Would a closed European soccer league violate TFEU Article 101?

Aaron Rogoff | J.D. Candidate 2017, Columbia Law School | Editor-in-Chief

Is European soccer headed for a competition law standoff? The monumental growth in revenue from the sale of TV broadcasting rights for Europe’s major soccer leagues has made membership in a top league a valuable economic right. European leagues differ from the “Big Four” U.S. sports leagues (the NFL, NBA, MLB, and NHL) in that league membership is not fixed. In the U.S., any change in team membership requires collective action by the ownership of all existing teams, whereas in Europe the makeup of each domestic league changes on an annual basis through a system of “promotion” and “relegation”: the worst teams from each competitive division are forced to move to the division below for the following season and are replaced by the top teams from the latter. Therefore, within a national competitive framework, a team could theoretically play its way from a semi-professional division up to the highest level. Membership in the top league is in that sense “open,” as compared to the “closed” system of American leagues.

In theory, rules restricting team membership in a professional league constitute cartel activity. Athletic clubs are economic competitors in the market for sports-entertainment, but collaborate (through coordinating activity by a regional governing body) to exclude other clubs from joining their network and participating in the collective sale of TV rights and other communal licensing rights related to the league. Such conduct could be prohibited under TFEU Art. 101 as involving agreements intended to “limit or control production, markets, technical development, or investment.” The traditional justification for exempting sports leagues from cartel restrictions is that a certain degree of collaboration is required to fix rules and establish a framework for their competition, without which no marketable product (in the form of athletic events) could exist. This explanation seems to bring league membership rules under the exception established by Art. 101(3) for agreements with positive production and distribution effects that do not “impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives” nor “afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.”

The language of TFEU Art. 101(3) therefore raises an interesting question with respect to European soccer leagues: would a league violate Art. 101 if it became “closed,” and was able to exclude new clubs permanently from entering? Could such restrictions ever satisfy the treaty requirements that they are “indispensable” and do not unduly “eliminate[e] competition”? This question has gained immediate practical relevance in the wake of persisting rumors that Europe’s top clubs might attempt to break away from existing competitions and form a European Super League. Because much of the value of these clubs lies in their global brands, there would strong incentives to close membership in such a league. The idea gathered momentum this summer, as certain Spanish clubs expressed dissatisfaction with the current state of affairs where British teams are able to use their comparatively greater TV revenue to dominate the market for players. FC Barcelona’s Director for Professional Sports called on the Union of European Football Associations (UEFA) to impose spending restrictions in order to restore balance.

The proposal highlights an important respect in which European leagues are currently “closed.” Teams from lower divisions of a domestic competition can compete to join the top league, but teams cannot move across state lines. While there are two annual intra-European club competitions in which membership is open (based on teams’ performance in their domestic leagues during the prior year), these competitions account for far fewer matches than the domestic leagues, which generally dominate teams’ schedules and revenues. Barring teams from other Member States from joining a given domestic league would seem to unfairly restrict competition. However, such restrictions can be justified on several grounds. The tradition of domestic competitions is an important aspect of the “product” that supporters pay to consume. Moreover, broadcasting deals for European leagues tend to be state-based; the difficulty of selling marketing rights across media markets that shift on an annual basis has been put forward as one reason why U.S. leagues might remain closed. Finally, clubs could argue that over the course of an eight-month season, the financial and environmental cost of transporting teams frequently throughout Europe is unjustified, as they have already come under fire for their use of fossil energy for transportation in domestic competitions.

Ultimately, it is doubtful whether UEFA could, in fact, impose restrictions to diminish the influence of EPL money, consistent with competition law. The situation is not comparable to the institution of UEFA’s Financial Fair Play restrictions in 2011, which provide that, within a three-year period, clubs cannot spend substantially more on players than they take in in revenue. Before Financial Fair Play, European soccer was losing about EUR 2.3 bn per year. The model was financially unsustainable in the sense that it threatened the existence of clubs that could not take on ever-increasing levels of debt and that lacked deep-pocketed owners who could simply absorb the resulting losses. Because larger and smaller clubs are mutually dependent for creating a marketable product, the European Commission made the case that spending restrictions designed to protect the viability of smaller clubs were necessary, not merely to protect balance, but also to protect the existence of leagues without state subsidies. In the landmark Bosman judgment, the ECJ has found that rules that protect competitive balance may be exempted from antitrust law on the grounds that if competition becomes so lopsided as to threaten the uncertainty of outcomes, consumers will lose interest in the sport. However, there is no evidence to suggest that European soccer is actually headed in that direction. In fact, since 2012 English soccer teams have struggled in intra-European competition.

It is even more doubtful that a European league could become closed in the style of American leagues. Owners of clubs in the top divisions (as well as those in the hypothetical European Super League) would undoubtedly prefer not to face an annual  threat of relegation and a corresponding loss of revenue and marketability. However, at least since the ECJ’s 2006 Meca-Medina ruling, competition authorities have applied a test first established in a non-sporting context in Wouters and Others to rules organizing sports leagues. That test considers the legitimacy of the rule’s objective, the inherency of the rule in achieving the objective, and the proportionality of the rule’s anticompetitive effects to its objective. Even if owners could formulate a legitimate reason for closing leagues, because there is nothing to suggest that doing away with the system of promotion and relegation is inherent in any legitimate objective—as the system has existed for decades without issue—they would struggle to satisfy this standard of review.

The structure of European soccer leagues is therefore likely to remain as it is for the foreseeable future, notwithstanding this recent upheaval. While the eventual departure of the UK from the EU could affect the manner in which European competition law applies to its undertakings, because UEFA rules will inevitably apply throughout EU member states they will be subject to EU competition law review. The fact that some clubs feel that they are losing out, either through exclusion from the most profitable domestic league by reason of national origin, or because they face an annual risk of relegation, is not sufficient justification to alter substantially the system by which teams compete both on the field and financially.

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