First published in NZ Lawyer 3 June 2011.
I will not rest until I have you holding a Coke, wearing your own shoe, playing a Sega game featuring you, while singing your own song in a new commercial, starring you, broadcast during the Superbowl, in a game that you are winning, and I will not sleep until that happens. (Jerry Maguire)
Sport is more than just a game. And while many will argue that sport is about passion, dedication and pride, it is quite evident that today sport is a significant commercial enterprise in its own right.
As with all other areas of commerce, competition and antitrust laws apply equally to sporting organisations as they do to all other spheres of business. While in New Zealand the Commerce Act has, at least to date, had a limited impact on New Zealand sport this is not the case around the world.
Since the line between business and sport continues to blur, there is no reason to believe this trend won't continue.
As soon as you take money for playing sport, it isn't sport, it's work. (Avery Brundage)
In New Zealand the intersection of sport and the Commerce Act – which (among other things) prohibits agreements that substantially lessen competition or that fix, control or maintain the price of goods or services – has largely been confined to rugby.
Soon after rugby went professional in the mid 1990s the New Zealand Rugby Union (NZRU) sought and was granted an authorisation by the Commerce Commission to put in place regulations providing for a four week transfer window for players, restricting the number of transfers to five per domestic team, and setting out maximum transfer fees that could be paid. Those regulations were authorised on the basis that they would create public benefit in various forms including creating a more competitive National Provincial Competition (NPC).
In 2006, following an extensive review of the national game the NZRU developed a new commercial model for the NPC. A key aspect of the review was to introduce a salary cap and the relaxation of transfer rules to mitigate some negative trends, such as lower spectator interest and decreasing revenues, it had begun to notice in the professional rugby market. The NZRU again sought authorisation and the Commission granted authorisation.
As the Commerce Act does not apply to employment agreements a key issue before the Commission at that time was whether rugby players were employees or contractors. At the time there was only one independently contracted player, but the Commission considered that as a result of a particular clause in the Collective Employment Agreement (CEA) there was potential for players to provide services to the NZRU under independent contract arrangements.
Accordingly, the Act applied and the Commission went on to assess the benefits and detriments of the salary cap which involved it again seeking to balance the potential benefits (a more even distribution of talent, a more balanced NPC, and greater public enjoyment of the game) against the detriments (including a loss of player talent etc).
On 31 March 2011 the Commission – in a rare move – revoked this authorisation on the grounds that there had been a material change in circumstances since the 2006 authorisation had been granted. That change was the conclusion of a new CEA in December 2009 under which all players participating in the NPC (now the ITM Cup) are required to be employees and cannot be engaged as independent contractors.
That change meant that the Act no longer applied to the CEA and hence no authorisation was required, freeing the Commission from having to opine on the public benefits of a closer ITM cup competition.
I'm tired of hearing about money, money, money, money, money. I just want to play the game, drink Pepsi, wear Reebok. (Shaquille O'Neal)
While the interaction of sport and competition law is rare in New Zealand, the US has a long history of sports teams and leagues being involved in antitrust cases.
A recent example is the US Supreme Court's 2010 decision in American Needle v NFL which involved a challenge to an agreement between NFL Properties and Reebok pursuant to which Reebok had the exclusive right to produce and sell trademarked headwear for all 32 NFL teams.
The plaintiff, American Needle, had previously enjoyed one of many licenses to sell NFL branded headwear. It commenced proceedings alleging the new exclusive agreement was anti-competitive and breached the US equivalent to section 27 of the Commerce Act (which prohibits agreements that substantially lessen competition).
The question before the Supreme Court was whether the 32 separately owned NFL franchises were separate entities – and hence competitors – or a single entity. The 32 teams equally owned NFL Properties which controlled the NFL's licensing contracts and the NFL argued that although it is comprised of separately owned and competing teams it functions as a "single entity."
The Supreme Court stated the inquiry was one of substance rather than form. The crux was whether the exclusive agreement joined together separate economic actors pursuing separate economic interests such that it deprived the marketplace of independent centres of decision making and thus of actual or potential competition or not.
While the Supreme Court recognised that all 32 teams shared an interest in making the NFL successful and profitable and that they needed to make a range of collective decisions, it also held that each of the teams is a substantial, independently owned, and independently managed business – "[t]he teams compete with one another, not only on the playing field, but to attract fans, for gate receipts and for contracts with managerial and playing personnel."
Specifically, the Court held that the 32 teams competed in the market for intellectual property and went on to say that "to a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks". Accordingly, it said that a decision to collectively license their separately owned trademarks deprived the marketplace of actual or potential competition and so should be considered as an agreement between competitors rather than as a unilateral decision of a single entity.
Serious sport has nothing to do with fair play.... it is war minus the shooting (George Orwell)
In Australia, rugby league has seen significant competition law action. One of the most graphic examples involved the Super League war in the mid 1990s. News Corporation started a new rugby league competition directly competing against the competition organised by the ARL.
The rugby league war involved numerous court battles, a key plank of those battles being whether in facilitating each of its constituent league clubs executing identical loyalty and commitment agreements in favour of the ARL was a breach of Australia's competition laws. ARL representatives had stressed to the clubs (individually) that the ARL "wanted to preserve the competition" and "the need for the clubs to remain unified", and that Super League was a "potential threat to the game" and that the ARL wanted "to ensure that all clubs stick together".
News Corporation challenged these agreements on the basis they comprised a broader contract, arrangement or understanding not to acquire services from News Corporation in breach of the prohibition on exclusionary provisions in the (then) Trade Practices Act.
The Full Federal Court concluded that each of the Commitment and Loyalty Agreements contained exclusionary provisions in breach of the (then) Trade Practices Act.