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This post has been authored by Khushi Dua & Tapamoy Ghose, second-year students of B.A.LL.B. (Hons.) at the National University of Advanced Legal Studies, Kochi.
1. INTRODUCTION
Nothing was more surprising for football fans than waking up to the news of the creation of the European Super League (“ESL”), a step that had the potential to destabilize the entire European football pyramid. Have fans wished that only elite clubs would play against each other? Has the formation of ESL raised any competition law concerns in the mind of regulatory authorities?
To answer the above-mentioned questions, in this article the authors will analyse the reasons behind the league's creation and how it will distort competition in European Football. Further, attention will also be drawn upon how the conduct of founding clubs leads to the formation of a cartel and the abuse of dominance within the provisions of the Treaty on the Functioning of the European Union (“TFEU”). Lastly, the authors will try to put forward some suggestions to avoid the possibility of the creation of associations such as ESL in the future.
2. THE ESL: A DEVIATION FROM THE ESTABLISHED STRUCTURE
In the European Football Structure, each National Federation (for example, Football Association (FA) in England) conducts their own domestic leagues with promotions and relegations in their respective countries. The top teams from these leagues get to participate in the Union of European Football Associations (“UEFA”) Champions League and the UEFA Europa League, conducted by UEFA, the highest regulating body of European Football, and participation in these are merit-based. On the other hand, the ESL is nothing but a commercially driven initiative taken by 12 elite football clubs, backed financially by JP Morgan. It is not regulated by the UEFA or Federation Internationale de Football Association (“FIFA”) but is controlled and managed by the founding clubs.
3. THE ESL: A COMPETITION LAW CONUNDRUM
Competition Law aims to prevent practices that may have a negative impact on effective competition. The author believes that the formation of the ESL (now discontinued) has posed a volley of questions to the European competition law regulators under the TFEU. Before delving into the provisions of the TFEU, it is imperative to determine whether the ESL, as a sports organization, is an undertaking or not. In the Laurent Piau case, it was held that football practices by the clubs can be considered as economic activity, making them an undertaking within the meaning of the Treaty. Since clubs are undertakings, the associations they form (ESL in this context) will also be considered as undertakings. Moreover, the ESL also committed to underwrite funding of €3.5 billion to the participants, which is an economic activity. Following the same line of observations of Laurent Piau case, it can be affirmed that the ESL is an undertaking in the context of TFEU.
Article 101 of the TFEU prohibits agreements or concerted practices amongst undertakings that distort the competition's integrity. Such an agreement is declared per se void by virtue of Article 101(2) if it does not satisfy the requirements under Article 101(3).
To claim an exception under Article 101(3), an agreement must contribute towards economic or technical progress by outweighing the anti-competitive effects. The formation of ESL does not contribute to technical or economic efficiency in professional football. Instead, the agreement made by ESL leads to de-facto exclusivity by slowly destroying smaller clubs within the competitive football structure. It will further put the UEFA Champions League in a precarious position as its broadcasting deals and sponsorships were highly dependent on the participation of the above-mentioned 12 clubs, thereby inviting the application of Article 101(1) and Article 101(2).
The essential element of Article 101(1) is that there must be an agreement amongst undertakings to form a cartel that may harm the competition in the relevant market. The relevant market in this context would be the market for competitive professional club football in Europe. Under EU law, cartel refers to the arrangement(s) between competing firms (in the present context, football clubs) designed to limit or eliminate competition between them, with the objective of increasing profits of the participating entities and without producing any objective countervailing benefits. In the present scenario, the 12 elite clubs colluded to enter into an agreement amongst themselves to form a breakaway private league with the intention to distort competition by tipping the market viewership, investment, and profits in their favour. The signatory clubs represent aristocracy and bring down the much-needed competitiveness in the UEFA Champions League, based on their huge fan base. The ESL was slated to be a closed league where the founding 15 (three Founding clubs were yet to join) clubs enjoy protected rights and can never be relegated. Further, the founding members concentrated the power to decide which other five clubs can join the league in their own hands, thereby undermining the spirit of fair competition. In the UEFA Champions League case (2003), the Commission observed that a balance should be maintained between member clubs based on the principle of equality. Therefore, the co-operation amongst the clubs to form the ESL is a classic example of a cartel that does not offer any benefit towards the effective competition under the TEFU.
The formation of ESL contravenes Article 101(1)(d), which prohibits placing dissimilar conditions on equivalent entities, as well as the dictum of the Commission in the UEFA Champions League case by placing dissimilar conditions on equivalent clubs based on their financial position, thereby giving excessive power or unfair advantages to the founding clubs. The primary objective of the ESL was to boost up revenues (from broadcasting rights, for example) for the founding clubs, which they believed could be achieved only if elite clubs played against each other. On the contrary, it is believed that small clubs that are not financially acclaimed will find it challenging to participate in the ESL, thereby restricting and harming the competition by creating a market barrier.
Further, Article 102 of TFEU regulates the behaviour of undertakings in a dominant position that act in an abusive manner in the relevant market. The relevant market in this context would be the market for competitive professional club football in Europe as established earlier.
As per the United Brands case, a dominant position means a position of strength in the relevant market, enabling the undertaking to affect the market in its favour or to operate independently of any prevailing competitive forces. As per the Forbes list of richest football clubs in 2021, the 12 founding members collectively are valued at $34.362 billion. Such financial supremacy is a strong indicator of dominance due to its substantial effect on the competition as held in the BPB Industries Plc case. Moreover, the 12 clubs enjoy an aggregate fan base of 1124.2 million and possess significant brand value which is also one of the factors of dominance as held in United Brands v. Commission.
By establishing their own closed private league, the undertakings abused their dominance by omitting competition based on merits. As per the ESL structure, no founding clubs would have been relegated. The inclusions of new clubs were based entirely on their whims and fancies. The closing off of the top of the pyramid of European club football would have had far-reaching consequences by severely limiting the scope of competitive football to the prejudice of the small clubs, players, fans, and spectators. Undoubtedly, this is an evident case of abuse of dominant position under the TFEU. Participation in the UEFA Champions League is still a merit-based process that allows the smaller clubs to secure a participation slot based on their performance in their respective domestic leagues. However, the creation of ESL would tip the market in its favour by attracting lucrative broadcasting and sponsorship deals due to the presence of elite super clubs, thereby affecting the competition in a manner that leaves the less financially acclaimed clubs within Europe at a disadvantageous position.
Due to the presence of a few financially dominant clubs, the competition structure in the market was already weakened to the prejudice of the weaker clubs. In such circumstances, the dominant clubs had a special responsibility not to let their conduct affect genuine competition in the market as held in the Michelin v Commission. However, such responsibility was ignored with the creation of ESL, which had the potential to destroy fair competition in football.
In sports, the fittest team will win inevitably, but that should be based on sporting efficiency and skills, not based on pure financial muscle to ensure compliance with competition law provisions.
4. THE THREAT OF SANCTION FROM UEFA: IS IT ANTI-COMPETITIVE?
In retaliation to the proposed ESL, UEFA stated that it would ban all the ESL member clubs from playing in any competition at the domestic, European, or Global level. Further, their contracted players would be banned from representing their respective national teams. A pertinent question in this regard would be whether such a threat in itself is anti-competitive and abusive of dominance on the part of the UEFA.
The UEFA is indeed a dominant undertaking, being the sole regulator of European football. However, its statement cannot be said to be an abuse of their dominance. Prima-facie, sometimes some stance or behaviour may appear to be anti-competitive but it can have an objective justification in its specific context. The objective justification refers to the legitimate action of a dominant undertaking which has been undertaken to have a beneficial effect on efficiency as mentioned in the British Airways case. An objective justification should pursue a legitimate aim, be reasonable, and proportionate to the objective sought to be achieved. Considering the threat to the open competition that exists in football, the warning from UEFA, if implemented, would not be an abuse of dominance. The pro-competitive effect of protecting the structural integrity, merit-based competition, and sporting integrity of the game would out-weigh any negative effect arising from the statement of UEFA such as threats of sanction on clubs and players. Henceforth, UEFA’s warning is legitimate, reasonable, and proportionate to its objectives of protecting fair and equitable competition within the relevant market in accordance with the TEFU.
5. SUGGESTIONS AND THE WAY FORWARD
After facing a severe backlash, the ESL, for the time being, has been kept aside. However, it does not negate the possibility of it being revived again in the future. The member clubs of the ESL felt that the current financial model in European Football is unsustainable and the new model would bring financial stability. Therefore, it is an appropriate opportunity for the UEFA to devise a policy for the proper and fair appropriation of revenues. This, in turn, will negate the possibility of any clubs rebelling in future by deviating from the established football pyramid, which raises serious competition concerns.