Does competition law still have a role to play in sport? The failed challenge by Saracens

In November last year, the English professional rugby club, Saracens, was heavily sanctioned by a league disciplinary panel for breaches of the salary cap rules.  The decision to impose a fine and, more eye-catchingly, deduct so many points from Saracens that they will finish the season with a negative total, made many headlines.

A less newsworthy aspect of that recently-published decision,¹ but one which is of significant legal interest, is the basis on which Saracens chose to challenge the charge that it breached the salary cap rules.  In short, Saracens argued that the concept of a salary cap violates competition law rules (and is therefore illegal, void and unenforceable) because it prevented the club from being able to complete freely to attract the best players.

The competition law challenge (as it was termed by the panel) is the latest in an increasingly long line of competition law-based challenges to organisers and regulators of sport.  However, in contrast to the recent trend of sports regulators being found to have breached competition law rules (or agreeing to change rules before being found to have done so),² Saracens’ arguments were categorically dismissed by the disciplinary panel.  So, is this the end (or the beginning of the end) for competition law challenges in sport?

This is doubtful for two main reasons:

Saracens’ challenge was easy to dismiss on the facts

The decision against Saracens is that of an arbitration panel – not a competition authority or a court.  As such, we should be careful about reading too much into the wider significance of its findings.  This is particularly the case given the facts here.

Fundamentally, any argument that a sporting rule breaches competition law must establish two things:

• That the rule in question restricts an economic activity of some sort either “by object” (i.e. in circumstances where the harm to competition is so clear and obvious that no economic evidence of its impact is required, akin to a price cartel) or “by effect” (i.e. it can be shown that the effect of the rule is appreciably to restrict competition that would otherwise exist without the rule).
• That the rule does not otherwise pursue a legitimate objective and is inherent in the pursuit of, and otherwise proportionate to, achieving that objective such that it is outside the scope of the competition rules altogether. This is particularly important in the sporting context and is the reason, for example, that anti-doping bans are not considered anti-competitive (such bans would otherwise, technically, restrict professional athletes from being able to participate in, and earn revenues from, sporting contests in circumstances where they are found to have breached those rules).³

The arguments and evidence put forward by Saracens were not convincing on these two fundamental points.  In particular, the panel’s decision relied heavily on the following facts:

• Saracens could not point to any prior case that has found a salary cap to be a breach of competition law rules “by object” and a similarly-framed competition law challenge to the financial fair play rules in football was dismissed by a previous arbitration panel;⁴
• The expert evidence put forward by Saracens was patchy and failed to address fundamental questions relating to what the relevant market might be on which competition has been restricted and/or what competition would have looked like without the salary cap in question (the so-called “counterfactual” world);⁵ and
• Saracens accepted that a salary cap in some form was desirable (a view enunciated by the CEO and owner when called by the panel as witnesses). The panel found that the intention of the salary cap was therefore not to limit competition but rather to ensure that clubs operated in a sustainable way (there having been a number of rugby clubs that have gone bankrupt attempting to overreach themselves to remain in the top division) and to preserve the integrity of the league (ensuring a more even competition between richer and poorer clubs) – a legitimate objective.

Interestingly, due to the way in which the case was argued, the panel did not have to work particularly hard to justify their decision.  As a result, some of the reasoning does leave certain issues open for debate in future cases.  For example:

• Due to the lack of evidence put forward by Saracens, the analysis of whether the salary cap is a restriction of competition “by effect” is cursory at best. Very little evidence was put forward on fundamental concepts necessary to any such finding – for example, what is the relevant market in which competition is allegedly appreciably restricted and, in order to quantify the extent of any restriction, what level of competition would have realistically existed absent the rule in question (the “counterfactual” concept referred to above).

As a result, the panel was able to conclude that there was no appreciable restriction of competition proven because (a) rugby clubs in the league have a large number of non-English players that they have been able to attract; and (b) Saracens has had success in European competitions. This evidence seems a little circumstantial.  Similarly, and more fundamentally, the panel was able to find that there is no restriction of competition in any case because there would be no league competition without a salary cap.  This seems a stretch.  Is it really the case that one cannot conceive of a realistic alternative world in which a professional rugby league operates without a salary cap such that the existence of a salary cap can never be said to restrict competition “by effect”?

• As a result of Saracens not pursuing the point, there is barely any consideration by the panel of whether the salary cap rules should be considered inherent in the pursuit of the legitimate objectives of maintaining the sustainability of clubs and the integrity of the league and, even if they were, whether the available punishments are a proportionate means to achieve that objective. This topic usually forms the crux of competition law challenges to sporting rules.

The Saracens case is very different from a number of other recent successful challenges

The Saracens case appears to be the latest in a line of cases where challenges have been made based on the impact of sporting rules on competition between participating clubs or athletes - “the rules of the contest” imposed by a sports organiser or regulator.  Competition authorities, courts and panels alike have (understandably) shown great sympathy for regulators in this context and, in line with established case-law, granted a margin of appreciation to regulators, meaning that competition law arguments are often given short shrift.  One might classify the Saracens decision as effectively saying to Premiership Rugby – providing you are acting reasonably, it is up to you how you organise your league and how you determine the rules of competition between participating rugby clubs.

However, competition law challenges have been far more successful in seeking to challenge rules or regulations that seek to protect the organiser or regulator themselves from competition.  For example, the European Commission decision regarding the International Skating Union’s eligibility rules for athletes or, further in the past, the European Commission decision to challenge the FIA’s regulation of Formula 1.  In both these cases, the incumbent regulator was viewed as seeking to prevent third party organisations from creating competing series or events to those organised by the regulator and, in both cases, this was seen as a breach of competition rules. Similarly, actions by regulators which distort competition in ancillary markets that generate revenues from the sport have been viewed dimly by competition authorities (for example, the recent challenge by the German competition authority to the German Olympic association rules regarding restrictions placed on advertising by individual athletes).  The Saracens case does not impact on this line of cases and, where such issues arise, there remains plenty to play for from a competition law perspective.⁶

[1]  https://www.premiershiprugby.com/news/publication-of-independent-panels-decision-on-saracens.

[2] Some recent examples include challenges to regulators of ice skating, equestrian sports, basketball and swimming.

[3] See, for example, the leading case of Meca-Medina (Case C-519/04, [2006] ECR I-6991).

[4] The panel in question was a panel of the Football Disciplinary Commission deciding on a challenge brought by QPR to the English Football League financial fair play rules (decision of 19 October 2017).

[5] The concept of the “counterfactual” is key to most competition law analyses. In order to determine the extent to which competition might be restricted by a particular agreement or decision, one needs to decide what the world would realistically look like without that agreement or decision in issue.

[6] By way of a recent example, two complaints have recently been lodged with the European Commission concerning the rules of cycling’s governing body (the UCI) that allegedly restrict the ability of third parties to introduce new race structures and technologies (the Velon complaint) and which allegedly restrict opportunities for semi-professional cycling teams (the Lega del Ciclismo Professionistico complaint).