sport  
 
 
 
Joint Marketing and Competition Law
 

by Dr. András Gurovits
January 2008
 

1. Introduction

The joint marketing by a sports association or a marketer gives rise to questions as a matter of cartel law because such marketing regularly leads to exclusive rights on the part of the umbrella association and/or of the marketer. A distortion in competition may result from this because production and price competition may be restricted. Or, to put it in the words of the EU Commission with respect to the joint marketing of the rights to the UEFA Champions League: “The sale of the entire rights on an exclusive basis and for a long period of time has the effect of reinforcing the position of the incumbent television companies as the only ones with the financial strength to win the bids. This, in turn, leads to unsatisfied demand from broadcasters and a lesser ability to make an attractive offer to customers. Sports and films are two key ingredients for television and for pay-TV channels in particular. They are also proving increasingly critical for the development of new technologies."[1].

In connection with the assessment as a matter of competition law, the following questions play an important role: (i) who is the organizer and who is originally entitled to the marketing rights? (ii) is there joint marketing? (iii) does the joint marketing lead to a substantial or perceptible restraint of competition? (iv) is a possible substantial (or perceptible) impairment of competition justified through gains in efficiency? and (v) is there possibly misuse of a market-dominant position?

The explanations below are based both on Swiss law as well as on EU cartel law. In connection therewith, the problems will primarily be explained on the basis of a decision of the EU Commission on the marketing of the UEFA Champions League.

2. Who is the Organizer? /Who is Originally Entitled to the Rights?

The term “organizer” is also of considerable importance from the viewpoint of cartel law since it is determinative in connection with the question of who will be viewed as being originally entitled to the marketing rights. If, for example, an umbrella association is the “organizer” of the competition organized by it, based on prevailing legal opinion, the umbrella association is originally entitled to the marketing rights. If the association is, on the other hand, “only” a co-organizer or is not a organizer at all, then it is not originally entitled to the marketing rights. [2] Nothing in this respect is changed, either, if the association has the marketing rights be granted through the articles of association and/or agreements. [3] If the umbrella association that disposes over the marketing rights is not the original holder of these rights, there is a joint marketing of the rights through the umbrella association based on a joint decision or express agreement. Members of such an umbrella association regularly include national associations whose members are clubs. At least in the case of football, basketball and other types of team sports, such clubs are engaged in economic activities. The national associations are therefore associations of undertakings and are also themselves to be viewed as undertakings, to the extent that they themselves are engaged in economic activities. The international association is then in turn to be viewed as association of undertakings and, because it is itself also engaged in economic activities, as an undertaking [4]. The regulations of the umbrella association and of its member associations are therefore regularly to be viewed as the decision of an association of associations of undertakings.[5]

Because the individual associations or the associations that are members of the umbrella association do not exploit the rights themselves but, rather, leave the exploitation up to the umbrella association, the former will be hindered in itself appearing in the market for the exploitation of rights and/or being active in such market. Therefore, competition between them and the umbrella association in the corresponding market is restrained. This can lead to a substantial or perceptible impairment of competition to the extent that, for example, the diminishment in competition brought about by the joint marketing leads to uniform prices, as compared with individual marketing.[6]

This sheds light on the fact that, from a competition law standpoint, it is important whether the marketing rights originally rest with the umbrella association, i.e., whether the umbrella association is the organizer of the sports event. The question of the identity of the organizer, however, is not easy to answer. An express statutory provision in this regard is lacking under both Swiss law as well as EU law. As a matter of legal practice, however, criteria have developed pursuant to which the characteristic of organizer should be determined. These include, above all, bearing the financial and organizational risk of the sports event as well as the opportunity to engage in defensive claims against unauthorized persons. Thus, for example, the EU Commission decided in the UEFA Champions League decision that both associations involved in a game of the Champions League may assert rights of ownership to the commercial rights. Namely, the right as owner of the stadium to deny access to media operators who wish to record the match could not be denied to an individual club. Similarly, the visiting club whose participation permits the match to come about in the first place cannot be refused an exertion of influence on whether, how and from whom the match will be recorded.[7] Based on the far-reaching exertion of influence of the UEFA over the “Champions League” competition, however, the Commission concluded that the clubs and the UEFA are to be viewed as co-owners of the rights to the individual matches.[8]

The criteria laid down by the EU Commission in the UEFA Champions League case[9] may not, of course, be indiscriminately applied to all other sports events. For reasons of topical interest, reference is made to the fact that the form and structure of the final round of an ice hockey championship or football world championship[10] differ substantially from the Champions League. A world championship is played in the form of a tournament in a single country.[11] The stadiums are available during the world championship solely to the umbrella association and to the host and are not in any manner available to the clubs who play in the stadiums. The world championship takes place outside of the football season of the member associations. The participants are the national teams of the member associations who were able to qualify for the world championship. There are no first and second legs, as in the Champions League. The world championship is carried out under the auspices of the umbrella association; the exertion of influence by the sports association is very extensive. Based on all of these reasons, a co-ownership by the member associations of the marketing rights is, in the author’s view, inapplicable from the outset. The same also likely applies with respect to the host, who is permitted to carry out the event taking place every four years and who is under the [•severe] supervision of the sports association.[12]

3. Is There Joint Marketing?

Based on the above, it follows that there is joint marketing within the meaning of competition law to the extent that the umbrella association is not the exclusive and original holder of the marketing rights. If the umbrella organization, for example, shares the rights with other associations or clubs, and if it is authorized to exclusively exercise the marketing rights based on the articles of association and/or agreements, there is joint marketing based on a decision of an association of undertakings.

4. Does the Joint Marketing Lead to a Substantial Impariment of Competition?

In this regard as well, the decision of the EU Commission in connection with the UEFA Champions League is illustrative.

The Commission distinguished, among other things, as relevant product markets, between the upstream market for the acquisition of TV broadcasting rights of football events played regularly throughout every year, the downstream markets on which broadcasters compete for advertising revenues depending on audience rates and pay-TV subscribers as well as the upstream and downstream markets for other commercial rights, such as sponsorship, suppliership and licensing.

With respect to the marketing of the television rights, the Commission held that the type of marketing contemplated by UEFA was to bring about an appreciable restriction of competition in the broadcasting market because football accounts for the single highest proportion of TV channels expenditure and the interested parties were confronted with a supply monopoly. Moreover, the Commission also viewed the trade among States as being affected.[13]

What is of special importance with respect to the marketing agreements of interest here, however, is the finding of the Commission that the distribution by the UEFA of other commercial rights to the correspondingly defined markets, such as sponsoring, supplier and licensing rights, will likely not appreciably restrict competition. It therefore waived a further-reaching definition and investigation of these relevant product markets.[14] What was determinative for this decision was the view that these rights are part of more comprehensive markets of products for advertising purposes. Therefore, it appears that the Commission assumes the existence of a significantly broader objectively affected market with respect to marketing, sponsoring and merchandising than in the case of the television rights and, in particular, does not exclusively relate these markets to certain sports events. Based on the explanations of the Commission in the UEFA Champions League case, it may now be presumed that the joint marketing of rights other than television rights in connection with other sports events, too, will be adjudged in a significantly more relaxed fashion and that a substantial restraint of competition will likely be rejected.

5. Justification through Increased Efficiency?

If a substantial restraint of competition were to be affirmed as in the case of the UEFA Champions League television rights, such restraint could always be justified through gains in efficiency and the corresponding agreement could be viewed as in conformity with law or be exempted.

In the above-referenced UEFA Champions League decision, the Commission assessed the advantages arising from the agreement restraining competition from various perspectives. In connection therewith, it concluded that the concept presented by the UEFA for purposes of marketing the Champions League did indeed lead to improvement in production or distribution because a high-quality brand range of products would be created that was advantageous due to the joint distribution and the bundling of league-specific packages of rights for media enterprises, football clubs and consumers. Furthermore, the rules of UEFA for purposes of joint marketing provided consumers with a fair share of the benefits. Finally, the Commission also acknowledged that the provisions governing a bundling of the media rights exploited by the individual clubs through a third party are indispensable with respect to the protection of the integrity and the brand character of the television rights to the UEFA Champions League being jointly marketed. Based on all of these reasons, the Commission concluded that the cumulative conditions of Article 81 Para. 3 of the EC Treaty were fulfilled and that the rules of the UEFA could be exempted. The exemption was granted until July 31, 2009.[15]

Under Swiss cartel law, the above decision would likely turn out similar. In particular, it could first be expected that the Swiss Competition Commission would align itself with the above-referenced UEFA decision of the EU Commission. Next, an agreement on competition can also be justified under Swiss law based on reasons of economic efficiency if it is necessary in order to reduce the costs of manufacture and distribution, to improve products or manufacturing procedures, to promote research or the dissemination of technical or professional knowledge or to use resources in more rational fashion and does not in any way thereby open opportunities to the enterprises involved to eliminate effective competition.[16]

6. No Missue of Market Power

For the sake of completeness, it is noted that the explanations above are limited to the extent that, even if the agreement for purposes of joint marketing were deemed to be justified through gains in efficiency, an act that is prohibited under cartel law could still exist if the umbrella association or the marketer were to misuse a possible market dominant position in connection with the concrete marketing of the rights.[17]








Fußnotenverweise
 

[1] Press release of the EU Commission dated July 24, 2003, IP/03/1105.

[2] Instead of many others: Kuczera, p. 251.

[3] Abl. of 11/8/2003, L291/44/ 45.

[4] Cf. OJ. of 11/8/2003, L291/42.

[5] Article 4 Para. 1 of the Law on Cartels; Zurkinden/Trüeb, p. 44; Art. 81 Para. 1 of the EC Treaty.

[6] OJ. of 11/8/2003, L291/43.

[7] OJ. of 11/8/2003, L291/44.

[8] OJ. of 11/8/2003, L291/45.

[9] The marketing rules of UEFA to be assessed essentially provided for the following marketing system: (i) UEFA will continue to market centrally the rights to live TV transmission of the Tuesday and Wednesday night matches. The main rights will be split into two separate rights packages giving the winning broadcasters the right to pick the two best matches. (ii) UEFA will initially have the exclusive right to sell the remaining live rights of the Champions League. However, if it does not manage to sell this package within a certain cut-off date, the individual clubs will be able to market the matches themselves. (iii) Both UEFA as well as the clubs may make available Champion League content to Internet operators and telecommunications companies that wish to build up or promote the UMTS technology. (iv) The clubs have the rights to exploit TV rights on a deferred basis and to use archive content, e.g. for the production of videos. (v) UEFA may offer the rights for distribution in a public bid invitation, in each case for a maximum of three years.

[10] Or also a European football championship, or a world or European championship of another type of sport.

[11] Or, as in 2002, in two countries, Korea and Japan.

[12] Cf. e.g. preamble, Clause 5, 2006 FIFA World Cup Regulations.

[13] OJ. of 11/8/2003, L291/46, 47.

[14] OJ. of 11/8/2003, L291/40.

[15] OJ. of 11/8/2003, L291/54, 55.

[16] Cf. Article 5 of the Cartel Law; Art. 81 of the EC Treaty.

[17] Cf. Article 7 of the Cartel Law; Art. 82 of the EC Treaty. See also the decision of the EU Commission of 20 July 1999 in relaion to the sale of tickets for the final round of the 1998 FIFA World Cup, OJ. of 8.1.2000, L5/55.

 
 


Dr. András Gurovits
Niederer Kraft & Frey

Bahnhofstrasse 13
CH-8001 Zurich, Switzerland
Phone +41-58-800 8000, Fax +41-58-800 8080
www.nkf.ch