Is the pyramid structure of sport under threat from competition law?

In late September 2016, the European Commission sent a Statement of Objections to the International Skating Union (“ISU”) which could have wide-ranging implications for the governance structures of sport, by rendering illegal a type of rule which is commonplace as a means for governing bodies to exercise control over their sports.

Sports are generally organised according to a “pyramid structure” of competitions. This means that there is a corresponding pyramid of governing bodies responsible for those competitions, with the national and international governing bodies at the top. As the European Commission observed in its 2007 “White Paper on Sport”, the “specificity of sport” includes (§4.1):

“…a pyramid structure of competitions from grassroots to elite level and organised solidarity mechanisms between the different levels and operators, the organisation of sport on a national basis, and the principle of a single federation per sport.”

The maintenance of this pyramid structure is seen as ensuring the clarity and coherence necessary to enable a player to begin at a low level (in most if not all sports as an amateur), progress through the ranks and, if successful, find himself or herself at a point which is indisputably the “pinnacle” of a given sport (in many cases a professional and highly profitable business). This structure avoids rival competitions at the same level of the game, which can be confusing for the ultimate consumers of the product.

The pyramid structure is also, however, one which indisputably places a great deal of power in the hands of governing bodies vis-à-vis players and clubs. The pyramid structure is often enforced by a rule, which features in varying forms in the rules of sports, prohibiting a player or club from participating without consent in competitions not sanctioned by the national or international federation.

These types of rules are widespread but are – depending on their exact terms – sometimes of questionable legality. In 2001, for example, the English High Court found that a rule preventing snooker players from participating in events or matches not “owned or staged” by World Snooker was void, being contrary to Articles 81 and 82 of the EC Treaty, as they then were (see Hendry v WPBSA [2002] ECC 8). Mr Justice Lloyd held that the rule restricted “the sources to which players can have recourse in order to earn their livelihood”, and that such restriction was not “limited to what is legitimate on the part of an undertaking with a dominant position” (¶112).

It seems that the European Commission is inclined to agree with Mr Justice Lloyd. In October 2015, the Commission announced that it commenced an investigation into whether ISU rules under which athletes face severe penalties for participation in unauthorised speed skating events were in breach of EU antitrust rules. In late September 2016, the Commission announced that it had reached the “preliminary view” that the rules did indeed breach competition law. In a passage of reasoning which has strong echoes of Mr Justice Lloyd’s in the WPBSU case, the Commission’s Press Release stated:

…the penalties set out in the ISU Eligibility rules restrict the commercial freedom of athletes and prevent new organisers of international speed skating events from entering the market because they are unable to attract top athletes.

If an athlete participates in an unauthorised event, the athlete faces a range of penalties leading potentially to a life-time ban from all key international speed skating competitions. The career span of a professional athlete is considerably limited in time. As a result athletes cannot risk losing the possibility of participating in events such as the Olympic Games, the World Championships or the European Championships, as this would be extremely damaging and possibly even put an end to their speed skating career.

The Commission is concerned that the system of penalties set out by the ISU Eligibility rules, as amended at the ISU Congress in June 2016, remains disproportionately punitive and would prevent non-ISU affiliated players from organising international speed skating competitions. If this concern is proven, the ISU Eligibility rules may breach Article 101 of the Treaty on the Functioning of the European Union (TFEU) that prohibits anticompetitive practices.

The Commission’s focus appears, from this reasoning at least, to be upon the apparently disproportionate nature of the sanction to be imposed for a breach, and in particular the disincentive effect of potentially career-ending sanctions. It may be, therefore, that the Commission’s ultimate decision leaves governing bodies able to maintain rules of the type considered in the ISU case, so long as sanctions are not swingeing. If the Commission goes further, however, there could be a need for some swift and fundamental re-writing of the rule books.

James Segan is a member of Blackstone Chambers and co-author of Challenging Sports Governing Bodies, which is also available on our Subscriber Service.

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