24 April 2012

League sports – Applicability of competition law

By Vidushpat Singhania

While cricket is the king of sports in India, other team sports like football and hockey and recently even Formula 1 races are gaining popularity and viewership with large corporates evincing interest in sponsorship and willing to invest in building brands and some even acquiring popular overseas clubs that attract a young audience. IPL is now in its fifth season and its continued success has clearly demonstrated the commercial viability of franchisee, endorsement and broadcasting rights for club and league sports. The moot question therefore is whether league and club events can be held outside the National Sports Federation (NSF) and if yes, the real benefits of such events including increasing the popularity of such sports.                   

Sports events worldwide are organized in a pyramid structure, where a particular sport is governed and regulated by a single International Federation (IF) with various NSFs affiliated to it. The IF governs the regulatory aspect i.e. laying down the rules of the sport, eligibility criteria and playing conditions. The IF also makes the annual calendar for that sport and conducts the world championship and other international level events. A corollary at the national level would be that the NSF would follow the regulations of the IF as a condition of its membership and have exclusive powers to make the annual calendar, develop grass-root level of sport and conduct tournaments and training camps in the country.

The importance of the pyramid structure and the risk to the sports due to multiple sport federations have been recognized by IOC and have been addressed in the European Commission’s Helsinki Report and the White Paper on sport. Integrity, uniformity and strict control over regulations ensure that non-discriminatory uniform rules are applied to the sport worldwide and encourage growth of the sports across the globe. It includes sporting sanctions like disciplinary action, suspensions, fines and bans for behavior contrary to the spirit of sports which lie at the core of the sporting movement and can be applied only within the sporting structure. 

The directions of the Delhi High Court directing the Competition Commission of India (CCI) to undertake enquiry against the All India Chess Federation for preventing its players from taking part in a tournament outside its aegis, BCCI’s sanctions on the Indian Cricket League and the conduct of the World Series Hockey by the Indian Hockey Federation allegedly fall within the ambit of the IF/NSF trying to curb the advent of breakaway leagues through their rules. 

The IF/NSFs’ rules restricting rival tournaments and release of players for these tournaments (e.g. India) have come  under the scanner of competition/anti-trust laws like abuse of dominant position and anti-competitive agreements leading to unreasonable restraint on trade. The sports industry is  unique  because the pyramid structure which ensures monopoly is essential in maintaining the integrity of sport and unlike other industries, the industry thrives  on competition rather than from the lack of it. This reasoning gives birth to the exception of ‘Specificity of Sport’ i.e. certain sporting activities are excluded from the purview of the competition laws. The European courts while creating this exception have divided the IF/NSF activities into two parts. The first being pure sporting functions whereas the second being activities having a substantial economic impact.

Pure sporting activities like laying down the rules of the sport, defining the size and weight of the ball and dimensions of the playing field are excluded from the ambit of competition laws. But activities of the IF/NSF having substantial economic impact are within the purview of the competition law. The regulatory power of the IF/NSF if used to gain commercial and financial advantage would fall within this ambit provided the following conditions are satisfied: 

  • That the agreements are not anti-competitive i.e. they do not attempt/cause appreciable adverse effect on competition; and/or
  •  That they are not abusing their dominant position and are not imposing unfair or discriminatory conditions.      
The European courts have held that these conditions in the sporting sector are satisfied when a particular rule though restricting competition has a larger public objective and this objective can be achieved only by applying certain  restrictive rules that are  essential for the integrity, continuity, organization and conduct of the sport at national and international levels, and the rule is applied uniformly and transparently.

The Competition Commission of India is faced with a similar task today to recognize the specificity of sport and carve out exceptions in the Indian scenario. The decision of the CCI will have a huge impact on the Indian sport industry as many a corporate await a chance to start their own breakaway leagues and commercially gain from the revenues generated from these leagues.   

[The author is Senior Associate, Corporate Division, Lakshmikumaran & Sridharan, New Delhi]

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