted in a blog post last week: “at bottom, the Google Book Settlement is not really about books. It’s really about search, the most important technology in the new economy”. The transcript of the fairness hearing held last week conveys the impression that the DOJ shares the same main concern.
I’m no expert on the GBS and wouldn’t dare to comment on all of its aspects here. However, some of the issues raised in Reback’s post caught my attention.
Reback’s post points out that the search market, allegedly dominated by Google (how do you define the search market? Note, for instance, that on the fairness hearing AT&T claimed to be Google’s competitor because of its Yellow Pages), is “difficult to enter because of powerful network effects and scale characteristics” . He then insists on how access to books covered by the settlement would grant Google a tremendous competitive advantage. The said advantage would stem from the fact that Google would be improving its ability to support “obscure” or “tail queries” by virtue of its “exclusive” (?) access to in-copyright books whose authors are unidentified (that’s what some have labeled as the “orphan works monopoly”, a term that not only assumes that there exists a market for “orphan works” and that competitors would be barred from accessing to such works, but which also, by putting together the words orphans and monopoly, adds a bit of Dickensonian dramatism to the debate). Read the rest of this entry »
Drawing Inferences from S&D Law
Many thanks for your answers. Some readers got it right, others not. To be fair, the question was poorly formulated, and many alternative explanations could apply.
Scott Summer from the Money Illusion provides the answer, and comes back on the question:
I teach at an institution that is well above average, and here is what I have found. Almost every single student comes into EC101 knowing the impact of supply and demand shocks. Tell them a frost hits the Florida orange crop, and they can explain what happens to the price of oranges. Tell them millions of Chinese start buying cars and they can tell you what happens to the price of oil.I also find that almost no student comes into my class knowing how to interpret price and quantity data. And what is worse, they leave the course equally ignorant. I often ask the following question to upper level econ or MBA students who have already taken principles:Question: A survey shows that on average 100 people go to the movies when the price is $6 and 300 people go when the price is $9. Does this violate the laws of supply and demand?Very, very few can answer this question, especially if you ask for an explanation. Even worse, I think there is a perception that there is something ‘tricky’ about this question, something unfair. In fact, it is as easy a question as you could imagine. It’s basic S&D. It’s merely asking students what happens when the demand for movies shifts. I cannot imagine a less tricky question, or a more straightforward application of the laws of supply and demand. In the evening hours the demand for movies shifts right. Price rises. Quantity supplied responds. What’s so hard about that? And yet almost no student can get it right. Our students enter EC101 knowing one of the two things they need to know about S&D, and they leave knowing one of the two things they need to know about S&D. Maybe instead of having them memorize mind-numbing lists of “5 factors that shift supply,” and “5 factors that shift demand,” we should just tell them to read something that will explain what economics is all about, something that portrays economists as detectives trying to solve the identification problem, something like Freakonomics.
(Image possibly subject to copyrights: source here)
Basic but Tricky Econ. Question
Question: A survey shows that on average 100 people go to the movies when the price is $6 and 300 people go when the price is $9. Does this violate the laws of supply and demand?
Any idea?
No surprises
Three complaints have been logdged before the EU Commission against Google. The complaints have been introduced by British price comparison website Foundem, French legal search engine ejustice.fr, and – guess who – ciao.de, a Microsoft subsidiary. Frankly speaking, this is everything but surprising.
First, given the mounting degree of antitrust exposure faced by Google in Europe, and elsewhere in the world (think of the GBS in the US), it was just a matter of time for DG COMP to at least scrutinize Google’s conduct. Now, the many press announcements made in this respect shall be toned down a little. If I understand correctly, the Commission has not, as reported by several journalists, “opened a probe”, but simply announced that it will review the complaints. A Commission official is quoted to have said: “The Commission can confirm that it has received three complaints against Google which it is examining. The Commission has not opened a formal investigation for the time being,“
Second, on legal grounds, the fact that Google’s conduct is challenged for a violation of abuse of dominance rules is also unsurprising. It is reported that Google would “unfairly” rank competing websites on its search engine. Whilst I have no particular information on this, I suspect the complaints to describe Google as an operator holding an essential search facility (a disputable argument actually). In turn, the systematic down-ranking of competitors could arguably involve, such as in the case of a physical infrastructure, something akin to a constructive refusal to supply, which squeezes rivals from the market. I would really love to see how the complaints are structured. There might also be issues of unlawful discrimination against competing websites (Article 102 c)).
The good news from Google: it can draw upon, and recycle, a lot of the Microsoft-related antitrust literature on dynamic efficiencies, software integration, refusals to deal, etc. Quite paradoxically, Google and Microsoft may well be foes on the commercial front, but as far as legal argumentation is concerned, they have a lot to share.
(Image possibly subject to copyrights: source here)
Implications of the TFEU on EU Competition Law
Just published in the February Antitrust Chronicle with my Assistant Norman Neyrinck.
Writing this paper involved a lenghty reading of the new Treaties. A lot has changed, and I now believe that all EU lawyers, including competition lawyers, should devote some time to reading them too. The provisions on judicial remedies and the Court of Justice are particularly interesting.
Making the buzz
Still to be confirmed from official channels, but rumour has it that Marc Van der Woude will be appointed as the next Dutch judge to the General Court. Marc is a lawyer at Stibbe (a big Dutch-Belgian law firm) and Professor at the University of Rotterdam. He is well-known for his competition law handbook, as well as for his work on the energy sector. A nice pick from the Dutch government.
(Image possibly subject to copyrights: source here)
News from the Front
Monday’s Concurrences conference at the national Parliament in Paris was great, just great. With this event and the ongoing OECD gathering, Paris this week was clearly the world’s antitrust law capital. I was particularly impressed by the speeches of J. Padilla (on behavioral economics) and B. Kovacic (on the assessment of agencies’ performance).
I wish to congratulate here Nicolas Charbit, Prof. Laurence Idot and Frederic Jenny who have made a great job organizing this event. I never went to Fordham’s Annual antitrust gathering, but from what I hear, the Concurrences event – which will take place on a yearly basis – is likely to be a strong contender in the coming years.
On a related issue: straight after J. Almunia’s first speech as the new Commissioner for competition, James Kanter from the International Herald Tribune asked me what my impressions were. See here for more.
I have been away for a few days. Regular posting activity on this blog will resume early next week.
(Image possibly subject to copyrights: source here)
Slides – Conference on the Google Book Settlement
I post below the slides of our conference on the Google Book Settlement. It was a very good, stimulating, event. I wish to thank again all the speakers, in particular J. Grimmelmann who flew from NY to attend, and P. Samuelson, who accepted to speak at 6.00 am, California time.
Like I said at the conference, the GBS is a textbook example of an issue that, under competition standards, may warrant regulatory intervention: (i) intricate pricing issues; (ii) enormous fixed costs and unmatchable incumbency advantages; (iii) universal service – and other policy-related – issues (availability to users inside and outside the US, privacy, risks of disruption of service, censorship, etc.). Too early to tell, but in the future, Google’s digital library may exhibit the features of a good old essential facility.
Slides A Strowel – The GBS – A True Digital Library
Slides H Muller – The view of IFLA on the GBS
Slides I Forrester – GBS – A Good Thing or a Bad Thing
Slides J Grimmelmann – Perspectives on the Settlement
Chillin'Competition 
