How the breakaway European Super League could become a widely contested competition law matter

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Simon Neill, Partner and Head of the UK Competition Practice at Osborne Clarke discusses the parallels between the controversy surrounding the proposed European Super League and its effect on UK law.

Balancing the right of free competition of a few top European clubs against fair competition in Europe’s football leagues has provoked huge controversy.

Twelve of the biggest European football clubs recently announced the creation of a breakaway “Super League” competition which could potentially revolutionise modern football.

However, the declaration was greeted with near-universal opposition from fans and rival clubs and was immediately condemned by both FIFA and UEFA, international football’s governing bodies, which labelled it as a “cynical project (…) that is founded on self-interest”.

Although, less than 72 hours after its announcement, the European Super League (ESL) project was beginning to fail, there are potential long-term implications for competition law.

Background

The creation of a new club football competition, independent of FIFA and UEFA, is by no means a novel idea.

Over the past 20 years, there have been various talks between Europe’s wealthiest clubs about creation of their own league outside the UEFA structure, although until now they have never really materialised. The late-night announcement by the league’s 12 founders and permanent members: Spain’s Real Madrid, Barcelona and Atlético Madrid; England’s Manchester United, Manchester City, Liverpool, Arsenal, Chelsea and Tottenham Hotspur; and Italy’s Juventus, AC Milan and Inter Milan, is the most advanced step so far taken to implement this controversial idea.

The contest, backed by JP Morgan’s estimated $6 billion debt financing, aimed to supersede the UEFA Champions League and would have involved 20 teams competing with each other on annual basis – 15 permanent members (three more to be announced) and five additional clubs competing on temporary basis, selected each year based on criteria still to be set by the founding clubs.

In response to the Super League’s announcement, FIFA, together with a number of other football organisations, issued a joint statement expressing “its disapproval to a ‘closed European breakaway league'”, while UEFA sent a clear message that it will pursue all “efforts to stop this cynical project, a project that is founded on the self-interest of a few clubs at a time when society needs solidarity more than ever”. The proposal has even invited explicit condemnation from Prime Minister Boris Johnson. It has been reported that the Super League clubs have responded to this criticism by threatening to take legal action if the international bodies attempt to block the new competition.

Competition law on the offensive

So what form might legal action, commenced by either side to this dispute, take? One argument against the Super League is that, as a closed competition without possibility of relegation and promotion, it constitutes an anticompetitive agreement in violation of Article 101(1) of the Treaty on the Functioning of the European Union (TFEU), as well as possibly leads to creation of a collective dominant position.

Article 101(1) TFEU prohibits agreements between “undertakings” (here, the participating football clubs) that have as their object or effect the prevention, restriction or distortion of competition anywhere within the EU market.

Collective dominance

It could be argued that the agreement to form this new competition amounts to creation of a collective dominant position shared between the founding clubs. Given the size and status enjoyed by the Super League’s permanent members, as well as the limited nature of the Champions League that only sees 32 clubs qualifying each year, the (as initially envisaged) 12 breakaway clubs constitute a very significant proportion of the market for top-tier European football, and in any event one that is greater than 20 per cent (being the general upper limit for horizontal arrangements between competitors).

The argument for ESL’s collective dominance is further reinforced by the fact that the league is of a closed character. Given how distinct this competition is from any other European football offering, as well as the unparalleled amount of money associated with it, it could potentially be deemed a market in its own right. Should that be the case, the ESL would need to give careful consideration to its exclusive nature, in particular the rules of access which might have to be modified in order to ensure fair access and no unfair discrimination between participating members (which may require ESL to revisit its proposal of having a mixture of permanent and temporary members).

Unfairly discriminatory rules

The proposed creation of a two-tier membership system could itself be deemed anticompetitive. One argument might be that the governing rules of the ESL constitute a horizontal agreement between competing clubs which restricts competition by applying dissimilar conditions to participating clubs, thereby placing some of them at a competitive disadvantage – in breach of Art. 101(1)(d) TFEU (and potentially an abuse of dominance if ESL is found to enjoy a position of dominance).

UEFA might also argue that the clubs engaged in the Super League effectively formed a cartel which unfairly excludes all other teams from entering the competition and benefitting from the big profits involved. It is reported that the founding members would collectively be able to draw from a €3.5 billion fund to spend on infrastructure investments, in addition to the €100 million – €350 million payment each for joining the contest alone. With Super League’s expected annual revenues of €4 billion, coming mainly through media and sponsorship sales, clubs could receive a minimum fixed payment of €264 million a year, irrespective of on-field performance. While UEFA redistributes a small percentage of the Champions League profits across the wide European football industry, there are currently no known plans for a similar mechanism within the privately owned Super League.

Detrimental effects on excluded clubs and leagues

The closed and exclusive nature of the agreement between the European Super League clubs will also have the effect of placing their non-participating rivals at a competitive disadvantage by arbitrarily denying them the opportunity of competing in what is expected to be a highly lucrative competition.

As only three Spanish, three Italian and six English teams (pending announcement of the three remaining permanent members) would have the theoretical possibility of participating in and winning this flagship competition, other clubs which regularly compete in the Champions League such as, for example, Sevilla, Leicester City, AS Roma, Napoli, or last year’s quarter-finalist Atalanta, would be arbitrarily excluded from both the direct monetary profits as well as the extra popularity associated with the Super League’s global TV coverage, ticket and merchandise sales.

This, in turn, means that clubs such as Napoli, Roma or Atalanta may, in the longer term, be less able to compete effectively with AC Milan, Inter and Juventus (all three being the initially envisaged permanent members) when it comes to attracting new fans/customers, selling rights and attracting sponsorship. In contrast, the three permanent Italian clubs would further increase their market power, resulting in less (financially fair) competition in the Italian football market.

Although, in England, there were initially supposed to be as many as six domestic clubs competing in this new top-tier European football competition, the other countries would have a maximum of three and some (such as France and the Netherlands, although this has not yet been confirmed) possibly only having one participating club (the two German clubs Bayern Munich and Borussia Dortmund have so far rejected participating). In this situation, such a club would enjoy a monopoly on top European football in its own country, with the corresponding potential to exploit that monopoly situation for its own advantage. The closed structure of the ESL would effectively exclude almost all European clubs and would break football’s all-important promise that any club can triumph. All of this risks contributing to a reduction in the nature and quality, and a distortion, of competition between clubs.

Super League’s competition law counter-attack

In response to the Super League’s creation, seen as the biggest threat ever posed to the UEFA Champions League tournament, the European football federation stated that it will consider “all measures available … both judicial and sporting in order to prevent this happening”. Some of the most widely discussed measures could include excluding participating teams from their domestic leagues, as well as banning footballers playing at the Super League clubs from representing their national teams in competitions such as the World Cup and the European Championships.

As football clubs are not the first to come up with an idea of a closed sports league independent of the well-established confederations, the world of sport is already familiar with the contention that rules or actions preventing athlete participation in breakaway events are in breach of competition law. In a recent 2020 decision, the General Court of the European Union ruled that eligibility rules adopted by the International Skating Union (ISU), the governing body of professional ice skating, which banned skaters who take part in events not authorised by the ISU from participating in its events, were in violation of EU competition law. The court agreed with an earlier decision of the European Commission that the ISU’s penalty system was disproportionate and its severity could deter athletes from participating in competitions not authorised by the ISU.

Similarly, the International Swimming Federation (FINA) has faced US competition law claims by swimmers and promoters of a privately organised “International Swimming League” after banning swimmers who had participated in non-FINA approved competitions from taking part in the Olympic Games qualifying events. In 2019, FINA’s interim motion to dismiss was denied after the court found that the anticompetitive conduct complaints were plausible claims for relief which FINA would need to answer. A trial is scheduled to take place in 2022.

Although the facts and stakes in those cases are different, the Super League clubs could respond by asking courts to assess whether the threat of a possible FIFA World Cup and UEFA Euro ban is compatible with European competition law, in particular whether it amounts an anticompetitive and unfairly discriminatory attempt to exclude competitors from FIFA’s and UEFA’s competitions. This view has been further reaffirmed by the Super League’s officials who, in response to the sudden announcement of the English clubs’ intention to withdraw (later followed by lunch-time announcements from Inter, AC Milan and Atlético), stated that “we are convinced our proposal is fully aligned with European law and regulations”. Indeed, on 20th April the ESL obtained a favourable ruling from a Madrid commercial court following its request for an interim measure restricting any action that FIFA and UEFA might take against the new competition until plans were finalised.

Further, in potential defence to the collective dominance argument, the ESL could argue that the very nature of a new European competition is pro-competitive, as it introduces a rival tournament to the Champions League. The mere fact that this may potentially weaken the position enjoyed by the Champions League is not in itself anti-competitive. The ESL could argue that, at the moment, there is no real alternative to the UEFA’s club tournament. By establishing the ESL, competition in the market for top-tier European football will increase (and more clubs would be able to participate overall), while also offering customers more choice in deciding which competition to watch. This would also, in turn, put a competitive pressure on UEFA to improve their own product (already criticised by many) and make it a better competition, therefore increasing overall consumer welfare.

The European Commission – an unwilling referee?

Back in 1998, when Europe’s biggest football clubs tested the waters for this new competition for the first time, the former Competition Commissioner Karel van Miert, a football enthusiast himself, met lawyers working for the Milan-based company behind the “super” proposal as well as, separately, with the UEFA representatives arguing for preventing the break-up of the already established structure of European football. At present, it seems that the European Commission’s competition enforcers seem reluctant to get involved in what is shaping up to be a politically charged legal battle over the proposed creation of the Super League. “Disputes regarding the governance of the sport, can usually be best handled by relevant arbitration bodies and national courts rather than by the European Commission,” a European Commission spokesperson dealing with competition cases said, while another EU spokesperson added that “the Commission …. respects the autonomy of sports federations, while stressing that good governance …. is a condition for the autonomy and self-regulation of sport organisations”.

In contrast to the reserved position taken by the European Commission, Boris Johnson has been forthright in expressing his personal view that the creation of the Super League “would be very damaging for football and we support football authorities in taking action”. This sentiment has since been echoed by the UK Secretary of State for Digital, Culture, Media and Sport, Oliver Dowden, who, speaking in the House of Commons on 20th April, signalled that the government is considering taking legal action: “We are examining every option from governance reform to competition law and mechanisms that allow football to take place. Put simply, we will be reviewing everything the Government does to support these clubs to play. I have discussed these options with the Prime Minister this morning, and we are working at pace across Government and with the football authorities. We will do whatever it takes to protect our national game.”

Given the European Commission’s seeming reluctance to get involved, one regulator that could have been willing to take the lead in refereeing this legal match is the UK’s Competition and Markets Authority (CMA), which, following Brexit, is looking for opportunities to enhance its global reputation as a leading antitrust agency. Depending on, among others, what steps will the English clubs take following their announcement of their intention to pull out of the new competition, this might be an attractive case to take on, given that initially half of the Super League’s founding members were English, combined with the fact that the Premier League is an important part of the British economy and a wider “soft power” globally.

Should the English “big six” decide to change their position again and England’s top football competition be deprived of its most prominent clubs and players, it may harm English football’s worldwide influence.

Many current and former footballers, coaches and club presidents have already called for an independent regulator to step in and prevent the new breakaway competition. And as it has been proven by the radical change in position of the English “big six”, followed by similar moves from Inter, AC Milan and Atlético, that sort of pressure could be more powerful than many would have expected. It remains to be seen whether the Super League clubs will try again to proceed with implementation of the competition, or whether this ultimately proves to be little more than a strategic way of pressuring FIFA and UEFA into granting more favourable conditions.

The entire dispute boils down to the question whether the right of free competition of a few top European clubs should trump the fair competition in Europe’s football leagues.

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