Tapamoy Ghose [i]
On 7th October 2021, the entire football ecosystem woke up to the news that the Newcastle Football Club (‘NUFC’), currently competing in the English Premier League, the first division of English football, has found a new Investor. The English Club will now be financed by an investment group led by a Public Investment Fund (‘PIF’), also comprising PCP Capital Partners and R.B. Sports and Media. The net worth of the PIF is reported to be around £320 bn, followed by Manchester City Football Club, the net worth of whose financial backer, Sheikh Mansour, is reported to be around £22 bn. Post the acquisition of NUFC by the PIF; there is a wide gulf between the financial strength of NUFC and the other clubs in the country, which raises certain competition law implications that ought to be scrutinized. This article attempts to analyze how the acquisition of NUFC has a strong potential to distort equitable competition in the sphere of professional sports. It does so in a two-fold manner: first, by establishing that NUFC is a dominant undertaking by relying on the European Union's (E.U.) competition law and Judicial dictums (as the Competition Act in the U.K. is similar in language to the laws of the E.U., the English Courts are likely to interpret their laws similarly to that of the European Commission). And, second, by highlighting the probable scope of abuse of its newly acquired dominance by NUFC.
Abuse of dominance occurs when an undertaking in a dominant position, in the relevant market, engages in activities for the purpose of wiping out other competitors or deter potential entry of future competitors in the market. So, in short, to establish an abuse of dominance, three components are necessary - a dominant undertaking, a relevant market and lastly, anti-competitive conduct.
Newcastle United: An undertaking for the purpose of Competition law?
The recent acquisition of NUFC has put the club in a dominant position in the British Football structure, where the probability of the abuse of such dominance is plenty. However, to attract the provisions of the Competition Act, 1998 (‘the Act’) (the statute governing competition law in U.K.), it has to be established that NUFC is an 'undertaking' within the meaning of the Act. In the Laurent Piau case, the European Commission held that sports associations such as UEFA and FIFA, and their members, in turn, constitute ‘undertakings’ for the purpose of competition law. Since Football Association (‘FA’), the regulator of professional football in England, is a member of UEFA, and NUFC, in turn, is a member of FA, it reasonably follows that NUFC can be regarded as an undertaking for the purposes of the Act, considering the Piau dictum.
Newcastle United: A dominant undertaking?
Prior to establishing abuse of dominance by NUFC, it is imperative to establish that NUFC is a dominant undertaking, and to define the relevant market in which such dominance is to be found. The relevant market in this context would be the market for competitive professional club football in England, and the relevant geographical area would be England.
S. 18 of the Competition Act, 1998 lays down provision pertaining to abuse of dominance by a dominant undertaking. For the purpose of Competition Law, an undertaking can be regarded as dominant when its economic position of strength in the relevant market enables the undertaking (NUFC, in this context) to operate independently and freely from its competitors to an appreciable extent, as decided in the United Brands Case.
NUFC, with the backing of an investor, whose net worth is around £320 bn, is certainly in a position where it can compete in the relevant market independent of any other competitive forces (other football clubs in the division in this context), and can certainly affect the market positively in its favour. Furthermore, NUFC’s considerable financial strength is a strong indication of dominance, considering the extent to which financial supremacy can affect the market, as held in the BPB Industries PLC case.
Considering all the above mentioned factors, there can be no doubt that NUFC is a dominant undertaking in the relevant market.
Abuse of dominance: An ominous possibility?
One of the most important things that ensure equitable and fair competition in professional football is that football clubs can compete fairly in the transfer market to acquire the services of professional football players. However, with the recently acquired financial dominance of NUFC, the same cannot be said with certainty anymore. The massive investment, which has been pumped into the club by the PIF, would enable NUFC to compete with a considerable edge in the transfer market with a purse that is significantly heavier than its nearest competitors. The best way a dominant undertaking like NUFC can distort the established market structure is by unduly influencing the transfer market, which can be done by acquiring talented players at an inflated price, thereby hindering the growth of other competitors, who cannot match such inflated price tags (clubs, in this context).
Such exploitative conduct by NUFC has a high probability of limiting technical developments or investment in professional football in England in the long term, to the prejudice of consumers, who are ultimately the viewers of the game. If NUFC’s owners are allowed to operate freely in the transfer market on the basis of their heavily filled purse, the same will disincentivize other competitors (other football clubs in this context) to compete in the market, that would indeed limit technical development in professional football, as the same cannot happen without free and fair competition. In such a scenario, S. 18(2)(b) of the Competition Act would apply, thereby making NUFC guilty of abusing its dominance by limiting technical development in the market to the prejudice of the consumers.
The competition regulators are required to make a real-time investigation of alleged abuse of dominance in the relevant market based on the available evidence as per the Coca Cola case. In arguendo, even if NUFC argues in future that their abusive conduct in the transfer market does not fall under any of the instances laid down in S. 18(2), the regulators can always take recourse to the established judicial position , which allows setting up new instances through which abuse of dominance can be found. As to what constitutes an abuse of dominance, there can be no exhaustive list. The same thought has been affirmed by the European Commission from time to time, the most prominent one being the Continental Can case. In practice also, the Commission, in the past, has found abuse of dominance in cases where the abusive practice by an undertaking was not specified under Article 102 of the TFEU, with the AstraZeneca case being an example. The regulators of competition law in the U.K. should not shy away from adopting the potential conduct of NUFC to be a new instance of abuse of dominance, independent of any codified instances under the Act, by relying on the judicial pronouncements of the Commission as mentioned herein.
One cannot neglect that expanding the scope of abuse of dominance in such a way may have a few negative effects as it may lead to the regulators finding abuse of dominance in normal business practices of an undertaking or it may give the regulators wide discretion, which is prone to misuse. However, such discretion bestowed on the regulators should not be taken away, for the reason that in recent times, the scope of a dominant undertaking, indulging into anti-competitive conducts have expanded significantly, NUFC being a prime example. In such a circumstance, the hand of the regulators should not be tied to the words of a statute only.
Dominance and special responsibility: What can Newcastle United do?
By the mere presence of an undertaking like NUFC, the structure of the market would be fragile. Because of that, antitrust law imposes a special obligation upon NUFC to adhere to the standard of fair and just competition while operating in the market. Hence, every undertaking in a dominant position, such as NUFC, has a special responsibility to ensure that their conduct does not impair the undistorted competition in the market as per Michelin v. Commission. If they live up to that obligation, then the probability of potential abuse of dominance would reduce substantially too. The fact that NUFC is dominant would not be anti-competitive per se, as dominance is not prohibited in competition law. What is prohibited is its abuse.
Conclusion and the way forward
The preliminary onus is on the regulators such as UEFA and FIFA to ensure that dominant undertakings such as NUFC do not get a free run in the transfer market by spending an unreasonable sum of money.). Currently, UEFA has a mechanism called the Financial Fair Play (‘FFP’) rules to stop the clubs from spending an exorbitant amount of money in the transfer market. However, the current FFP rules merely attempts to ensure that the clubs are not spending more than what they are earning. The clubs can bypass the current FFP rules by projecting their earnings to be higher than what it actually is, thereby inflating the amount of money available to them for spending in the transfer market. A recent example in this regard would be the Manchester City FFP case, where Manchester City was charged by UEFA for breaking its FFP rules. Though, Manchester City managed to wriggle out of these charges, claims were there that the club deliberately inflated its revenue to misled the authorities.
In this regard, the current FFP rules must be overhauled by UEFA. The ideal approach is to bring a system where the clubs cannot spend more than a designated amount regardless of their earnings. Such a system, if in place, would ensure that dominant undertakings like NUFC cannot distort the transfer market, and in extension, the competitive structure in professional sports. If dominant undertakings are regulated in a way where their spending capacity is limited to a certain amount, the probability of abuse of such dominance will reduce drastically. In that way, the competitive integrity and fairness of the existing football structure would be protected.
Tapamoy Ghose is a third year law student at the National University of Advanced Legal Studies, Kochi, who is currently working as an editor at the Restructuring and Insolvency Law Journal of Nuals. His interests lie in Competition Law and Insolvency Law.
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