Swimming case shows tension between sport and competition law

Out-Law Analysis | 21 Dec 2018 | 10:55 am | 9 min. read

ANALYSIS: A recent intervention by swimming's world governing body to disrupt the participation of athletes in a new international swimming league highlights the potential tension between rules for sport and competition law.

The case is one of a number that serve to highlight the scrutiny that rules set by sports bodies can come under where they impact on rival commercial events and the earning potential of athletes.

It is, however, possible for sports bodies to comply with competition laws when setting such rules by ensuring that they are limited to what is necessary for the proper functioning of the sport. This is not always obvious, however.

FINA v the international swimming league

On 15 November, the Italian Swimming Federation (ISF) announced that it had cancelled the 'Energy for Swim' event that it planned to host in Turin on 20 and 21 December. The event was intended to be the first in a new international swimming league.

The ISF said that it was "forced to cancel the event to protect the athletes" who had chosen to compete at 'Energy for Swim' because swimming's world governing body, FINA, had declared the event as "non approved" and threatened sanctions against swimmers that participated. According to media reports, FINA had warned athletes that competed at the event that they would be prohibited from participating in the world championships in South Korea in 2019.

The ISF said the Turin event, which was due to feature a number of world and Olympic gold medal swimmers, including Britain's Adam Peaty, was to be "a spectacular event designed to increase the interest of swimming, to further enhance the image of the participants and to generate deeper public interest and strong impact for the benefit of the entire swimming movement". Half of the revenues generated were to go to athletes, coaches and clubs, according to Swimming World Magazine.

FINA, though, defended its opposition to the 'Energy for Swim' event.

In a statement released on 16 November, it said: "Coordinating events in order to ensure a coherent competition calendar adds an extra level of complexity and this is a key criterion for FINA’s sanctioning of international competitions."

"The project of the Italian Swimming Federation to organise a swimming competition in Turin at short notice did not meet all the necessary FINA rulebook requirements. These requirements are in place to ensure that international competitions provide the best possible conditions to all participating athletes while maintaining a healthy calendar," it said.

FINA's rules prohibit affiliated national swimming federations from having "any kind of relationship with a non-affiliated or suspended body". The rules permit FINA to suspend individuals that breach that rule for between one and two years depending on the circumstances involved.

According to a BBC report, however, FINA could face a legal challenge over its stance in Europe. That report said that international swimming league organisers believe FINA to be in breach of EU law by "using its powers to restrict competition" and reducing the opportunity for swimmers to earn prize money. A case has already been lodged under US antitrust laws.

ISF president Paolo Barelli said: "We understand that this may be considered as anti-competitive conduct, which is not permitted under European Union law, which, as a European federation, [the ISF] must comply with. [The ISF] can only assume that Fina's true motive is to safeguard its dominant position as the sole and exclusive license holder of aquatics sports."

Peaty recently challenged Fina to follow through on its threat to ban him if he participates in the new swimming league.

"They can't get away with it because you'll lose all of the respect from the athletes and you can't bully them," Peaty said, according to the BBC.

In response to the potential new swimming league, Fina has outlined plans for a new Champions Swim Series, but the reported £4m in prize money available to swimmers is less than the reported £10m plus other incentives on offer in the new swimming league, according to the BBC's report.

How competition law applies to sport

EU competition rules generally prohibit organisations from putting in place agreements which may affect EU trade where those agreements "have as their object or effect the prevention, restriction or distortion of competition within the internal market". The rules also prohibit organisations from abusing a dominant position in their market. Those rules are contained under Articles 101 and 102 of the Treaty on the Functioning of the EU (TFEU). These rules are mirrored in chapters 1 and 2 of the UK's Competition Act 1998.

Rules of sporting bodies which are of purely sporting interest and, as such, have nothing to do with economic activity can fall outside the scope of the competition rules altogether. This exception for sporting rules has been acknowledged in a number of cases.

In a case involving swimmers David Meca-Medina and Igor Majcen, the Court of Justice of the EU (CJEU) clarified that sporting rules which pursue a legitimate objective, normally relating to "the organisation and proper conduct of competitive sport" may fall outside the scope of the competition rules but that the restrictions imposed must be "limited to what is necessary to ensure the proper conduct of the of competitive sport".

In its guidance on the application of the competition rules to sport, the European Commission states that: "The sporting rule must also be proportionate in relation to its objective in order for it not to infringe [Articles 101 or 102 of the TFEU] and must be applied in a transparent, objective and non-discriminatory manner."

The CJEU has determined that rules relating to the regulation of football player transfer periods have a legitimate sporting objective, aimed at protecting "the proper functioning of the championship as a whole". The objective of ensuring that negotiations with other clubs do not disrupt the proper functioning of a competition and maintain the integrity of the sport could therefore be considered a legitimate sporting objective.

It has also been acknowledged by CJEU that sporting bodies have a margin of discretion when it comes to deciding what is necessary or "inherent" in the organisation of a sport since they "normally have the necessary knowledge and expertise".

The International Skating Union decision

In recent years, the European Commission and national competition authorities have demonstrated increased interest in investigating sports governing bodies in response to numerous complaints based on the EU competition law rules. Some of these complaints relate to rules relating to the organisation of the sport.

Examples include a complaint raised by a football agent in relation to the UEFA financial fair play rules, which was ultimately rejected by the Commission, and a separate case where players' union FIFPro argued that FIFA's transfer rules and system maintained the disparity between the big football 'super clubs' and the rest. FIFPro withdrew its complaint in late 2017 after reaching an agreement with FIFA to make various changes to the rules.

Other complaints have tended to be aimed at rules of the governing bodies that restrict competing organisers of commercial sporting events. Such rules tend to operate by either obliging the organisers of competing events to comply with the rules of the sports governing body, or by penalising athletes for participating in events not sanctioned by the relevant governing body. The most important case in 2017 was the Commission's infringement decision against the International Skating Union (ISU), the governing body responsible for administering figure skating and speed skating.

The ISU was subject to a complaint by two Dutch professional speed skaters regarding its eligibility rules that included sanctions for athletes who participated in speed skating competitions that were not organised by the ISU itself. The skaters argued that this amounted to an infringement of EU competition laws. 

Following a formal investigation, the Commission considered that the ISU's eligibility rules did indeed amount to a breach of the rules. They provided for severe penalties on speed skaters that could lead to a lifetime ban from participating in all major international speed skating events. The Commission considered that these rules restricted competition to enable the ISU to pursue its own commercial interests, to the detriment of the athletes and to competing event organisers. The rules prevented independent organisers from putting together their own speed skating competitions.

No fines were imposed on the ISU but it was given 90 days to stop applying these rules or any similar restrictions. The ISU was instructed to either abolish or change its eligibility rules and to base them on legitimate objectives, excluding the ISU's own economic interests, proportionate to their aims.

In February this year, the ISU lodged an appeal against the Commission's infringement decision. It has argued that its eligibility rules do not have the object or effect of restricting competition, and that the Commission’s decision rested on a ‘fundamental contradiction’. The ISU has also raised jurisdictional arguments, including that its decision not to approve the 2014 Dubai Ice Derby fell outside the scope of the EU competition law rules.

The International Equestrian Federation case

Similar issues have also been raised in the equestrian sector.

In Belgium, the competition authority considered whether the International Equestrian Federation’s (FEI) rider invitation policy was anti-competitive. The policy applied to participation in the Global Champions League (GCL) and Global Champions Tour (GCT) competitions.

The FEI, GCL and GCT initially reached a settlement over revised participation rules, but the new policy was also challenged as anti-competitive by a Belgian horse rider and stable.

The complaint prompted Belgium's competition authority to impose an interim measure to ensure that at least 60% of invitations sent for the GCT were sent by reference to the riders' rankings and not on the basis of their GCT membership. The regulator followed up in April this year by imposing daily penalty payments on the FEI, the GCT and GCL after finding the participation rules had not been updated in accordance with competition rules.

However, in June, the Belgium competition authority's interim decision was annulled by the Brussels Court of Appeal, forcing the regulator to reconsider it’s the case for imposing interim measures. In October, the competition authority said there was not sufficient evidence to impose interim measures on the equestrian bodies. However, it stated at the time that its conclusions on that do not prejudge "the analysis on the merits" of the complaint raised by the rider and stable, which is to be ruled on.

On 20 December 2018 the competition authority announced that it had closed its investigation into the FEI on the basis that the FEI has committed to make "procedural and substantive changes" to address the competition concerns. The FEI said it was grateful to the regulator for working with it to reach "a mutually satisfactory resolution".

The Olympics and restrictions on athlete endorsements

The International Olympic Committee (IOC) and the German Olympic Sports Confederation (DOSB) have also come in for scrutiny in relation to restrictions on athlete endorsement deals.

The Federal Cartel Office in Germany (Bundeskartellamt) opened an investigation in 2017 in relation to rules imposed by the IOC and DOSB which prevent athletes competing in the Olympic Games from using their name, picture or sport performances for advertising purposes. This advertising restriction applies to all advertising and social media activities and covers the period from nine days before the opening ceremony until the third day after the closing ceremony of the Games.

In December last year, the Federal Cartel Office said it suspected that the advertising restrictions placed on athletes and companies can amount to an abuse of dominance by the IOC and DOSB and that it was reviewing the commitments which have been proposed by both sports bodies to relax the previous advertising restrictions. The regulator subsequently carried out a market test of the commitments proposed, but it has been reported that enforcement action is still being considered.

In its annual report for 2017, published in September this year, the Federal Cartel Office said: "The market test and the talks with third parties have shown that further adjustments and clarifications are required. The corresponding negotiations are ongoing. However, the changed DOSB guidelines was preliminarily applied during the Olympic Winter Games in Pyeongchang."

In a speech in early November, Thomas Bach, the president of the International Olympic Committee (IOC), said the funding of sport and athletes would be put at risk if the rules restricting advertising around the Olympics, known as 'rule 40', could no longer be applied.

"The big athletes are … contributing by accepting rule 40 about advertising to allow you and us to protect our sponsors so this model does not only support the big stars, but also all your Olympic team and the not so popular sports," Bach said, according to Inside the Games.

"If we give up or are forced to give up this model we will land on a purely market based model which means the financing of these smaller sports and younger athletes will become extremely difficult, if not impossible. The abandoning of rule 40 would mean the big stars would benefit, but none of the not so big stars or from the smaller sports, as no commercial company will run a campaign on an athlete they do not know yet," he said.

Restrictions are OK, if they can be justified

All sporting bodies need to ensure that their rules are proportionate and necessary in the interests of the sport as a whole, rather than purely for protecting their own commercial interests.

Sports bodies that cannot justify the rules they set in this way risk falling foul of EU competition laws. This could result in enforcement action by the authorities to force changes to the rules and hefty fines being imposed.

Angelique Bret and Paul Williams are experts in the application of competition law in sport at Pinsent Masons, the law firm behind Out-Law.com.